HEALTHSOUTH REHABILITATION CORP, S-11, 1994-04-22

HEALTHSOUTH REHABILITATION CORP
S-11, 1994-04-22
SPECIALTY OUTPATIENT FACILITIES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1994

REGISTRATION STATEMENT NO. 33-77788
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

FORM S-11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------

CRESCENT CAPITAL TRUST, INC.
(Exact name of Registrant as specified in its charter)

ONE PERIMETER PARK SOUTH, SUITE 335-S, BIRMINGHAM, ALABAMA 35243
(205) 967-2092
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

<TABLE>
<S> <C> <C>
MARYLAND JOHN W. MCROBERTS 63-1115479
(State of Incorporation) PRESIDENT AND CHIEF (IRS Employer Identification
EXECUTIVE OFFICER Number)
CRESCENT CAPITAL TRUST, INC.
ONE PERIMETER PARK SOUTH,
SUITE 335-S
BIRMINGHAM, ALABAMA 35243
(205) 967-2092
</TABLE>

(Name, address, including zip code, and telephone number, including area code,
of agent for service)

HEALTHSOUTH REHABILITATION CORPORATION
(Exact name of Co-Registrant as specified in its charter)

TWO PERIMETER PARK SOUTH, BIRMINGHAM, ALABAMA 35243
(205) 967-7116
(Address, including zip code, and telephone number, including area code, of
Co-Registrant's principal executive offices)

<TABLE>
<S> <C> <C>
DELAWARE RICHARD M. SCRUSHY 63-0860407
(State of Incorporation) CHAIRMAN OF THE BOARD, (IRS Employer
PRESIDENT AND CHIEF EXECUTIVE Identification Number)
OFFICER
HEALTHSOUTH REHABILITATION CORPORATION
TWO PERIMETER PARK SOUTH
BIRMINGHAM, ALABAMA 35243
(205) 967-7116
</TABLE>

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:

<TABLE>
<S> <C>
JOHN H. COOPER, ESQ. J. GREGORY MILMOE, ESQ.
SIROTE & PERMUTT, P.C. SKADDEN, ARPS, SLATE, MEAGHER & FLOM
2222 ARLINGTON AVENUE SOUTH 919 THIRD AVENUE
BIRMINGHAM, ALABAMA 35255-5727 NEW YORK, NY 10022
TEL: (205) 933-7111 TEL: 212-735-3000
FAX: (205) 930-5301 FAX: 212-735-2000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
---------------------
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH OFFERING PRICE AGGREGATE
CLASS OF SECURITIES AMOUNT TO BE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE(2) PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock............... 6,670,000(1) $20.00 $133,400,000 $46,000
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</TABLE>

(1) Includes up to 870,000 shares of Common Stock that may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

CRESCENT CAPITAL TRUST, INC.

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-11

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEMS LOCATION IN PROSPECTUS
------------------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
3. Summary Information and Risk Factors............. Prospectus Summary; Risk Factors
4. Determination of Offering Price.................. Outside Front Cover Page;
Underwriting
5. Dilution......................................... Dilution
6. Selling Security-Holders......................... *
7. Plan of Distribution............................. Outside Front Cover Page;
Underwriting
8. Use of Proceeds.................................. Use of Proceeds
9. Selected Financial Data.......................... Selected Historical and Pro Forma
Financial Information
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ Management's Discussion and Analysis
of Financial Condition and Results of
Operations
11. General Information as to Registrant............. Prospectus Summary; Risk Factors;
Management; Principal Stockholders;
Description of Securities
12. Policy with Respect to Certain Activities........ Investment and Other Policies;
Business; Management; Description of
Securities; Additional Information
13. Investment Policies of Registrant................ Business; Investment and Other
Policies
14. Description of Real Estate....................... Business
15. Operating Data................................... Business
16. Tax Treatment of Registrant and Its Security
Holders........................................ Federal Income Tax Considerations
17. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder
Matters........................................ Distributions to Stockholders;
Description of Securities
18. Description of Registrant's Securities........... Distributions to Stockholders;
Description of Securities
19. Legal Proceedings................................ Business
20. Security Ownership of Certain Beneficial Owners
and Management................................. Management; Principal Stockholders
21. Directors and Executive Officers................. Management
22. Executive Compensation........................... Management
23. Certain Relationships and Related Transactions... Risk Factors; Management
24. Selection, Management and Custody of Registrant's
Investments.................................... Business; Investment and Other
Policies
25. Policies with Respect to Certain Transactions.... Investment and Other Policies
26. Limitations of Liability......................... Management
27. Financial Statements and Information............. Financial Statements
28. Interests of Named Experts and Counsel........... *
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... *
</TABLE>

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

* Omitted as inapplicable.
<PAGE> 3

***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED APRIL 15, 1994

PROSPECTUS
5,800,000 SHARES
CRESCENT CAPITAL TRUST, INC.
COMMON STOCK
---------------------

All of the shares (the "Shares") of Common Stock, $.001 par value per share
(the "Common Stock"), offered hereby (the "Offering") are being issued and sold
by Crescent Capital Trust, Inc. (the "Company"), which will invest in a
diversified portfolio of income-producing healthcare-related real estate.
Concurrently with the consummation of this Offering, the Company intends to
acquire an initial portfolio of 20 properties (the "Initial Properties") to be
leased and operated by five healthcare operators. The lessees will include
subsidiaries of HEALTHSOUTH Rehabilitation Corporation ("HEALTHSOUTH"), OrNda
HealthCorp ("OrNda"), Integrated Health Services, Inc. ("Integrated Health"),
Quorum Health Group, Inc. ("Quorum") and Surgical Health Corporation ("Surgical
Health"). The Company expects to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), for
the year ended December 31, 1994, and to pay regular quarterly dividends,
beginning with a dividend for the remainder of the quarter ended June 30, 1994.
See "Distributions to Stockholders."

Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial offering price will be between
$18 and $20 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Company
intends to apply for listing of the Common Stock on the New York Stock Exchange
under the symbol " ."

See "Risk Factors" for certain factors relevant to an investment in the
Common Stock offered hereby, including the following:

- The Company is recently organized and has no operating history. Failure to
consummate the purchase of one or more properties could have an adverse
effect on the amount of distributions to stockholders.

- The ability of the Lessees of the properties to be acquired by the Company
to make lease payments as and when due is dependent in part upon no
material adverse change in existing government regulation and
reimbursement in the healthcare industry and on the financial condition of
such Lessees and the Guarantors of such payments.

- The Company will be taxed as a corporation if it fails to qualify as a
REIT. In order to qualify and to maintain the Company's qualification as a
REIT, direct and indirect beneficial ownership by any person or entity of
more than 9.8% in value of the outstanding Common Stock is restricted. See
"Description of Securities." This may have the effect of hindering
potential takeovers of the Company.

- The Company's Board of Directors has the authority to change the
investment policies of the Company without approval of the stockholders.

- While all of the Initial Properties have been appraised and are being
purchased by the Company at purchase prices not more than the appraised
value, appraisals are only estimates of value and should not be relied
upon as a precise measure of realizable value.

- The purchasers of the Shares will experience an immediate dilution in the
net tangible book value of the Common Stock.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<S> <C> <C> <C>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
THE PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share............................
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Total(3).............................
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</TABLE>

(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting offering expenses payable by the Company, estimated at
$400,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 870,000 additional Shares at the Price to the Public, less
Underwriting Discounts, solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to the
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively.
------------------------

The Common Stock is being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that the Common Stock offered hereby will be
available for delivery on or about , 1994, at the offices of Smith
Barney Shearson Inc., 388 Greenwich Street, New York, New York 10013.
------------------------

SMITH BARNEY SHEARSON INC.

, 1994
<PAGE> 4

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
---------------------

For United Kingdom purchasers: The Shares may not be offered or sold in the
United Kingdom other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent (except in circumstances
that do not constitute an offer to the public within the meaning of the
Companies Act 1985), and this Prospectus may only be issued or passed on to any
person in the United Kingdom if that person is of a kind described in Article
9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1988, as amended, or is a person to whom such document may otherwise
lawfully be issued or passed on.
---------------------

LOCATION OF INITIAL PROPERTIES

(Map)

<TABLE>
<CAPTION>
INITIAL PROPERTY LOCATION FACILITY TYPE
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<C> <S> <C> <C>
1. American Sports Medicine Institute Birmingham, AL Research Facility
2. Birmingham Medical Building I Birmingham, AL Ancillary Hospital Facility
3. Birmingham Medical Building II Birmingham, AL Ancillary Hospital Facility
4. One-7000 Building South Miami, FL Ancillary Hospital Facility
5. Larkin Medical Building South Miami, FL Ancillary Hospital Facility
6. Richmond Medical Building I Richmond, VA Ancillary Hospital Facility
7. Richmond Medical Building II Richmond, VA Ancillary Hospital Facility
8. Little Rock Little Rock, AR Outpatient Rehabilitation Facility
9. Coral Gables Coral Gables, FL Outpatient Rehabilitation Facility
10. Virginia Beach Virginia Beach, VA Outpatient Rehabilitation Facility
11. Midway Medical Plaza Los Angeles, CA Ancillary Hospital Facility
12. Mountain View Greensburg, PA Long-Term Care Facility
13. Gravois St. Louis, MO Sub-Acute Care Facility
14. Goodyear Clinic Gadsden, AL Ancillary Hospital Facility
15. Hamiter Building Gadsden, AL Ancillary Hospital Facility
16. Medical Building II Gadsden, AL Ancillary Hospital Facility
17. Desert Springs Las Vegas, NV Ancillary Hospital Facility
18. South County Medical Center St. Louis, MO Ambulatory Surgery Facility
19. Northlake Tucker, GA Ambulatory Surgery Facility
20. North Shore Evanston, IL Ambulatory Surgery Facility
</TABLE>

2
<PAGE> 5

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY............................... 5
The Company.................................... 5
Risk Factors................................... 7
Investment Objectives.......................... 9
The Offering................................... 9
Use of Proceeds................................ 9
Summary Historical and Pro Forma Financial
Information.................................. 10
Distributions to Stockholders.................. 11
Tax Status of the Company...................... 11
RISK FACTORS..................................... 12
Lack of Operating History and Inexperience of
Management in Operating a REIT............... 12
Less Cash Available for Distribution from
Failure to Purchase or Delay in Purchasing
Initial Properties........................... 12
Specific Risks Relating to Healthcare
Facilities................................... 12
Risks of Leverage and Default.................. 14
Board May Change Investment Policies........... 14
Dilution....................................... 14
Real Estate Investment Risks................... 15
Consequences of Failure to Quality as a REIT... 16
Restrictions on Transfer and Limitations on
Ownership of Capital Stock................... 16
Competition.................................... 16
Business Combinations; Anti-takeover Effects of
Certain Articles of Incorporation and Bylaw
Provisions................................... 17
Risks for IRAs and Investors Subject to
ERISA........................................ 17
Dependence on Key Personnel.................... 17
Conflicts of Interest.......................... 17
Appraisals..................................... 18
Absence of Prior Public Market for Common
Stock; Effect of Interest Rates.............. 18
USE OF PROCEEDS.................................. 19
DISTRIBUTIONS TO STOCKHOLDERS.................... 20
DILUTION......................................... 20
CAPITALIZATION................................... 21
SELECTED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION.................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 24
Overview....................................... 24
Results of Operations.......................... 24
Pro Forma Financial Information................ 24
Liquidity and Capital Resources................ 25
BUSINESS......................................... 26
Initial Properties............................. 26
Description of Guarantors, Lessees and Initial
Properties................................... 27
HEALTHSOUTH Initial Properties................. 27
OrNda Initial Property......................... 30
Integrated Health Initial Properties........... 31
Quorum Initial Properties...................... 32
Surgical Health Initial Properties............. 33
Acquisition of Initial Properties.............. 35
Appraisals..................................... 35

<CAPTION>
PAGE
-----
<S> <C>
Leases......................................... 36
Insurance...................................... 37
Medicaid, Medicare, Blue Cross and
Other Revenue................................
Future Acquisitions of Healthcare Facilities... 37
Government Regulation and Recent
Developments................................. 39
Regulatory Compliance.......................... 40
Environmental Matters.......................... 40
Company Offices................................ 41
Legal Proceedings.............................. 41
INVESTMENT AND OTHER POLICIES.................... 42
Investment Policy.............................. 42
Other Policies................................. 44
MANAGEMENT....................................... 46
Executive Compensation......................... 47
Compensation Committee and Insider
Participation in Compensation Decisions...... 48
Deferred Compensation Plan..................... 48
1994 Stock Incentive Plan...................... 49
Retirement Plans............................... 49
Compensation of Directors...................... 49
Indemnification of Directors and Officers...... 49
Insurance...................................... 50
Certain Transactions........................... 50
PRINCIPAL STOCKHOLDERS........................... 51
DESCRIPTION OF SECURITIES........................ 51
General........................................ 51
Common Stock................................... 51
Preferred Stock................................ 52
Restrictions on Transfer....................... 52
Dividend Reinvestment Plan..................... 53
Shares Eligible For Future Sale................ 53
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS......................................... 54
Removal of Directors........................... 54
Business Combinations.......................... 54
Control Share Acquisitions..................... 55
Amendment of the Articles of Incorporation..... 55
Dissolution of the Company..................... 55
Advance Notice of Director Nominations and New
Business..................................... 55
FEDERAL INCOME TAX CONSIDERATIONS................ 56
General........................................ 56
Taxation of the Company........................ 56
Taxation of Domestic Stockholders.............. 62
Taxation of Foreign Stockholders............... 63
Other Tax Consequences......................... 65
Dividend Reinvestment Plan..................... 65
ERISA CONSIDERATIONS............................. 65
UNDERWRITING..................................... 68
LEGAL MATTERS.................................... 69
EXPERTS.......................................... 69
AVAILABLE INFORMATION............................ 70
GLOSSARY......................................... 71
INDEX TO FINANCIAL STATEMENTS.................... F-1
</TABLE>

3
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[THIS PAGE INTENTIONALLY LEFT BLANK.]

4
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PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed descriptions and financial information and
statements appearing elsewhere in this Prospectus. Except as otherwise noted,
the information set forth in this Prospectus assumes (i) the acquisition of and
full payment for the 20 Initial Properties and (ii) no exercise of the
Underwriters' over-allotment option. As used herein, unless the context requires
otherwise, the term "Company" includes Crescent Capital Trust, Inc., a Maryland
corporation, and its subsidiaries. For the definition of capitalized terms not
otherwise defined herein, including certain proper names of sellers of Initial
Properties, Lessees, Guarantors and related parties, see "Glossary."

THE COMPANY

The Company was recently organized to qualify as an indefinite life real
estate investment trust. The Company intends to invest in a diversified
portfolio of healthcare properties. Upon completion of this Offering, the
Company will acquire and lease back the 20 Initial Properties to five healthcare
operators. The Lessees will include Subsidiaries of HEALTHSOUTH Rehabilitation
Corporation, OrNda HealthCorp, Integrated Health Services, Inc., Quorum Health
Group, Inc. and Surgical Health Corporation.

The Initial Properties are located in ten states primarily in the
southeastern and western regions of the United States and represent a variety of
facility types in diverse healthcare industry segments. The Initial Properties
will be acquired for an aggregate purchase price of $115.1 million and will
provide annual Base Rent to the Company of approximately $12.7 million. All of
the Initial Properties have been appraised and will be purchased at prices not
more than their respective appraised values. All of the Leases, which are Triple
Net Leases, provide for Additional Rent commencing after the first year. All of
the Leases have primary terms of 10 to 15 years and options to extend the term
at least 10 additional years. HEALTHSOUTH, Integrated Health, OrNda, Quorum and
Surgical Health are guarantors (the "Guarantors") of the obligations of their
respective Subsidiaries under the Leases. Each of the Guarantors has one or more
classes of publicly-traded debt or equity securities, except for Surgical
Health, which recently filed a registration statement with the Securities and
Exchange Commission ("SEC") relating to the issuance of senior subordinated
notes. The Company intends to close all of the Initial Properties into escrow on
or before the Effective Date of the Offering and to release the Initial
Properties from escrow as soon as practical after the closing of the Offering.

The Company's strategy is to become a leading provider of healthcare
facility capital by investing in a high quality portfolio of properties managed
by established operators, including long-term care, hospital management,
rehabilitation and alternate-site care companies. The Company intends to
diversify its portfolio by operator, geography, facility type and healthcare
industry segment. Its investment criteria emphasize the credit quality of the
lessee and any guarantor, competitive position of the property, attractiveness
of the industry segment and fit with the Company's existing portfolio. The
Company believes that there currently is significant demand for REIT financing
capital in the healthcare industry. In addition, the Company believes the
substantial healthcare industry experience and industry relationships of its
management and directors will help the Company identify, evaluate and complete
additional investments.

The Company has a written commitment for a $30 million line of credit (the
"Bank Credit Facility") from NationsBank of Georgia, N.A. ("NationsBank") with
which to fund a portion of the purchase price for the Initial Properties and to
fund additional investments. The Company may enter into interest rate swaps in
order to mitigate the effect of a rising interest rate environment on the cost
of the Bank Credit Facility.

The Company will be self-administered and self-managed and will not engage
or pay a separate advisor.

5
<PAGE> 8

The Initial Properties, which will not be subject to any previously
existing mortgage debt when acquired, are summarized in the following table by
Guarantor:

<TABLE>
<CAPTION>
INITIAL INITIAL PERCENTAGE
INITIAL PROPERTY PROPERTY LEASE OF
GUARANTOR NAME TYPE(1) TERM PURCHASE PRICE(2) PORTFOLIO(3)
- ---------------------------- ------------------------------------ -------- ------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
HEALTHSOUTH American Sports Medicine RF 15 $ 3,200,000 2.8%
Institute.........................
Birmingham Medical Building I....... AHF 15 4,700,000 4.1
Birmingham Medical Building II...... AHF 15 9,600,000 8.3
One-7000 Building................... AHF 15 13,250,000 11.5
Larkin Medical Building............. AHF 15 2,250,000 1.9
Richmond Medical Building I......... AHF 15 2,100,000 1.8
Richmond Medical Building II........ AHF 15 10,000,000 8.7
Little Rock......................... ORF 15 2,060,000 1.8
Coral Gables........................ ORF 15 2,300,000 2.0
Virginia Beach...................... ORF 15 1,460,000 1.3
------------------ ------
50,920,000 44.2
OrNda Midway Medical Plaza................ AHF 15 20,400,000 17.7
------------------ ------
20,400,000 17.7
Integrated Health Mountain View....................... LTCF 10 9,775,000 8.5
Gravois............................. SACF 10 8,500,000 7.4
------------------ ------
18,275,000 15.9
Quorum Goodyear Clinic..................... AHF 10 1,607,160 1.4
Hamiter Building.................... AHF 10 4,382,520 3.8
Medical Building II................. AHF 10 5,810,320 5.0
Desert Springs...................... AHF 10 4,700,000 4.1
------------------ ------
16,500,000 14.3
Surgical Health South County Medical Center(4)...... ASF 15 7,125,000(5) 6.2
Northlake........................... ASF 13 1,000,000 0.9
North Shore......................... ASF 15 880,000 0.8
------------------ ------
9,005,000 7.9
------------------ ------
Total $115,100,000 100.0%
------------------ ------
------------------ ------
</TABLE>

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

(1) RF means research facility, AHF means ancillary hospital facility, ORF means
outpatient rehabilitation facility, LTCF means long-term care facility, SACF
means sub-acute care facility and ASF means ambulatory surgery facility.
(2) Includes the purchase price for land, improvements, intangibles and fixtures
but does not include estimated net capitalized acquisition costs,
aggregating approximately $1.05 million.
(3) Based upon purchase price.
(4) Purchase is subject to completion of construction and the issuance of a
certificate of occupancy, which is expected to occur in May 1994. As of
April 15, 1994, leases had been signed for over 93% of the rentable space.
(5) The purchase price will equal the actual cost of construction plus $125,000
with a maximum of $7,325,000. The Company currently estimates a purchase
price of $7,125,000.

Ancillary hospital facilities, which are contiguous or adjacent to a
hospital, provide a variety of medical services such as diagnostic, outpatient
surgery and rehabilitation services, in addition to physician offices and
selected hospital support services. Outpatient rehabilitation facilities offer a
comprehensive range of rehabilitative healthcare services, including physical
therapy and occupational therapy, and focus predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries and various neurological/neuromuscular conditions. Long-term care
facilities generally provide a variety of extended care and services to the
elderly. Sub-acute care facilities provide monitoring, specialized care and
comprehensive rehabilitative therapy required by sub-acute and medically complex
patients. Ambulatory surgery centers provide various surgical procedures,
typically on an outpatient basis.

The Company may fund the purchase of additional properties by future equity
or debt financing or by reinvestment of proceeds from the sale of properties.
The Company may incur indebtedness and mortgage its properties in furtherance of
its activities. There are no restrictions on the number of mortgages which may
be

6
<PAGE> 9

placed on a single property. The Company's present policy prohibits incurring
debt (secured or unsecured) in excess of 50% of its total capitalization.
However, this debt limitation policy can be changed by the Board of Directors
without stockholder approval. Moreover, there are no Bylaws or other provisions
that require such limitation. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Investment and Other Policies."

The Company has agreed to reimburse the actual costs incurred by Crescent
Capital Partners (the "Partnership") on behalf of the Company up to $1,475,000
from the proceeds of the Offering. Crescent Capital Partners is an Alabama
general partnership, the partners of which are Richard M. Scrushy, John W.
McRoberts and Michael D. Martin. These costs relate to the activities of the
Partnership prior to the formation of the Company, including organizing the
Company, negotiating the acquisitions of the Initial Properties, performing due
diligence investigation related to the Initial Properties, performing corporate
work in contemplation of the Offering, preparing the Registration Statement,
providing interim financing for and closing the acquisition of the Initial
Properties, employee compensation (including salaries of the executive
officers), travel and overhead. In addition, John W. McRoberts, Richard M.
Scrushy, Michael D. Martin and HEALTHSOUTH (the "Founding Stockholders")
purchased 180,000 Shares for $.001 per share, which are valued at $3,420,000
based upon the midpoint of the filing range. See "Management -- Certain
Transactions" for more detailed information relating to the amounts to be
received by affiliates of the Company upon completion of the Offering, and
"Principal Stockholders" with respect to the stock ownership of such persons.

The Company's principal executive offices are located at One Perimeter Park
South, Suite 335-S, Birmingham, Alabama 35243, and its telephone number is (205)
967-2092.

RISK FACTORS

Prospective investors should consider carefully the matters discussed under
"Risk Factors" prior to making an investment decision regarding the Shares
offered hereby. Some of the significant considerations include:

- - Lack of Operating History and Inexperience of Management in Operating a
REIT. The Company has been recently organized and has no operating history.
The Company will be self-administered and therefore will not have a
third-party investment advisor. Management of the Company has not had prior
experience in operating a REIT.

- - Real Estate Investment Risks. Investments in the Initial Properties and any
additional properties in which the Company may invest in the future are
subject to risks, including illiquidity, typically associated with investments
in real estate. The Company intends to concentrate its investments in
healthcare-related properties and will be subject to the risks associated with
investing in a single industry.

- - Dependence on Lessees and Guarantors and Potential Reduction in Revenues. The
success of the Company's investments will be dependent upon the success of the
businesses of the Lessees and of the Guarantors of such Leases. There is no
assurance that the Company will be able to renew its Leases upon their
expiration or that unfavorable economic, demographic or competitive conditions
or industry reform will not adversely affect the financial condition of the
Lessees and/or the Guarantors and, consequently, Lease revenues and the value
of the Company's investment in the Initial Properties.

- - Environmental Risks and Cost of Remediation. Under various federal, state and
local environmental laws, ordinances and regulations, an owner of real
property, such as the Company, may be responsible for certain liabilities
relating to environmental risks, including the costs of remediation, which
could adversely affect the financial condition of the Company.

- - Development Projects. The Company may enter into build-to-suit type
agreements that by their terms require conversion to leases upon the
completion of the development of the property. Such activities, if undertaken,
might subject the Company to risks related to delays in construction, cost of
materials, financing availability, volatility in interest rates, labor
availability and other property development uncertainties.

7
<PAGE> 10

- - Healthcare Industry Risks. The healthcare industry is highly regulated by
federal and state laws, licensing requirements, property inspections,
reimbursement policies, regulations concerning capital and other expenditures
and certification requirements. The failure of any Lessee to comply with such
laws, requirements and regulations could affect its ability to operate the
property or properties which it leases from the Company. New federal or state
laws or regulations may be enacted or promulgated which would have a material
adverse effect on the Lessees, and in turn on the Company. Additionally, the
uncertainty associated with current proposals for comprehensive national
healthcare reform may adversely affect the Lessees and the Guarantors, and in
turn the Company.

- - Reduction in Dividends from Failure to Qualify as a REIT. If in any taxable
year the Company did not qualify as a REIT, it would be taxed as a corporation
and distributions to stockholders would not be deductible by the Company in
computing its taxable income. In addition, unless the Company were entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four succeeding years following
the year in which qualification was lost. Failure to so qualify, even in one
taxable year, could cause the Company to dramatically reduce its dividends.

- - Restrictions on Transfer and Limitations on Ownership of Shares. In order to
assist the Company in meeting certain tests applicable to REITs with respect
to the ownership of its capital stock, the Company's Articles of Incorporation
contain certain restrictions on the transfers of Common Stock. These
restrictions may deter acquisition of control of the Company by third parties.

- - Risks of Leverage and Default. Subject to any limitations on borrowings which
may be imposed under the Bank Credit Facility, the Company may borrow funds
and mortgage its properties in connection with the acquisition of additional
properties and for purposes of funding other capital and operating
expenditures. If the Company defaults on any loan secured by mortgages or
other security interests on any of its properties, the lenders may foreclose
on such property and the Company could lose its investment therein.

- - Change in Investment Policies. The Company's Board of Directors may change
the investment policies of the Company without stockholder approval. Such
policy changes may have adverse consequences to the Company.

- - Competition. The Company competes for property acquisitions with, among
others, healthcare providers, other healthcare-related REITs, real estate
partnerships and financial institutions. The Company's properties will be
subject to competition from the properties of other healthcare providers.

- - Dependence on Key Personnel. The Company is dependent on certain of its
executive officers.

- - Conflicts of Interest. Two of the nine directors of the Company are executive
officers and directors of HEALTHSOUTH. HEALTHSOUTH is a stockholder of the
Company and will be the lessee or guarantor of 10 of the Initial Properties to
be acquired from HEALTHSOUTH or its Subsidiaries (the "HEALTHSOUTH Initial
Properties"). Conflicts of interest exist in such directors' duties to holders
of the Company's Common Stock and to stockholders of HEALTHSOUTH. Two of the
nine directors of the Company are also directors of Integrated Health and
Surgical Health. Integrated Health and Surgical Health will be the Lessee or
Guarantor of two and three of the Initial Properties, respectively, to be
acquired from Integrated Health and Surgical Health or their respective
Subsidiaries. Conflicts of interest may arise in their duties to holders of
the Company's Common Stock and stockholders of Integrated Health and Surgical
Health, respectively.

- - Appraisals. While all of the Initial Properties have been appraised and are
being purchased by the Company at purchase prices not more than appraised
value, appraisals are only estimates of value and should not be relied upon as
a precise measure of realizable value. See "Business -- Appraisals."

- - Dilution. The purchasers of the Shares will experience an immediate dilution
in the net tangible book value per share of the Common Stock.

8
<PAGE> 11

INVESTMENT OBJECTIVES

The Company will seek to generate stable and increasing distributions
through a self-administered portfolio management program that will allow the
Company to maintain diversity and expand the Company's healthcare properties
portfolio. The Company's investment objectives are: (i) to generate current
income for stockholders; (ii) to provide increased returns to stockholders
through the acquisition and development of additional properties, which may
require the use of additional debt or equity financing; (iii) to provide
stockholders with the opportunity to realize capital growth resulting from
appreciation, if any, in the residual values of properties acquired; and (iv) to
preserve and protect stockholders' capital. There can be no assurance that the
Company will be successful in meeting these objectives. See "Risk Factors" and
"Investment and Other Policies."

THE OFFERING

<TABLE>
<S> <C>
Common Stock to be offered...................................... 5,800,000 shares(1)
Common Stock to be outstanding after the Offering............... 5,980,000 shares(2)
Proposed New York Stock Exchange Symbol.........................
</TABLE>

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

(1) Does not include up to 870,000 shares of Common Stock, if any, that may be
purchased by the several Underwriters to cover over-allotments or 418,600
shares reserved for issuance pursuant to the Company's 1994 Stock Incentive
Plan. See "Management -- 1994 Stock Incentive Plan."
(2) Includes 180,000 shares (the "Founders' Shares"), sold in connection with
the organization of the Company to the Company's Founding Stockholders for
an aggregate of $180 on March 31, 1994, of which 82,656 shares are owned by
Richard M. Scrushy, 71,280 shares are owned by HEALTHSOUTH, 18,000 shares
are owned by John W. McRoberts and 8,064 shares are owned by Michael D.
Martin. Each Founding Stockholder paid $.001 per share for the Founders'
Shares. See "Dilution" and "Principal Stockholders."

USE OF PROCEEDS

At the midpoint of the filing range, the net proceeds to the Company from
the sale of the Shares offered hereby are estimated to be approximately
$102,115,000 after deduction of estimated underwriting commissions and Offering
expenses. The purchase price of the Initial Properties, including net estimated
acquisition expenses of approximately $1,050,000, will be approximately
$116,150,000. All of the net proceeds will be applied against the purchase price
of the Initial Properties. The balance of the purchase price required for the
Initial Properties will be covered by borrowings of approximately $14,185,000
under the Bank Credit Facility. The acquisitions of the respective Initial
Properties are expected to take place as soon as practical after consummation of
the Offering or, in the case of the South County facility, as soon as practical
after the completion of its construction and the issuance by the proper
authority of a certificate of occupancy, which is expected to occur in May 1994.
As of April 15, 1994, leases had been signed for over 93% of the rentable space.
See "Business -- Initial Properties."

9
<PAGE> 12

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following table sets forth financial information for the Company which
is derived from the Balance Sheet and Pro Forma Financial Statements included
elsewhere in this Prospectus. The adjustments for the Offering assume an initial
public offering price at the mid-point of the filing range and that the
Underwriters' over-allotment option is not exercised.

Pro forma operating data is presented for the year ended December 31, 1993
and the three months ended March 31, 1994, as if the Offering and the
acquisitions of the Initial Properties by the Company had occurred, and as if
the respective Leases had been in effect, at January 1, 1993. The pro forma
balance sheet data is presented as of March 31, 1994, as if the Offering and the
transfers of the Initial Properties to the Company had occurred, and as if the
respective Leases had been in effect, at that date. The pro forma information
incorporates certain assumptions that are included in the notes to the Pro Forma
Financial Statements included elsewhere in this Prospectus. See "Selected
Historical and Pro Forma Financial Information" and "Pro Forma Financial
Statements." The pro forma information does not purport to represent what the
actual financial position or results of operations of the Company would have
been as of or for the periods indicated nor does it purport to represent any
future financial position or results of operations for any future period.

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED MARCH 31, 1994
--------------------------------------- YEAR ENDED DECEMBER 31, 1993
AS ADJUSTED FOR THE -----------------------------
OFFERING AND THE AS ADJUSTED FOR THE OFFERING
ACQUISITION OF THE AND THE ACQUISITION OF THE
HISTORICAL(1) INITIAL PROPERTIES INITIAL PROPERTIES
------------- --------------------- -----------------------------
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA:
Revenues.............................. -- $ 3,468,176 $13,872,706
Interest expense...................... -- 234,248 936,993
Net income............................ -- 2,278,616 9,114,463
Net income per share.................. -- $ 0.38 $ 1.52
Shares outstanding.................... 180,000 5,980,000 5,980,000
PRO FORMA BALANCE SHEET DATA:
Real estate properties, net........... -- $ 116,150,000
Total assets.......................... $ 180 116,300,000
Bank Credit Facility.................. -- 14,184,820
Total stockholders' equity............ 180 102,115,180
OTHER DATA:
Cash available for distribution(2).... -- $ 2,667,994 $10,671,971
Cash available for distribution per
share(2)........................... -- $ 0.45 $ 1.78
</TABLE>

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

(1) The Company was incorporated on March 31, 1994.
(2) Cash available for distribution is net income plus depreciation,
amortization and other non-cash items less accrued rental income.
Distributions in excess of net income generally constitute a return of
capital. Management considers cash available for distribution to be an
informative measure of the performance of an equity REIT and consistent with
measures used by analysts to evaluate equity REITs. Cash available for
distribution does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity.

10
<PAGE> 13

DISTRIBUTIONS TO STOCKHOLDERS

The Company intends to make quarterly distributions to stockholders of
approximately 85% to 95% of its cash available for distribution. In any event,
the Company intends to pay annual amounts at least sufficient to satisfy the
annual distribution requirements imposed on REITs. In general, such REIT
distribution requirements provide that at least 95% of the Company's REIT
taxable income must be distributed annually to stockholders, which on a pro
forma basis would equal $1.35 per share. See "Federal Income Tax
Considerations -- Taxation of the Company." The Company expects to distribute
dividends in excess of 95% of its REIT taxable income. Payment of dividends,
however, will be at the discretion of the Company's Board of Directors at all
times and will depend upon various factors including the Company's financial
condition, earnings, anticipated investments, and other relevant factors. Under
certain circumstances, it may be necessary for the Company to borrow or
liquidate investments to satisfy its REIT distribution requirements. See
"Federal Income Tax Considerations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

On a pro forma basis, aggregate Base Rent under the Leases results in cash
available for distribution of $1.78 per Share after deducting interest and
operating expenses. Such cash available for distribution does not give effect to
any delay in the acquisition of or failure to acquire the Initial Properties, to
any payments of Additional Rent, to the acquisition of any properties in
addition to those identified in this Prospectus or the incurrence of
indebtedness in connection therewith. No assurance can be given that the Initial
Properties will perform as expected or that the anticipated cash available for
distribution will be obtained. On a 1993 pro forma basis, approximately 11% to
21% of the distributions anticipated to be made by the Company represent return
of capital for federal income tax purposes and, therefore, would not be subject
to current federal income tax. Such nontaxable distributions would reduce a
stockholder's tax basis in its Common Stock and any gain or loss recognized on
the subsequent sale of such Shares or upon liquidation of the Company would be
increased or reduced accordingly. Any distributions that exceed a stockholder's
basis in its Common Stock would be treated as gain from the sale or exchange of
such Common Stock for federal income tax purposes. See "Distributions to
Stockholders" and "Pro Forma Financial Statements."

For each of the first six quarters in which dividends are paid by the
Company, the Founders' have consented to contribute to the Company the after-tax
portion of any dividends distributed to them for such quarter if (i) the
annualized dividends paid in such quarter do not exceed $1.70 per share ($0.425
per share per quarter) or (ii) the aggregate dividends paid in such quarter on
the outstanding shares exceed 95% of the cash available for distribution for the
relevant quarterly period.

TAX STATUS OF THE COMPANY

The Company intends to qualify and to make an election to be taxed as a
REIT under Section 856(c) of the Code, commencing with its taxable year ending
December 31, 1994. If the Company so qualifies and elects taxation as a REIT,
the Company generally will not be subject to federal income tax to the extent
that it distributes its REIT taxable income to stockholders. REITs are subject
to a number of organizational and operational requirements. If the Company fails
to qualify as a REIT in any taxable year, the Company will be subject to federal
income tax (including any alternative minimum tax) on its taxable income at
regular corporate rates. See "Risk Factors" and "Federal Income Tax
Considerations" for a more detailed discussion of the consequences of the
failure of the Company to qualify as a REIT. Even if the Company qualifies as a
REIT, the Company may be subject to state and local taxes on its income and
property and federal income and excise taxes on its undistributed income.

11
<PAGE> 14

RISK FACTORS

An investment in the Common Stock involves various risks. There can be no
assurance that the Company will achieve its investment objectives. In addition
to general investment risks and those factors set forth elsewhere in this
Prospectus, investors should consider the following factors before making a
decision to purchase Shares.

LACK OF OPERATING HISTORY AND INEXPERIENCE OF MANAGEMENT IN OPERATING A REIT

The Company has been recently organized and has no operating history. The
Company will be self-administered and therefore will not have a third-party
investment advisor. The Company's Board of Directors and executive officers will
have overall responsibility for management of the Company. Although certain of
the Company's officers and directors have extensive experience in the
acquisition, development, financing and leasing of real properties and certain
of the Company's directors have extensive experience in the operation of
healthcare facilities and publicly-owned corporations, no officer has prior
experience in the healthcare industry nor in operating a business in accordance
with the Code requirements for maintaining qualification as a REIT. Failure to
maintain REIT status would have an adverse effect on the Company's ability to
make anticipated distributions to stockholders. There can be no assurance that
the past experience of management will be appropriate to the business of the
Company. See "Management."

LESS CASH AVAILABLE FOR DISTRIBUTION FROM FAILURE TO PURCHASE OR DELAY IN
PURCHASING THE INITIAL PROPERTIES

The purchase of one or more of the Initial Properties may not be
consummated or may be delayed for various reasons, such as the occurrence of
significant casualty losses or, in the case of the South County Medical Center
facility, any delays in construction. If the acquisition of any of the Initial
Properties is not consummated prior to the closing date specified in the
respective Purchase Agreements, the seller of such Initial Property may not be
obligated thereafter to sell such Initial Property to the Company. The Company
intends to close the purchase of the Initial Properties into escrow on or before
the Effective Date of the Offering, and such Initial Properties will be released
from escrow as soon as practical after the closing of the Offering, except for
the South County Medical Center facility, which will be acquired as soon as
practical after the completion of its construction and the issuance by the
proper authority of a certificate of occupancy, which is expected to occur in
May 1994. As of April 15, 1994, leases had been signed for over 93% of the
rentable space in the South County Medical Center. Pending identification and
acquisition of alternative properties to purchase, should the consummation of
the purchase of any of the Initial Properties not occur as and when planned, the
funds intended for such acquisition will be invested in accordance with the
Company's investment policies. The anticipated yield on such interim
investments, if made, will be substantially less than the expected return on the
Initial Properties and the other real estate investments that the Company will
seek to make and less than the anticipated level of distributions to the
Company's stockholders.

In addition, if the purchase of any of the Initial Properties does not
occur, there can be no assurance that the terms of the Lease for any property
acquired in substitution for such Initial Properties will be as advantageous to
the Company as those pertaining to the property that was not acquired. If this
occurs, there may be an adverse effect on the Company's ability to make the
anticipated distributions to stockholders.

SPECIFIC RISKS RELATING TO HEALTHCARE FACILITIES

Lessees' Reliance on Government Reimbursement. A significant portion of
the revenue of the Lessees and the Guarantors is derived from government
reimbursement programs, such as Medicare and Medicaid. Although lease payments
to the Company are not directly linked to the level of government reimbursement,
to the extent that changes in these programs have a material adverse affect on
the Lessees, such changes could have an impact on their ability to make lease
payments. The Medicare program is highly regulated and subject to frequent and
substantial changes. In recent years, fundamental changes in the Medicare
program (including the implementation of a prospective payment system ("PPS") in
which facilities are reimbursed generally a flat amount based on a patient's
diagnosis and not based on the facility's cost for inpatient services at medical
surgical hospitals) have resulted in reduced levels of payment for a substantial
portion of healthcare services.

12
<PAGE> 15

The Medicaid program is a federally-mandated, state-run program providing
benefits to low income and other eligible persons and is funded through a
combination of state and federal funding. The method of reimbursement under
Medicaid varies from state to state, but is typically based on rates negotiated
between the provider and the state, or is based on per diem or per diagnosis
rates similar to Medicare. Moreover, healthcare facilities have experienced
increasing pressures from private payors attempting to control healthcare costs
that have reduced reimbursement to levels approaching that of government payors.
See "Business -- Government Regulation."

Considerable uncertainties surround the future determination of payment
levels under government reimbursement programs. In addition, future budget
reductions in government financed programs could significantly reduce payments
made to Lessees and Guarantors, and there can be no assurance that future
payment rates will be sufficient to cover cost increases in providing services
to patients. Reductions in payments pursuant to government healthcare programs
could have an adverse impact on a Lessee's or Guarantor's financial condition
and, therefore, could adversely affect the ability of the Lessee or Guarantor to
make rental payments.

Impact of Reduced Occupancy Rates in Hospitals Adjacent to Ancillary
Hospital Facilities Being Acquired. Most of the hospitals adjacent to the
ancillary hospital facilities being acquired are substantially less than fully
occupied on an inpatient basis. Despite such occupancy rates, however, the
Company believes that operating cash flow produced by such hospitals will
adequately cover rental payments to the Company on a pro forma basis. See
information regarding annual coverage ratios under the caption
"Business -- Initial Properties." If the inpatient occupancy rate at such a
hospital were to deteriorate to a level at which operating cash flow would be
insufficient to cover the rental payments to the Company on the particular
ancillary hospital facility, the Company would have to rely upon the general
credit of the Lessee or the related Guarantor.

Healthcare Reform. The healthcare industry is undergoing significant
changes as third-party payors attempt to control the cost, utilization and
delivery of healthcare services. In addition, President Clinton recently
announced a comprehensive healthcare reform proposal which includes such
elements as universal coverage and the acquisition of coverage through regional
health alliances. Political and other cost-control initiatives regarding the
cost and delivery of healthcare are also currently being considered, and
reductions in payments to physicians or other changes in reimbursement for
healthcare services by other third-party payors could materially adversely
affect the financial condition of the tenants of some of the Initial Properties.
Substantially all of the tenants of the Initial Properties are in the medical
profession and the Company believes that such tenants are dependent on payment
for their services by third-party payors. No assurance can be given whether or
to what extent, if any, the President's healthcare proposals will be enacted
into law, or what effect any such proposals or subsequent legislation, if any,
or other changes regarding healthcare would have on the financial condition of
the tenants of the Initial Properties and their ability to make lease payments
or renew leases.

Proximity to Hospitals. Some of the Initial Properties are in close
proximity to one or more hospitals. The relocation or closure of a hospital
could make the Company's Initial Properties in such area less desirable to
doctors affiliated with such hospital and affect the Lessee's ability to renew
leases and attract new tenants.

Government Regulation of Healthcare Industry. The healthcare industry is
highly regulated by federal, state and local law, state and local licensing
requirements, facility inspections, reimbursement policies, regulations
concerning capital and other expenditures, certification requirements and other
laws, regulations and rules. The failure of any Lessee or sublessee to comply
with such laws, requirements and regulations could affect the Lessee's ability
to operate the Initial Property or Initial Properties which it leases from the
Company.

Potential Operator Loss of License or Certification. Healthcare operators
are subject to federal and state laws and regulations which govern financial and
other arrangements between healthcare providers. These laws prohibit certain
direct and indirect payments or fee-splitting arrangements between healthcare
providers that are designed to induce or encourage the referral of patients to,
or the recommendation of, a particular provider for medical products and
services. They also require compliance with a variety of safety, health and
other

13
<PAGE> 16

requirements relating to the conditions of the licensed facility and quality of
care provided. Possible sanctions for violation of these laws and regulations
include loss of license or certification and the imposition of civil monetary
and criminal penalties.

In certain circumstances, conviction of abusive or fraudulent behavior with
respect to one facility may subject other facilities under common control or
ownership to disqualification from participation in the Medicare and Medicaid
programs.

Because this area of the law currently is subject to intense scrutiny,
additional laws and regulations may be enacted which could require changes in
certain operations of the Lessees and sublessees of the Company's Initial
Properties. A Lessee's loss of license or Medicare/Medicaid certification could
result in the Company having to obtain another Lessee for the affected Initial
Property. No assurances can be given that the Company could contract with such a
Lessee on a timely basis or on acceptable terms and a failure of the Company to
do so could have an adverse effect on the Company's revenues.

Limitations on Transfers and Alternative Uses of Initial
Properties. Transfers of operations of certain healthcare facilities are
subject to regulatory approvals not required for transfers of other types of
commercial operations and other types of real estate. In addition, certain of
the Initial Properties are special purpose facilities that may not be easily
adaptable to non-healthcare-related uses.

RISKS OF LEVERAGE AND DEFAULT

The Company may incur indebtedness and mortgage its properties in
furtherance of its activities. The Company's present policy prohibits incurring
debt (secured or unsecured) in excess of 50% of total capitalization. However,
this limitation can be changed by the Board of Directors without stockholder
approval. Moveover, there are no Bylaws or other provisions which require such
limitation.

The Company may borrow funds and mortgage its properties in connection with
the acquisition of additional properties and for purposes of funding other
capital and operating expenditures, including expenditures relating to the
renovation, modification or expansion of Initial Properties. In addition, the
Company may be required to borrow money and/or mortgage its properties to fund
any cash shortfall in order to meet its cash distribution requirements if 95% of
the Company's REIT taxable income exceeds its cash available for distribution.
See "Investment and Other Policies." The Company expects that in the definitive
agreements for the Bank Credit Facility it will be prohibited from declaring or
paying dividends (other than as the Company determines is necessary to maintain
its status as a REIT for federal income tax purposes) if at the time of such
action an event of default under the Bank Credit Facility has occurred and is
continuing or would exist immediately after giving effect to such action. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Any borrowings, including borrowings under the Bank Credit Facility, as
well as the resulting interest expense and principal repayments therefrom, could
negatively affect the Company's cash available for distribution. If the Company
defaults on any loan secured by mortgages the Company may place on any of its
properties, the lenders may foreclose on such property and the Company could
lose its investment therein. The degree of risk associated with borrowings will
increase if the Company borrows on terms involving a variable interest rate or a
"balloon" payment at maturity.

BOARD MAY CHANGE INVESTMENT POLICIES

The Company's Board of Directors may change the investment policies of the
Company without stockholder approval. Such policy changes may have adverse
consequences on the Company.

DILUTION

The purchasers of the Shares offered hereby will experience immediate
dilution of $1.924 per share in the net tangible book value ($1.846 per share
assuming full exercise of the Underwriters' over-allotment option).

14
<PAGE> 17

REAL ESTATE INVESTMENT RISKS

Illiquidity of Real Estate Investments. Investments in the Initial
Properties or properties in which the Company may invest in the future are
subject to risks typically associated with investments in real estate. Equity
investments in real estate are relatively illiquid, and, therefore, the ability
of the Company to vary its portfolio in response to changed conditions will be
limited.

Lack of Industry Diversification. While the Company is authorized to
invest in various types of income-producing real estate, its current strategy is
to acquire and hold, for long-term investment, healthcare-related properties.
Consequently, the Company currently has chosen not to include assets selected to
reduce risks associated with an investment in real estate in the healthcare
industry, and will be subject to the risks associated with investments in a
single industry.

Reliance on Lessees and Guarantors. The success of the Company's
investments in the Initial Properties will be dependent on the success of the
business of the Lessees and on the Guarantors with respect to each Lease. The
operating results of the Initial Properties underlying the Company's investments
will depend upon various factors over which the Company will have no control and
which may affect the present or future cash flows of the Company. Those factors
include general economic conditions, changes in the supply of, or demand for,
competing healthcare facilities, changes in occupancy levels, the ability of the
Lessees through rate increases or otherwise to absorb increases in operating
expenses and changes in government regulations and zoning laws.

No assurance can be given that a Lessee will exercise any option to renew
its Lease upon the expiration of the initial term. In such an instance, the
Company may not be able to locate a qualified purchaser or a qualified
replacement tenant, as a result of which it would lose a source of revenue while
remaining responsible for the payment of its obligations.

Environmental Risks and Cost of Remediation. Under various federal, state
and local environmental laws, ordinances and regulations, an owner of real
property (such as the Company will be) may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, under or disposed of in
connection with such property, as well as certain other potential costs relating
to hazardous or toxic substances (including government fines and injuries to
persons and adjacent property). Such laws often impose liability without regard
to whether the owner knew of, or was responsible for, the presence or disposal
of such substances and may be imposed on the owner in connection with the
activities of an operator of the property. The cost of any required remediation,
removal, fines or personal or property damages and the owner's liability
therefor could exceed the value of the property and/or the aggregate assets of
the owner. In addition, the presence of such substances, or the failure to
properly dispose of or remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral, which in turn would reduce the Company's revenues and ability to
make distributions.

Although the Purchase Agreements and the Leases require the seller or
Lessee, as the case may be, to indemnify the Company for certain environmental
liabilities, the scope of such obligations may be limited and there can be no
assurances that any such seller or Lessee will be able to fulfill its
indemnification obligations. Nor can there be any assurance that those
indemnities will be sufficient to cover any liability for any or all of the
hazardous substances that may exist at the Initial Properties. See
"Business -- Environmental Matters."

Development Projects. The Company's investment policies permit it to enter
into build-to-suit type agreements that by their terms require conversion to
leases upon the completion of the development of the facility. The Initial
Properties do not include any development projects. Such activities, if
undertaken, might subject the Company to risks related to delays in
construction, cost of materials, financing availability, volatility in interest
rates, labor availability and other property development uncertainties.
Development projects are generally considered to involve greater risks than the
sale and lease-back of operating properties. See "Investment and Other
Policies -- Investment Policy." Although the Company will attempt to minimize
the risks associated with development activities, including obtaining additional
forms of security and collateral beyond that provided by the Leases, no
assurances can be given that such additional security will be effective.

15
<PAGE> 18

CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

The Company intends at all times to elect and operate so as to qualify as a
REIT. If the Company qualifies as a REIT, it will generally be allowed a
deduction for dividends paid to its stockholders in computing its federal
taxable income. This treatment substantially eliminates the "double taxation" of
corporate earnings. If in any taxable year the Company did not qualify as a
REIT, it would be taxed as a corporation and distributions to stockholders would
not be deductible by the Company in computing taxable income. In addition,
unless the Company were entitled to relief under certain statutory provisions,
the Company would also be disqualified from electing treatment as a REIT for the
four succeeding years following the year in which qualification was lost.
Failure to so qualify, even in one taxable year, could cause the Company to
dramatically reduce its dividends.

To qualify as a REIT, the Company will be required, among other things, to
distribute at least 95% of its REIT taxable income to stockholders each year. In
order to maintain status as a REIT, the Company must satisfy certain
requirements on a continuing basis, which requirements may substantially affect
day-to-day decision making by the Company. No assurance can be given that the
Company will at all times satisfy these tests. Possible timing differences
between receipt of income and payment of expenses, and the inclusion and
deduction of such amounts in determining taxable income, could require the
Company to reduce its dividends below the level necessary to maintain its
qualification as a REIT, which would adversely affect the Company's ability to
maintain REIT status. See "Federal Income Tax Considerations -- Taxation of the
Company."

Even if the Company qualifies as a REIT, certain transactions or other
events could result in the imposition of federal tax at rates ranging from four
percent to 100% on certain types of the Company's income or gains.

RESTRICTIONS ON TRANSFER AND LIMITATIONS ON OWNERSHIP OF CAPITAL STOCK

For the Company to qualify as a REIT in any taxable year (other than the
first year for which the Company elects to be taxed as a REIT), no more than 50%
in value of its outstanding capital stock may be owned directly, or indirectly
by attribution, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the second half of the Company's taxable
year. In addition (other than during the first year for which the Company elects
to be treated as a REIT), the outstanding stock must be owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportional part of a shorter taxable year. See "Federal Income Tax
Considerations."

Because of the stock ownership requirements applicable to REITs, the
Company's Articles of Incorporation contain restrictions on transfer of its
stock. Such restrictions authorize the Company to refuse to transfer stock to
any person, if as a result of such transfer such person or entity would
beneficially own stock in excess of 9.8% in value of the outstanding stock of
the Company ("Excess Shares"). Such provisions may inhibit market activity and
the resulting opportunity for stockholders to realize a premium for their Common
Stock that might otherwise exist if a stockholder were attempting to assemble a
block of stock in excess of 9.8% in value of the outstanding stock. Also, there
can be no assurance that such provisions will in fact enable the Company to meet
the relevant REIT stock ownership requirements.

COMPETITION

The Company will be competing for additional investments with, among other
investors, healthcare providers, other healthcare related REITs, real estate
partnerships and financial institutions. Certain of these investors may have
greater capital resources than the Company.

All of the Initial Properties operate in a competitive environment, and
patients and referral sources, including physicians, may change their
preferences for a healthcare facility from time to time. The Initial Properties
compete with other similar facilities in their various locations for the support
of the medical community. Additionally, other healthcare facilities in which the
Company may invest will likely compete with similar facilities for the support
of the medical community and the general public. Some significant competitive
factors for the placing of physicians in ancillary hospital facilities and
patients in medical facilities

16
<PAGE> 19

include reputation, physical appearance of the facilities, services offered,
quality of care, family preferences, physician services, location and price. See
"Business."

BUSINESS COMBINATIONS; ANTI-TAKEOVER EFFECTS OF CERTAIN ARTICLES OF
INCORPORATION AND BYLAW PROVISIONS

The Maryland law regarding Business Combinations (as defined under Maryland
law) require that certain transactions be approved by the holders of 80% of the
outstanding voting shares of the Company. See "Description of Securities."

In addition, the Company's Articles of Incorporation and Bylaws contain
certain provisions that could have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. Such provisions could limit the price that
certain investors might be willing to pay in the future for the Shares. These
provisions include blank check preferred stock, super-majority voting provisions
and the application of Maryland corporate law provisions on Business
Combinations and Control Shares. See "Certain Provisions of Maryland Law and the
Company's Articles of Incorporation and Bylaws."

The Company's Articles of Incorporation allow the Board of Directors to
classify or reclassify any unissued shares of the Company's capital stock and to
determine the terms of the preferred stock, which may be issued by the Company
without stockholder approval. If issued, preferred stock would have preference
over the Common Stock with respect to dividends, liquidation distributions and
other matters as determined by the Board of Directors. The ability of the
Company to issue preferred stock in such manner could enable the Board of
Directors to prevent changes in management and control of the Company.

RISKS FOR IRAS AND INVESTORS SUBJECT TO ERISA

Fiduciaries of individual retirement accounts or other pension, profit
sharing or employee benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), should consider whether an
investment in Shares satisfies the diversification requirements of ERISA and
whether the investment is prudent in light of the possible limitations on the
marketability of the Shares. See "Employee Plans and Individual Retirement
Accounts." In addition, some or all of the distributions by a REIT to a tax-
exempt employee's pension fund that owns more than 10 percent in value of such
REIT may be treated as unrelated business taxable income ("UBTI") under the Code
if the REIT constitutes a "pension-held REIT" and if other conditions are met.
The Company does not expect that it will be a "pension-held REIT" for federal
income tax purposes. See "Federal Income Tax Considerations -- Taxation of
Domestic Stockholders -- Taxation of Tax Exempt Stockholders."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive officers, Messrs.
McRoberts, Harlan and Kizer. The loss of the services of any one of these
individuals could have a material adverse effect on the performance of the
Company.

CONFLICTS OF INTEREST

A conflict of interest exists between the Company and HEALTHSOUTH with
respect to the sale of the HEALTHSOUTH Initial Properties to the Company and the
lease of the HEALTHSOUTH Initial Properties by the Company to HEALTHSOUTH and
Subsidiaries of HEALTHSOUTH. The acquisition price of each of the HEALTHSOUTH
Initial Properties has been determined based upon rentals, operating history,
age, location and condition of the property and other relevant factors,
including appraisals. The appraised value of the HEALTHSOUTH Initial Properties
is approximately $54,070,000. The Company will pay $50,920,000 in cash to
HEALTHSOUTH and its Subsidiaries for the HEALTHSOUTH Initial Properties. See
"Business -- Appraisals."

Two of the nine directors of the Company are executive officers and
directors of HEALTHSOUTH. Conflicts of interest exist with respect to their
duties to Company stockholders and HEALTHSOUTH

17
<PAGE> 20

stockholders. There may from time to time be disputes between the Company as
landlord and HEALTHSOUTH and Subsidiaries of HEALTHSOUTH as tenants with respect
to maintenance, repairs, defaults, and similar items. It is also possible that
the Company will engage in other transactions with HEALTHSOUTH or its
Subsidiaries in addition to acquiring and leasing the HEALTHSOUTH Initial
Properties, such as purchasing additional properties from HEALTHSOUTH or its
Subsidiaries and leasing back all or a portion of such additional properties. As
a result, conflicts of interest between the Company and HEALTHSOUTH may arise
under certain circumstances.

Two of the nine directors of the Company are also directors of Integrated
Health and Surgical Health. A conflict of interest also exists between the
Company and Integrated Health and Surgical Health with respect to the sale to
the Company of certain of the Initial Properties owned by Integrated Health and
Surgical Health or their Subsidiaries, and the lease of those Initial Properties
from the Company to Integrated Health and Surgical Health or their Subsidiaries.
The acquisition prices of each of the Initial Properties acquired from
Integrated Health and Surgical Health or their Subsidiaries, have been
determined based upon rentals, operating history, age, location and condition of
the property and other relevant factors, including appraisals. The appraised
values of the Initial Properties acquired from Integrated Health and Surgical
Health or their Subsidiaries, are $18,300,000 and $9,212,000, respectively. The
Company will pay $18,275,000 and $9,005,000 in cash for the Initial Properties
acquired from Integrated Health and Surgical Health or their Subsidiaries,
respectively.

The Company's Bylaws require that any transactions (including a property
acquisition) between the Company and any of its officers and directors or their
affiliates be approved by a majority of the directors not interested in such
transaction, including a majority of the Disinterested Directors and such
directors must conclude that the terms of the transaction are fair and
reasonable and are no less favorable than can be obtained from unaffiliated
third parties.

APPRAISALS

While all of the Initial Properties have been appraised and are being
purchased by the Company at purchase prices not more than the appraised value,
appraisals are only estimates of value and should not be relied upon as a
precise measure of realizable value. Investors should exercise caution in
evaluating appraisal results. See "Business -- Appraisals."

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK; EFFECT OF INTEREST RATES

Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market will
develop or be sustained following the Offering or that purchasers of the Common
Stock in the Offering will be able to liquidate their investments or to resell
such Common Stock at or above the initial offering price. The initial public
offering price will be determined through negotiations between the Company and
the Representatives of the Underwriters and may not be indicative of the market
price of the Common Stock after the Offering. See "Underwriting" for a
description of the factors to be considered by the Company and the Underwriters
in setting the initial public offering price of the Common Stock. The market
value of the Common Stock could be substantially influenced by general market
conditions. In addition, since the market price of common stock of a
publicly-traded REIT such as the Company is determined in part by the
attractiveness of the yield on such common stock in relation to prevailing
interest rates, an increase in interest rates could adversely affect the market
price of the Common Stock. Moreover, numerous other factors, such as government
regulatory action and tax laws, could have a significant impact on the future
market price of the Common Stock.

18
<PAGE> 21

USE OF PROCEEDS

At the mid point of the filing range, the net proceeds to the Company from
the sale of the Shares offered hereby are estimated to be approximately
$102,115,000 after deduction of estimated underwriting commissions and Offering
expenses. The purchase price of the Initial Properties, including net estimated
acquisition expenses of approximately $1,050,000, will be approximately
$116,150,000. All of the net proceeds will be applied against the purchase price
of the Initial Properties. The balance of the purchase price required for the
Initial Properties will be covered by borrowings of approximately $14,185,000
under the Bank Credit Facility. The Company intends to close all of the Initial
Properties into escrow on or before the Effective Date of the Offering, and such
Initial Properties will be released from escrow as soon as practical after the
closing of the Offering, except for the South County Medical Center facility
which will be acquired as soon as practical after the completion of its
construction and the issuance by the proper authority of a certificate of
occupancy which is expected to occur in May 1994. As of April 15, 1994, leases
had been signed for over 93% of the rentable space in the South County Medical
Center. See "Business -- Initial Properties."

Any net proceeds from the exercise of the Underwriters' over-allotment
option will be invested in short-term investment grade instruments,
interest-bearing bank accounts or certificates of deposit, money market
securities, U.S. government securities and mortgage-backed securities guaranteed
by U.S. federal agencies, mortgage loans, mortgage participation and certain
other similar investments, pending their use. Such funds will be used, along
with funds available from the Bank Credit Facility, to acquire additional
properties consistent with the Company's investment policies.

The Company has obtained a written commitment from NationsBank for a $30
million Bank Credit Facility to finance a portion of the purchase price for the
Initial Properties, the acquisition of additional properties and for general
corporate purposes. The Bank Credit Facility will contain customary financial
covenants. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

The Company has agreed to reimburse, upon closing of the Offering, the
actual costs incurred by the Partnership on behalf of the Company from the
proceeds of the Offering. These costs relate to organizing the Company,
negotiating the acquisitions of the Initial Properties, performing due diligence
related to the Initial Properties, performing corporate work in contemplation of
the Offering, preparing the Registration Statement and providing interim
financing for and closing the acquisition of the Initial Properties, employee
compensation, travel and overhead. The Company estimates that these
reimbursements will be approximately $1,475,000.

19
<PAGE> 22

DISTRIBUTIONS TO STOCKHOLDERS

The Company intends to make quarterly distributions to stockholders of
approximately 85% to 95% of its cash available for distribution. In any event,
the Company expects to pay an amount at least sufficient to satisfy the annual
distribution requirements of a REIT. In general, such requirements provide that
at least 95% of the Company's REIT taxable income must be distributed annually,
which distribution, on a pro forma basis, would equal $1.35 per share. See
"Federal Income Tax Considerations -- Taxation of the Company." The Company
expects to distribute dividends in excess of 95% of its REIT taxable income.
Payment of dividends, however, will be at the discretion of the Company's Board
of Directors at all times and will depend upon various factors including the
Company's financial condition, earnings, anticipated investments, and other
relevant factors. Under certain circumstances, it may be necessary for the
Company to borrow or liquidate investments to satisfy its distribution
requirements as a REIT. See "Federal Income Tax Considerations -- Taxation of
the Company."

On a pro forma basis the aggregate Base Rent payable under the Leases, net
of interest and operating expenses, will result in cash available for
distribution of $1.78 per Share. Such cash available for distribution does not
give effect to any delay in the acquisition of or failure to acquire the Initial
Properties, to any payments of Additional Rent, to the acquisition of any
properties in addition to those identified in this Prospectus or the incurrence
of indebtedness in connection therewith, or to the realization of proceeds on
the sale or disposition of Initial Properties. No assurance can be given that
the properties will perform as expected or the anticipated cash available for
distribution will be obtained. On a 1993 pro forma basis, approximately 11% to
21% of the distributions to be made by the Company would represent return of
capital for federal income tax purposes and, therefore, would not be subject to
current federal income tax. Such nontaxable distributions would reduce a
stockholder's tax basis in its Common Stock, and any gain or loss recognized on
the sale of such Common Stock or upon liquidation of the Company would be
increased or reduced accordingly. Any distributions that exceed a stockholder's
basis in its Common Stock would be treated as gain from the sale or exchange of
such Common Stock for federal income tax purposes. See "Pro Forma Financial
Statements."

Cash available for distribution is expected to exceed the Company's taxable
income due to non-cash deductions taken by the Company for income tax purposes,
primarily depreciation. Accordingly, certain distributions to stockholders may
constitute a return of capital which would not be subject to federal income tax,
although such distributions would lower the stockholder's basis in its Common
Stock of the Company, as described above. See "Federal Income Tax
Considerations."

For each of the first six quarters in which dividends are paid by the
Company, the Founders have consented to contribute to the Company the after-tax
portion of any dividends distributed to them for such quarter if (i) the
annualized dividends paid in such quarter does not exceed $1.70 per share
($0.425 per share per quarter) or (ii) the aggregate dividends paid in such
quarter on the outstanding shares exceeds 95% of the cash available for
distribution for the relevant quarterly period.

DILUTION

As of March 31, 1994, the Founding Stockholders (Richard M. Scrushy,
HEALTHSOUTH, John W. McRoberts, and Michael D. Martin) owned 180,000 shares of
Common Stock. The net tangible book value of the Common Stock immediately
subsequent to this Offering (based on the mid-point of the filing range of
$19.00 per share, after deduction of estimated underwriting discounts and
Offering expenses) will be $17.076 per share, an increase of $17.075 from the
$.001 net tangible book value per share prior to the Offering(or a net tangible
book value per share of $17.154 and a per share increase of $17.153,
respectively, assuming full exercise of the Underwriters' overallotment option).
A $1.924 per share dilution will be experienced by the purchasers of shares in
this Offering (or $1.846 per share dilution assuming full exercise of the
Underwriters' over-allotment option).

20
<PAGE> 23

CAPITALIZATION

The following sets forth the historical capitalization of the Company as of
March 31, 1994, and as adjusted to give effect to the sale of the Shares offered
hereby (assuming an initial public offering price at the mid-point of the filing
range and after deducting underwriters' discounts and Offering expenses), and
the acquisitions of the Initial Properties:

<TABLE>
<CAPTION>
AS ADJUSTED FOR
THE OFFERING AND
AT ACQUISITION OF
MARCH 31, THE INITIAL
1994 PROPERTIES
--------- ----------------
<S> <C> <C>
Indebtedness:
Bank Credit Facility(1)........................................ $ -- $ 14,184,820
--------- ----------------
Total indebtedness..................................... -- 14,184,820
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized;
none outstanding............................................ -- --
Common Stock, $.001 par value; 50,000,000 shares authorized;
180,000 issued and outstanding; 5,980,000 issued and
outstanding, as adjusted(2)................................. 180 5,980
Additional paid-in capital..................................... -- 102,109,200
--------- ----------------
Total stockholders' equity............................. 180 102,115,180
--------- ----------------
Total capitalization................................... $ 180 $116,300,000
--------- ----------------
--------- ----------------
</TABLE>

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

(1) For a description of the Bank Credit Facility, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
(2) Does not include up to 870,000 shares of Common Stock, if any, that may be
purchased by the Underwriters to cover over-allotments, or 418,600 shares
of Common Stock reserved for issuance pursuant to the Company's 1994 Stock
Incentive Plan. See "Management -- 1994 Stock Incentive Plan."

21
<PAGE> 24

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Financial Statements
included elsewhere in this Prospectus. The adjustments for the Offering assume
an initial public offering price at the mid-point of the filing range and that
the Underwriters' over-allotment option is not exercised.

Pro forma operating data is presented for the year ended December 31, 1993,
and for the three months ended March 31, 1994, as if the Offering and the
transfers of the Initial Properties to the Company had occurred, and as if the
respective Leases had been in effect, on January 1, 1993. Pro forma balance
sheet data is presented as of March 31, 1994, as if the Offering and the
transfers of the Initial Properties to the Company had occurred, and as if the
respective Leases had been in effect, at that date. See "Pro Forma Financial
Statements." The pro forma information does not purport to represent what the
actual financial position or results of operations of the Company would have
been as of or for the periods indicated, nor does it purport to represent any
future financial position or results of operations for any future period.

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED MARCH 31, 1994 YEAR ENDED DECEMBER 31,
--------------------------------------- 1993
AS ADJUSTED FOR THE -----------------------------
OFFERING AND THE AS ADJUSTED FOR THE OFFERING
ACQUISITION OF THE AND THE ACQUISITION OF THE
HISTORICAL(1) INITIAL PROPERTIES INITIAL PROPERTIES
------------- --------------------- -----------------------------
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA
Revenues.............................. -- $ 3,468,176 $13,872,706
Interest expense...................... -- 234,248 936,994
Net income............................ -- 2,278,616 9,114,463
Net income per share.................. -- $ 0.38 $ 1.52
Shares outstanding.................... 180,000 5,980,000 5,980,000
PRO FORMA BALANCE SHEET DATA:
Real estate properties, net........... -- $ 116,150,000
Total assets.......................... $ 180 116,300,000
Bank Credit Facility.................. -- 14,184,820
Total stockholders' equity............ 180 102,115,180
OTHER DATA:
Cash available for distribution(2).... -- $ 2,667,994 $10,671,971
Cash available for distribution per
share(2)........................... -- $ 0.45 $ 1.78
</TABLE>

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

Significant assumptions to the Pro Forma Financial Information are set
forth below. This information should be read in conjunction with the Notes to
the Company's Pro Forma Financial Statements beginning at page F-10.

- - Total rental income from the Initial Properties for the year ended December
31, 1993 is assumed to be $13,872,706, which represents Base Rent of
$12,728,964 and accrued rent of $1,143,742 from the Initial Properties under
the terms of the Leases. Total rental income from the Initial Properties for
the three months ended March 31, 1993 is assumed to be $3,468,176, which
represents Base Rent of $3,182,241 and accrued rent of $285,935 from the
Initial Properties under the terms of the Leases. Generally accepted
accounting principles require that scheduled rent increases be recognized on a
straight-line basis over the

22
<PAGE> 25

term of the lease. Each Lease is a Triple Net Lease and the Lessee is
responsible thereunder, in addition to the rent, for all operating expenses,
taxes, assessments, ground rents, water, sewer or other rents and charges,
excises, tax levies, fees and all other governmental charges, utility charges
and insurance premiums.

- - Depreciation of buildings and land improvements is calculated using the
straight-line method and useful remaining lives of approximately 40 years and
20 years, respectively. Amortization of organization costs is calculated using
the straight-line method over a five-year period. The Bank Credit Facility
financing commitment fee is amortized using the straight-line method over the
24-month life of the Bank Credit Facility.

- - Expected first year operating costs of $1,200,000 ($300,000 for three months)
consist of compensation and related benefits, legal and accounting, travel,
rent and other operating costs. Annual interest expense is calculated at a
rate of 6.1875% of the outstanding balance plus 0.375% of the unused portion
of the Bank Credit Facility.

- - Issuance of 5,800,000 shares of Common Stock for $110,200,000 at $19.00 per
share, less underwriting discounts and commissions of $7,685,000.

- - Cost of the Initial Properties of $115,100,000.

- - Payment to the Partnership and its affiliates for reimbursement of actual
costs incurred related to providing interim financing ($375,000), negotiating
acquisition of the Initial Properties ($675,000), organizing the Company
($25,000), and preparing the Offering ($400,000).

- - Borrowings of $14,184,820 under the Bank Credit Facility. The Company has
received a written commitment from NationsBank in the amount of $30 million to
finance, in part, the acquisition of the Initial Properties, the acquisition
of additional properties and for other general corporate purposes.

23
<PAGE> 26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

The Company was incorporated in Maryland on March 31, 1994, and intends to
make an election and qualify under the Code as a REIT commencing with its
taxable year ending December 31, 1994. Substantially all of the Company's
revenues are expected to be derived from: (i) Base and Additional Rents received
under Triple Net Leases of healthcare related real property facilities; (ii)
fees received in connection with property acquisitions and leasing transactions;
(iii) interest earned from the temporary investment of funds in short-term
instruments; and (iv) property dispositions effected from time to time in
accordance with requirements for maintaining status as a REIT. With respect to
Leases for the Initial Properties, Base Rent is the minimum annual rental
payment set forth in such Leases. All of such Leases also provide for Additional
Rent commencing after the first year based on either a set percentage increase
or on 67% to 100% of the percentage increase in the applicable consumer price
index, with annual increases generally limited to a maximum of 5%.

The Company will incur operating and administrative expenses including,
principally, compensation expense for its executive officers and other
employees, office rental and related occupancy costs and various expenses
incurred in the process of acquiring additional properties. The Company will be
self-administered and managed by its executive officers and staff, and will not
engage a separate advisor or pay an advisory fee for administrative or
investment services, although the Company will engage legal, accounting, tax and
financial advisors from time to time.

The Company also expects to leverage its portfolio of real estate equity
investments and will incur long and short-term indebtedness, and related
interest expense, from time to time.

The Company intends to declare and pay dividends to its stockholders in
amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's ability
to pay dividends will depend upon its cash available for distribution.

RESULTS OF OPERATIONS

The Company has had no operations prior to March 31, 1994, (the date of its
incorporation) through the date of this Prospectus. The Company's future results
of operations will depend upon the acquisition of the Initial Properties and
other properties and the terms of any subsequent investments the Company may
make.

Management believes that inflation should not have a materially adverse
effect on the Company.

PRO FORMA FINANCIAL INFORMATION

For The Year Ended December 31, 1993

On a pro forma basis, after giving effect to the Offering and the
acquisition of the Initial Properties, revenues would have been $13,872,706 and
net income would have been $9,114,463 or $1.52 per share for the year ended
December 31, 1993. Depreciation, amortization and other non-cash expenses would
have been $2,701,250, accrued rent would have been $1,143,742 and cash available
for distribution would have been $10,671,971 or $1.78 per Share.

For The Three Months Ended March 31, 1994

On a pro forma basis, after giving effect to the Offering and the
acquisition of the Initial Properties, revenues would have been $3,468,176 and
net income would have been $2,278,616 or $0.38 per share for the three months
ended March 31, 1994. Depreciation, amortization and other non-cash expenses
would have been $675,313, accrued rent would have been $285,935 and cash
available for distribution would have been $2,667,994 or $0.45 per share.

24
<PAGE> 27

LIQUIDITY AND CAPITAL RESOURCES

Management believes that the net proceeds of this Offering along with the
Bank Credit Facility will be sufficient to consummate the purchase of the
Initial Properties and to reimburse the Partnership for expenses related to
organizing the Company, negotiating the acquisition of the Initial Properties,
performing due diligence investigation related to the Initial Properties,
performing corporate work in contemplation of the Offering, preparing the
Registration Statement and providing interim financing for and closing the
acquisition of the Initial Properties. Management believes the Company will have
adequate remaining credit under the Bank Credit Facility to meet its liquidity
needs. See "Business -- Initial Properties," "Investment and Other Policies,"
and Note 3 to Pro Forma Financial Statements.

The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of its Initial Properties, the
acquisition of additional properties or, as necessary, to meet certain
distribution requirements imposed on REITs under the Code. See "Investment and
Other Policies." The Company may raise additional capital by issuing, in public
or private transactions, equity or debt securities, but the availability and
terms of any such issuance will depend upon market and other conditions. There
can be no assurance that such additional financing or capital will be available
on terms acceptable to the Company.

Under the terms of the Leases, the Lessees are responsible for all
operating expenses and taxes, including property and casualty insurance. See
"Business -- Initial Properties" and "Business -- The Leases." As a result of
these arrangements, the Company does not believe it will be responsible for any
major expenses in connection with the Initial Properties during the terms of the
respective Leases. The Company anticipates entering into similar leases with
respect to additional properties. After the terms of the respective Leases, or
in the event a Lessee is unable to meet its obligations, the Company anticipates
that any expenditures it might become responsible for in maintaining the Initial
Properties will be funded by cash from operations and, in the case of major
expenditures, possibly by borrowings. To the extent that unanticipated
expenditures or significant borrowings are required, the Company's cash
available for distribution and liquidity may be adversely affected.

The Company has obtained a written commitment from NationsBank for a $30
million Bank Credit Facility to finance a portion of the purchase price for the
Initial Properties, the acquisition of additional properties and for other
general corporate purposes. See "Use of Proceeds." Interest on borrowings under
the Bank Credit Facility will be paid at a rate chosen by the Company from
either the base rate, which is the higher of (i) the Federal Funds Rate plus
1/2 of 1%, or (ii) the NationsBank prime lending rate, or LIBOR plus 1.75%. In
addition, the Company will pay .375% per annum on the unused portion of funds
available for borrowings under the Bank Credit Facility. The Company will pay a
commitment fee of one-quarter of 1% of the committed amount at the closing of
the Bank Credit Facility. The Bank Credit Facility will be available until the
second anniversary of the closing of the facility. The Bank Credit Facility will
be unsecured and will contain certain representations, warranties and financial
and other covenants customary in such loan agreements. The Company may enter
into interest rate swaps in order to mitigate the effect of a rising interest
rate environment on the cost of the Bank Credit Facility.

Other than to purchase the Initial Properties, the Company has no
commitments or understandings with respect to capital expenditures. There can be
no assurance that the Company will be able to purchase or lease additional
properties or to make mortgage loans to others on suitable terms.

25
<PAGE> 28

BUSINESS

The Company was organized to invest, either directly or through
wholly-owned subsidiaries, in healthcare related properties located throughout
the United States. The Company has signed letters of intent to purchase the 20
Initial Properties located in 10 states. The Initial Properties will be leased
to 14 Lessees, which are Subsidiaries of HEALTHSOUTH, Integrated Health, OrNda,
Quorum and Surgical Health, pursuant to long-term, Triple Net Leases that will
be guaranteed by the respective parent companies. The Initial Properties consist
of 11 ancillary hospital facilities, one research facility, one long-term care
facility, one sub-acute care facility, three ambulatory surgery centers and
three outpatient rehabilitation facilities.

INITIAL PROPERTIES

The following table sets forth certain information regarding the Initial
Properties.

<TABLE>
<CAPTION>
INITIAL INITIAL PERCENTAGE
PROPERTY LEASE PURCHASE OF ANNUAL BASE ANNUAL
GUARANTOR/INITIAL PROPERTY NAME TYPE(1) TERM PRICE(2) PORTFOLIO(3) RENT COVERAGE(4)
- ---------------------------------------- --------- -------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
HEALTHSOUTH
American Sports Medicine Institute.... RF 15 $ 3,200,000 2.8% $ 359,919
Birmingham Medical Building I......... AHF 15 4,700,000 4.1 528,664
Birmingham Medical Building II........ AHF 15 9,600,000 8.3 1,079,760
One-7000 Building..................... AHF 15 13,250,000 11.5 1,490,664
Larkin Medical Building............... AHF 15 2,250,000 1.9 253,093
Richmond Medical Building I........... AHF 15 2,100,000 1.8 236,237
Richmond Medical Building II.......... AHF 15 10,000,000 8.7 1,125,137
Little Rock........................... ORF 15 2,060,000 1.8 231,723
Coral Gables.......................... ORF 15 2,300,000 2.0 258,704
Virginia Beach........................ ORF 15 1,460,000 1.3 164,300(5)
------------ ---------- ----------- -----------
50,920,000 44.2 5,728,201 6.01x
ORNDA
Midway Medical Plaza.................. AHF 15 20,400,000 17.7 2,142,223 5.22x
------------ ---------- ----------- -----------
20,400,000 17.7 2,142,223 5.22x
INTEGRATED HEALTH
Mountain View......................... LTCF 10 9,775,000 8.5 1,060,340
Gravois............................... SACF 10 8,500,000 7.4 922,287
------------ ---------- ----------- -----------
18,275,000 15.9 1,982,627 1.59x
QUORUM
Goodyear Clinic....................... AHF 10 1,607,160 1.4 180,805
Hamiter Building...................... AHF 10 4,382,520 3.8 493,034
Gadsden Medical Building II........... AHF 10 5,810,320 5.0 653,661
Desert Springs........................ AHF 10 4,700,000 4.1 528,750
------------ ---------- ----------- -----------
16,500,000 14.3 1,856,250 18.31x
SURGICAL HEALTH
South County Medical Center(6)........ ASF 15 7,125,000(7) 6.2 801,563 N/A(8)
Northlake............................. ASF 13 1,000,000 0.9 112,500 N/A(8)
North Shore........................... ASF 15 880,000 0.8 105,600(5) 6.86x
------------ ---------- ----------- -----------
9,005,000 7.9 1,019,663 N/A
------------ ---------- -----------
Total............................................... $115,100,000 100.0% $12,728,964
------------ ---------- -----------
------------ ---------- -----------
</TABLE>

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

(1) RF means research facility, AHF means ancillary hospital facility, ORF means
outpatient rehabilitation facility, LTCF means long-term care facility, SACF
means sub-acute care facility and ASF means ambulatory surgery facility.
(2) Includes the purchase price for land, improvements, intangibles and fixtures
but does not include estimated net capitalized acquisition costs,
aggregating approximately $1.05 million.
(3) Based upon purchase price.
(4) Annual coverage is calculated as earnings before depreciation, amortization,
taxes, interest on debt to be repaid and certain non-cash intercompany
charges of the Lessee divided by the Base Rent. The coverages are derived
from the financial information for the most recent fiscal year of the
Lessees provided to the Company by the Guarantors. The Company has made no
independent investigation of this information and makes no representation
about its accuracy.
(5) Excludes ground rent, which will be paid by the applicable Lessee as
sublessee under the land lease.

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<PAGE> 29

(6) Purchase is subject to completion of construction and the issuance of a
certificate of occupancy, which is expected to occur in May 1994. As of
April 15, 1994, leases had been signed for over 93% of the rentable space.
(7) The purchase price will equal the actual cost of construction plus $125,000
with a maximum of $7,325,000. The Company currently estimates a purchase
price of $7,125,000.
(8) Coverage ratios cannot be included for the South County Medical Center
facility or the Northlake facility due to the lack of operating history for
either facility.

DESCRIPTION OF GUARANTORS, LESSEES AND INITIAL PROPERTIES

The following is a description of each of the Guarantors and Lessees and
the Initial Properties to be acquired by the Company. Unless otherwise
indicated, all information is given as of December 31, 1993. All of the
Guarantors are subject to the reporting requirements of the SEC and file annual
reports containing audited financial information and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information with the SEC, except Surgical Health, which filed a registration
statement with the SEC on March 30, 1994. With respect to such companies, the
information provided is derived for the limited purposes of this Prospectus from
filings made with the SEC, and the Company makes no representation regarding the
financial condition of these entities.

HEALTHSOUTH INITIAL PROPERTIES

HEALTHSOUTH, headquartered in Birmingham, Alabama, is the nation's largest
provider of rehabilitative healthcare services. In its outpatient and inpatient
rehabilitation facilities, HEALTHSOUTH has established interdisciplinary
programs for the rehabilitation of patients experiencing disability due to a
wide variety of physical conditions, such as stroke, head injury, orthopaedic
problems, neuromuscular disease and sports-related injuries. HEALTHSOUTH's
rehabilitation services include physical therapy, sports medicine, work
hardening, neurorehabilitation, occupational therapy, respiratory therapy,
speech-language pathology and rehabilitation nursing. In addition to
rehabilitation services, HEALTHSOUTH's medical center facilities also provide
general and specialty medical and surgical healthcare services.

Effective December 31, 1993, HEALTHSOUTH acquired substantially all of the
assets of the rehabilitation services division of National Medical Enterprises,
Inc. ("NME"), consisting of 28 inpatient rehabilitation facilities and 45
outpatient rehabilitation locations. HEALTHSOUTH currently has 288 locations in
31 states, the District of Columbia and Ontario, Canada, including 172
outpatient rehabilitation centers (including 79 associated satellite clinics),
42 rehabilitation hospitals with 49 associated satellite clinics (including two
rehabilitation hospitals under construction), four medical centers and 21
locations providing other patient care services.

Six ancillary hospital facilities, one research facility and three
outpatient rehabilitation centers are being acquired from and will be leased to
HEALTHSOUTH or Subsidiaries of HEALTHSOUTH. The Leases for the HEALTHSOUTH
Initial Properties to Subsidiaries of HEALTHSOUTH will be guaranteed by
HEALTHSOUTH, whose shares are listed on the New York Stock Exchange under the
symbol HRC. As of December 31, 1992 and 1993, HEALTHSOUTH had assets of
$641,799,00 and $1,168,068,000 and stockholders' equity of $290,132,000 and
$294,972,000, respectively, and for the years ended December 31, 1992 and 1993,
had revenues of $406,968,000 and $482,304,000 and net income of $29,738,000 and
$6,687,000, respectively.

ANCILLARY HOSPITAL FACILITIES AND RESEARCH FACILITY

Upon completion of the Offering, the Company intends to acquire six
ancillary hospital facilities and one research facility from HEALTHSOUTH, all of
which are associated with three of the four medical centers owned and operated
by HEALTHSOUTH.

HEALTHSOUTH's four medical centers are located in three urban areas of the
country, one each in Birmingham, Alabama and Richmond, Virginia and two in the
Miami, Florida area. These facilities provide general and specialty medical and
surgical healthcare services, emphasizing orthopaedics, sports medicine and
rehabilitation. HEALTHSOUTH acquired the medical centers as an outgrowth of its
ambulatory rehabilitative healthcare services. Often, patients require medical
and surgical intervention prior to the initiation of their

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<PAGE> 30

rehabilitative care. In each of the markets in which HEALTHSOUTH has acquired a
medical center, HEALTHSOUTH had well-established relationships with the medical
communities servicing each facility. As a result of these relationships,
HEALTHSOUTH was able to respond to opportunities to enhance its capabilities to
better serve the patients and physicians in those markets. Because HEALTHSOUTH's
facilities enjoy a national and international reputation for orthopaedic surgery
and sports medicine, HEALTHSOUTH believes the level of service and continuum of
care offered by its medical centers enable them to compete successfully.

Initial Properties Associated with HEALTHSOUTH Medical Center -- Birmingham

HEALTHSOUTH Medical Center -- Birmingham is a 219-bed specialty medical
center located in Jefferson County, Alabama that was acquired in October 1989
and expanded and renovated in 1991. HEALTHSOUTH Medical Center concentrates on
orthopaedics, sports medicine, and rehabilitation. The Medical Center's primary
market is the Birmingham Metropolitan Statistical Area ("MSA"), which consists
of five counties with an estimated population of 1,000,000. The Birmingham MSA
is served by 18 acute-care hospitals with a total of 5,323 licensed beds.
HEALTHSOUTH Medical Center -- Birmingham draws patients locally and from across
the nation due to its nationally recognized expertise in the fields of
orthopaedics and sports medicine. The HEALTHSOUTH Medical Center -- Birmingham
campus consists of the hospital, ASMI, Birmingham Medical Building I and
Birmingham Medical Building II.

ASMI. The American Sports Medicine Institute (ASMI), a research facility
which was constructed in 1992, is a 27,800 net rentable square foot multi-story
facility located on 1.02 acres. The facility is adjacent to the HEALTHSOUTH
Medical Center -- Birmingham. ASMI is 90% occupied by a not-for-profit
corporation whose purpose is to conduct research and promote education in the
field of orthopaedics and sports medicine.

Birmingham Medical Building I. Birmingham Medical Building I, an ancillary
hospital facility which was constructed in 1981, is a 42,500 net rentable square
foot, multi-story commercial condominium situated on .92 acres. The building is
occupied primarily by physicians and physician practice groups that practice at
the Medical Center. The building is connected to the HEALTHSOUTH Medical
Center -- Birmingham and includes a six-story parking deck with spaces for
approximately 180 cars located adjacent to the building. The leases of two of
the current occupants of the building permit such occupants to purchase 6.46% of
the condominium units.

Birmingham Medical Building II. Birmingham Medical Building II, an
ancillary hospital facility constructed in 1991 as part of the renovation and
expansion of HEALTHSOUTH Medical Center -- Birmingham, is an 81,800 net rentable
square foot, multi-story ancillary hospital facility located on 2.5 acres. The
facility shares common areas with the HEALTHSOUTH Medical Center -- Birmingham,
and subject to approval by the appropriate governmental authority, the portions
occupied by each of Birmingham Medical Building II and the HEALTHSOUTH Medical
Center -- Birmingham will become separate condominiums. Tenants include Alabama
Sports Medicine and other physician practice groups, as well as HEALTHSOUTH
Rehabilitation Outpatient Center of Birmingham. All of the physicians located in
the facility practice at the HEALTHSOUTH Medical Center -- Birmingham.

HEALTHSOUTH Medical Center, Inc., a Subsidiary of HEALTHSOUTH, will be the
sole Lessee of ASMI, Birmingham Medical Building I and Birmingham Medical
Building II, which will continue to be operated as integral parts of HEALTHSOUTH
Medical Center -- Birmingham. HEALTHSOUTH Medical Center, Inc. will lease the
three properties under a 15-year lease with three five-year renewal options. The
Base Rent per square foot (which does not include an allocation of rent for 180
structured parking spaces) will be $12.95, $12.45 and $13.20 for ASMI,
Birmingham Medical Building I and Birmingham Medical Building II, respectively.

Initial Properties Associated with HEALTHSOUTH Medical Center -- Richmond

HEALTHSOUTH Medical Center -- Richmond is a 200-licensed bed specialty
medical center located in Henrico County, Virginia that was acquired in 1991 and
concentrates on orthopaedics, sports medicine, and

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<PAGE> 31

rehabilitation. The hospital's primary market is the 9-county
Richmond-Petersburg MSA which has an estimated population of 825,000. There are
15 acute care hospitals serving the Richmond MSA with a total of 4,183 licensed
beds. The HEALTHSOUTH Medical Center -- Richmond campus consists of the
hospital, Richmond Medical Building I and Richmond Medical Building II.

Richmond Medical Building I. Richmond Medical Building I, an ancillary
hospital facility constructed in 1977, is a 23,200 net rentable square foot,
multi-story facility located on 6.165 acres together with Richmond Medical
Building II. This facility is adjacent to HEALTHSOUTH Medical Center -- Richmond
and is occupied by physician groups that practice at the Medical Center.

Richmond Medical Building II. Richmond Medical Building II, an ancillary
hospital facility constructed in 1992 as part of the renovation and expansion of
HEALTHSOUTH Medical Center -- Richmond, is a 62,400 net rentable square foot,
multi-story facility with 60 structured parking spaces located on the 6.165
acres together with Richmond Medical Building I. The facility is adjacent to the
HEALTHSOUTH Medical Center -- Richmond and is occupied by physician groups that
practice at the Medical Center.

HEALTHSOUTH Virginia, Inc., a Subsidiary of HEALTHSOUTH, will be the sole
Lessee of Richmond Medical Building I and Richmond Medical Building II, which
will continue to be operated as integral parts of HEALTHSOUTH Medical
Center -- Richmond. HEALTHSOUTH of Virginia, Inc. will lease the two properties
under a 15-year lease (with three five-year renewal options). The Base Rent per
square foot (which does not include an allocation of rent for 60 structured
parking spaces) will be $10.18 and $18.04 for Richmond Medical Building I and
Richmond Medical Building II, respectively.

Initial Properties Associated with HEALTHSOUTH Larkin Hospital

HEALTHSOUTH Larkin Hospital located in South Miami, Dade County, Florida is
a 112-licensed bed specialty medical center acquired in February 1992. This
facility specializes in orthopaedics, sports medicine and rehabilitation. The
hospital's primary market is Dade County, Florida, which encompasses 26
municipalities with a population of approximately 2,000,000. There are 20 acute
care hospitals serving the Dade County area with a total of approximately 6,100
licensed beds. The HEALTHSOUTH Larkin Hospital campus consists of the hospital,
the One-7000 Building and Larkin Medical Building.

One-7000 Building. The One-7000 Building, an ancillary hospital facility
that was constructed in 1973, with a total renovation completed in 1990, is a
106,400 net rentable square foot, multi-story facility with 345 structured
parking spaces on 1.12 acres adjacent to HEALTHSOUTH Larkin Hospital. The
primary occupants are physician groups that practice at the adjacent HEALTHSOUTH
Larkin Hospital and nearby HEALTHSOUTH Doctors' Hospital.

Larkin Medical Building. The Larkin Medical Building, an ancillary
hospital facility that was constructed in 1970 and remodeled in 1980, is a
10,250 net rentable square foot, two-story facility on 1.072 acres. The facility
is located adjacent to HEALTHSOUTH Larkin Hospital and currently houses the
administrative and support staff offices of the hospital while the surplus land
is used for parking by the hospital's employees.

Doctors' Hospital of South Miami, Ltd., a Subsidiary of HEALTHSOUTH, will
be the sole Lessee of One-7000 Building and Larkin Medical Building, which will
continue to be operated as integral parts of HEALTHSOUTH Larkin Hospital.
Doctors' Hospital of South Miami, Ltd. will lease the two properties under a
15-year lease with three five-year renewal options. The Base Rent per square
foot (which does not include an allocation of rent for 345 structured parking
spaces) will be $14.01 and $24.68 for One-7000 Building and Larkin Medical
Building, respectively.

OUTPATIENT REHABILITATION FACILITIES

HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries, and various neurological/neuromuscular conditions. As of

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December 31, 1993, HEALTHSOUTH provided outpatient rehabilitative healthcare
services through 93 outpatient centers and their 79 associated satellite clinics
as well as through the 49 satellite outpatient clinics associated with its
inpatient facilities. HEALTHSOUTH's outpatient rehabilitation services play a
significant role in the continuum of care because they provide hospital-level
services, in terms of intensity, quality and frequency, in a more cost efficient
setting.

Coral Gables. Coral Gables, an outpatient rehabilitation facility
constructed in 1960 and completely renovated in 1986, is a 14,538 net rentable
square foot, two-story building located on 0.46 acres in Dade County, Florida.
Outpatient rehabilitation services include therapy for orthopaedic injuries,
neuromuscular disease, and programs for work hardening, neurorehabilitation,
occupational therapy, respiratory therapy, and speech-language pathology. The
facility's primary market is Dade County, Florida, which encompasses 26
municipalities, with a total population of approximately 2,000,000. The facility
will be purchased from and leased to HEALTHSOUTH, which will in turn sublease
the facility leased to HEALTHSOUTH Rehabilitation Center of Coral Gables Limited
Partnership, a Subsidiary of HEALTHSOUTH. The Base Rent per square foot will be
$17.80.

Little Rock. Little Rock, an outpatient rehabilitation facility
constructed in 1991, is an 11,963 net rentable square foot, one-story building
located on 1.6 acres in Pulaski County, Arkansas. Outpatient rehabilitation
services include therapy for orthopaedic injuries, strokes, head injuries, or
neuromuscular disease, and programs for work hardening, neurorehabilitation,
occupational therapy, respiratory therapy, and speech-language pathology. The
facility's primary market is the Greater Little Rock MSA encompassing a
four-county region with a population of approximately 500,000. The facility will
be purchased from and leased to HEALTHSOUTH, which will in turn sublease to
HEALTHSOUTH Rehabilitation Center of Little Rock, Ltd., a Subsidiary of
HEALTHSOUTH. The Base Rent per square foot will be $19.37.

Virginia Beach. Virginia Beach, an outpatient rehabilitation facility
constructed in 1993, is a 10,000 net rentable square foot, one-story building
situated on 1.10 acres in Lynnhaven Borough, Virginia. Outpatient rehabilitation
services include therapy for orthopaedic injuries, strokes, head injuries, or
neuromuscular disease and programs for work hardening, neurorehabilitation,
occupational therapy, respiratory therapy and speech-language pathology. The
Virginia Beach facility's primary market is the Tidewater region of Virginia
which includes three counties with a population of approximately 1,400,000. The
Virginia Beach facility is located on real estate being ground leased from
Holcar, Inc. ("Holcar"). The Company will acquire the seller's leasehold
interest in the facility through an assumption of the existing ground lease
between the seller and Holcar, including the option to purchase in favor of the
seller. The Company will sublease the outpatient rehabilitation facility to
HEALTHSOUTH, which will in turn sub-sublease to HEALTHSOUTH Rehabilitation
Center of Virginia Beach Limited Partnership, a Subsidiary of HEALTHSOUTH. The
Base Rent per square foot will be $16.43, exclusive of the ground rent, which
will be paid by the Lessee as sublessee under the ground lease.

ORNDA INITIAL PROPERTIES

OrNda, headquartered in Nashville, Tennessee, is a healthcare services
company that owns and operates acute care hospitals and related healthcare
facilities. OrNda has entered into merger agreements with American Healthcare
Management, Inc. and Summit Health Ltd. which are scheduled to close on or about
April 19, 1994. As a result of the mergers, OrNda, through its subsidiaries and
affiliated partnerships, will own or operate 44 acute care hospitals with 7,712
licensed beds, including one managed for another, and two under leases, and two
psychiatric hospitals with 138 licensed beds. OrNda's hospitals will be located
in California, Florida, Georgia, Indiana, Louisiana, Mississippi, Missouri,
Oregon, Nevada, Tennessee, Texas, West Virginia and Wyoming. OrNda also will own
43% of Horizon Mental Health Services, Inc., which operates one psychiatric
hospital with 60 licensed beds and 53 specialty psychiatric and chemical
dependency units with 1,101 licensed beds. Subsequent to the mergers, OrNda will
own or control Health Choice Arizona, Inc., a Medicaid health maintenance
organization, which has an enrollment of approximately 21,000 in the state of
Arizona. OrNda will also provide healthcare services through its majority-owned
subsidiary, Summit Care Corporation, which operates 20 skilled nursing centers
with 2,534 licensed beds and four retirement centers with 468 beds.

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<PAGE> 33

Midway Medical Plaza will be purchased prior to the Effective Date by
Midway Acquisition Company, Inc. ("MACI"), an Alabama corporation all of the
stock of which is owned by Richard M. Scrushy, John W. McRoberts, and Michael D.
Martin. MACI will be merged into the Company on or before the Effective Date of
the Offering pursuant to the Merger Agreement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain
Transactions." The consideration for the Merger will be the cancellation or
assumption by the Company of the indebtedness incurred by MACI in the
acquisition of Midway Medical Plaza and the related parking facility. The
Company will lease the Midway ancillary hospital facility and a 755-space
parking deck to a Subsidiary of OrNda. The Lease will be guaranteed by OrNda,
whose shares are listed on the New York Stock Exchange under the symbol ORND. As
of August 31, 1992 and 1993, OrNda had assets of $649,322,000 and $830,564,000,
stockholders' equity of $61,172,000 and $78,287,000, respectively, and for the
years ended August 31, 1992 and 1993 had net revenues of $501,770,000 and
$624,847,000, and net income of ($91,759,000) and $770,000, respectively.

Initial Properties Associated with Midway Hospital

Midway Hospital is licensed for 230 general acute care beds, including 206
medical/surgical beds and 24 ICU/CCU beds. Midway Hospital provides general
acute care and includes a Spine Center, Industrial and Occupational Medicine
Center and a center for treatment of AIDS patients. Midway Hospital is the third
largest hospital in the west Los Angeles area. There are six hospitals with a
combined 1,552 acute-care beds serving the west Los Angeles area. The Midway
Hospital campus consists of the hospital and the Midway Medical Plaza.

Midway Medical Plaza. Midway Medical Plaza, an ancillary hospital facility
which was constructed in 1985, is an 87,000 net rentable square foot,
multi-story facility on 0.59 acres. The related parking structure was
constructed in 1984 and contains 755 structured parking spaces on a 0.65 acre
parcel of land adjacent to both Midway Hospital and the Midway Medical Plaza in
Los Angeles County, California. Other than a pharmacy, the tenants of the Midway
facility are all physicians or physician groups that practice on the medical
staff of Midway Hospital.

A Subsidiary of OrNda will be the sole Lessee of the Midway facility which
will continue to be operated as an integral part of Midway Hospital. The Midway
facility will be leased under a 15-year lease with three five-year renewal
options. The Base Rent per square foot (which does not include an allocation of
rent for 755 structured parking spaces) will be $24.62.

INTEGRATED HEALTH INITIAL PROPERTIES

Integrated Health, formed in 1986, and headquartered in Owings Mills,
Maryland, is one of the nation's leading providers of long-term and sub-acute
healthcare services. Integrated Health's strategy is to use geriatric care
facilities as platforms to provide a wide variety of medical and rehabilitative
services more typically delivered in the acute care hospital setting. Integrated
Health's focus on providing sub-acute care is designed to address the fact that
cost containment measures implemented by private insurers and limitations on
government reimbursement of hospital costs have resulted in the discharge from
hospitals of many patients who continue to require sub-acute care. These
patients often cannot be effectively cared for in the home because of the
complex monitoring and specialized medical treatment required. Because geriatric
care facilities have lower capital and operating costs than acute care
hospitals, Integrated Health is able to offer these complex medical services at
a significantly lower cost than acute care hospitals.

On December 1, 1993, Integrated Health acquired substantially all of the
United States operations of Central Park Lodges, Inc., consisting of 30
geriatric care facilities, nine retirement facilities and divisions which
provide pharmacy, healthcare personnel, and support services through branch
locations.

Integrated Health provides sub-acute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staff separate from the geriatric
care facilities in which they are located. MSUs are designed to provide
comprehensive medical services to patients who have been discharged from acute
care hospitals but who still require sub-acute or complex medical treatment.

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<PAGE> 34

The levels and quality of care provided in Integrated Health's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
Integrated Health believes are generally 30% to 60% below the cost of such care
in acute care hospitals. Because of the high level of specialized care provided,
Integrated Health's MSUs generate substantially higher net revenue and operating
profit per patient day than traditional geriatric care services.

As of December 31, 1993, Integrated Health operated 97 geriatric care
facilities (66 owned or leased and 31 managed) and 60 MSUs located in 33 of
these facilities.

The Company will acquire and lease back one long-term care facility and one
sub-acute care facility from Subsidiaries of Integrated Health. The Leases will
be guaranteed by Integrated Health, whose shares are listed on the New York
Stock Exchange under the symbol IHS. As of December 31, 1992 and 1993,
Integrated Health had assets of $311,973,000 and $767,664,000 and stockholders'
equity of $145,596,000 and $209,338,000, respectively, and for the years ended
December 31, 1992 and 1993, had net revenues of $195,262,000 and $282,160,000
and net income of $9,141,000 and $15,471,000, respectively.

Gravois. Gravois, a sub-acute care facility constructed in 1966 with
additions and renovations in 1975, 1987 and 1993-94, is a 167-licensed bed
sub-acute care facility containing a 49,700 net rentable square foot,
multi-story building located on 5.2 acres in St. Louis County, Missouri.
Although the Gravois facility has historically been used as a skilled nursing
facility, Integrated Health recently divided the market between skilled nursing
care and sub-acute care, dedicating the Gravois facility as the sub-acute care
provider and the other Integrated Health facility, Integrated Health of St.
Louis at Big Bend Woods, as the skilled nursing provider. This change will
create more efficient operations at both facilities and should result in more
sub-acute care patients for the Gravois facility. The total population within a
ten mile radius of the facility is approximately 640,000 and the population 65
years and older within the ten mile radius is approximately 96,800.

Gravois Health Care, Inc., a Subsidiary of Integrated Health, will be the
sole Lessee of the Gravois facility pursuant to a ten-year lease with three
five-year renewal options. The Base Rent per square foot will be $18.55.

Mountain View. Mountain View, a long-term care facility constructed in
1971 and renovated in 1981, is a 137-licensed bed long-term care facility
containing 52,700 net rentable square feet in a multi-story building located on
8.2 acres in Unity Township, Pennsylvania, near Pittsburgh. Integrated Health
will provide a full range of services at the Mountain View facility, including
skilled nursing, complex care (post surgery, cancer, etc.), respiratory therapy
and physical therapy. The total population within a ten mile radius is
approximately 166,500 and the population 65 years and older within a ten mile
radius is approximately 27,300. There are other skilled nursing care providers
servicing the market; however, entry into the market is regulated through
Pennsylvania's certificate of need ("CON") process.

Mountain View Nursing Center, Inc., a Subsidiary of Integrated Health, will
be the sole Lessee of the Mountain View facility pursuant to a ten-year lease
with three five-year renewal options. The Base Rent per square foot will be
$20.11.

QUORUM INITIAL PROPERTIES

Quorum, headquartered in Brentwood, Tennessee, owns, operates, manages and
provides consultation services for acute care hospitals nationwide. Quorum is
the nation's largest manager of acute care hospitals, having over 250 management
contracts throughout the country. In December 1993, Quorum acquired Baptist
Hospital in Gadsden, Alabama, renamed Gadsden Regional Medical Center, ("GRMC"),
a 346 bed acute care hospital and in September 1993, Quorum acquired ten acute
care hospitals from Charter Medical Corporation, including the Desert Springs
Hospital, a 225 bed acute care hospital in Las Vegas, Nevada.

The Company will purchase and lease back four ancillary hospital facilities
from two subsidiaries of Quorum. The Leases will be guaranteed by Quorum. Quorum
is a privately held company that has filed reports with the SEC since 1989. As
of June 30, 1992 and 1993, Quorum had assets of $220,603,000 and $275,037,000
and stockholders' equity of $43,990,000 and $79,561,000, respectively, and for
the years ended

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June 30, 1992 and 1993 had net revenues of $173,219,000 and $343,132,000, and
net income of $4,048,000 and $14,299,000 (including a $3,559,000 gain in 1992
realized from cumulative effect of a change in accounting principles and a
non-recurring loss of $1,591,000 in 1993 realized from early extinguishment of
debt), respectively.

Initial Properties Associated with Gadsden Regional Medical Center

GRMC, located in Gadsden, Alabama, approximately 65 miles east of
Birmingham, is the leading hospital in a six-county area in northeast Alabama.
GRMC sits on a 23 acre campus which also contains a four story ancillary
hospital facility ("Hamiter Building"), a new five story ancillary hospital
facility ("Gadsden Medical Building II"), a cancer treatment center, a mental
health treatment center, a day care center as well as a single story primary
care clinic ("Goodyear Clinic").

GRMC is the dominant provider in the area of medical services such as
general, neurological, and cardiovascular surgery, obstetrics, gynecology,
pediatrics, orthopaedics and psychiatry. The medical staff is comprised of 155
physicians. A total of 30 specialties and sub-specialties are represented on the
staff.

Goodyear Clinic. The Goodyear Clinic, an ancillary hospital facility
constructed in 1977, is a 14,000 net rentable square foot, single-story building
located on 1.19 acres. The facility is operated as a primary care clinic for the
2,500 employees of the Goodyear Tire & Rubber Company ("Goodyear") plant located
less than a mile from the campus of GRMC. Three family practice physicians
employed by Goodyear provide care to the Goodyear employees at the clinic.

Hamiter Building. The Hamiter Building, an ancillary hospital facility
constructed in 1979, is a 38,200 net rentable square foot, four story building
located on 1.3 acres. The facility is connected to GRMC via an enclosed skywalk.
Tenants of the Hamiter Building facility are physician groups who practice on
the medical staff of GRMC.

Gadsden Medical Building II. Gadsden Medical Building II, an ancillary
hospital facility constructed in 1993, is a 50,600 net rentable square foot,
multi-story building located on 0.65-acres and is connected to GRMC via enclosed
skywalks and hallways. Tenants of the Gadsden Medical Building II facility are
physician groups who practice on the medical staff of GRMC.

QHG of Gadsden, Inc., a Subsidiary of Quorum, will be the sole Lessee of
Goodyear Clinic, Hamiter Building and Gadsden Medical Building II under a
ten-year lease with three five-year renewal options. The Base Rent per square
foot will be $12.92 for each of the Goodyear Clinic, Hamiter Building and
Gadsden Medical Building II, respectively.

Initial Properties Associated with the Desert Springs Hospital

The Desert Springs facility is located adjacent to the 225-licensed bed
Desert Springs Hospital in the southern section of Las Vegas, approximately two
miles from the "Las Vegas Strip." The Las Vegas MSA has an estimated population
of 870,000. Desert Springs Hospital was established in 1971 and has grown to its
current operating capacity through its diversified and specialized product lines
and medical staff, including cardiac specialty services. There are eight acute
care hospitals serving the Las Vegas MSA with a total of 2,018 licensed beds.
The hospital sits on a 17.5-acre campus, which also contains the two-story
ancillary hospital facility which will be purchased by the Company.

Desert Springs. Desert Springs, an ancillary hospital facility constructed
in 1974, is a 26,700 net rentable square foot, multi-story building located on
3.34 acres in Clark County, Nevada. Current tenants of the facility include
physicians who practice on the medical staff of Desert Springs Hospital.

NC-DSH, Inc., a Subsidiary of Quorum, will be the sole Lessee of Desert
Springs under a ten-year lease with three five-year renewal options. The Base
Rent per square foot is $19.80.

SURGICAL HEALTH INITIAL PROPERTIES

Surgical Health, headquartered in Atlanta, Georgia, and formed in 1991, is
a leading operator of freestanding outpatient surgery centers. Surgical Health's
surgery centers provide the facilities and medical support staff necessary for
physicians to perform on an outpatient basis non-emergency surgical procedures.

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Surgical Health owns and operates a network of 30 freestanding surgery centers
in 11 states with an aggregate of 123 operating and procedures rooms and is
developing an additional eight surgery centers in three states. Based on
industry sources, Surgical Health believes that it is the third-largest operator
of freestanding outpatient surgery centers in the United States.

Surgical Health's strategy is to establish networks of high quality
freestanding surgical centers in selected markets. Surgical Health has
established regional networks in eight markets. This strategy is designed to
enhance Surgical Health's ability to contract with managed care companies,
enable Surgical Health to implement effective sale and marketing programs at
lower marginal costs and provide physicians and patients with increased
accessibility to its surgery centers. Surgical Health pursues a marketing
strategy of developing relationships with associations of prominent primary care
and specialist physicians in its market areas and utilizing these relationships
to establish affiliations with managed care companies. Surgical Health is also
exploring joint ventures with hospitals.

The Company will acquire three ambulatory surgery centers from Surgical
Health. Surgical Health will guarantee the Leases of the facilities leased to
Subsidiaries of Surgical Health. On March 30, 1994, Surgical Health filed a
registration statement with the SEC related to the issuance of $75 million
principal amount of senior subordinated notes that are expected to be listed on
the New York Stock Exchange. As of December 31, 1992 and 1993, Surgical Health
had assets of $94,157,000 and $162,896,000 and stockholders' equity of
$21,046,000 and $36,140,000, respectively, and for the years ended December 31,
1992 and 1993, had net revenues of $36,561,000 and $80,883,000 and net income of
$187,000 and $3,909,000, respectively.

South County Medical Center. The South County Medical Center facility is a
multi-story, ambulatory surgery center, scheduled to be completed and occupied
in May 1994. The Company will acquire South County Medical Center upon the
completion of its construction and issuance by the proper authority of a
certificate of occupancy. As of April 15, 1994, leases had been signed for over
93% of the rentable space. The facility is situated on approximately 10 acres of
land in St. Louis County, Missouri, will contain approximately 45,200 net
rentable square feet, with Surgical Health's surgery center and related
activities occupying approximately 25,000 square feet. Physicians practicing the
following specialties are expected to use the four surgery suites at the
facility: general surgery, gastroenterology, orthopaedic, urology, ENT and
gynecology. A Subsidiary of HEALTHSOUTH will lease approximately 4,300 square
feet to use as an outpatient rehabilitation facility. The remaining space will
be leased to physicians.

Healthcare Real Estate Holdings II, Inc., a Subsidiary of Surgical Health,
will be the sole Lessee of South County Medical Center under a 15-year lease
with three five-year renewal options. The Base Rent per square foot is $17.73.

Northlake. Northlake, an ambulatory surgery facility constructed in 1993,
is an 8,749 square foot, single-story facility located on approximately 2.16
acres in Dekalb County, Georgia. Physicians practicing the following specialties
are expected to use the four surgery suites located at the facility: general
surgery, podiatry, ophthalmology, ENT, gynecology and oral surgery. One of
Surgical Health's Subsidiaries will sublease the facility from the Company under
a 13 year sublease with two five-year renewal options, which will be guaranteed
by Surgical Health. The Northlake facility is located on real estate being
ground leased from J. T. Honea, Sr. and J. T. Honea, Jr. The Company will assume
the existing ground lease between the seller and the Honeas, including the right
of first refusal in favor of the seller, and will sublease the real property to
one of Surgical Health's Subsidiaries. The Base Rent will be $12.86 per square
foot, exclusive of ground rent, which will be paid by the sublessee.

The CON for the Northlake facility has been challenged by HCA Health
Services of Georgia, Inc., d/b/a/ Northlake Regional Medical Center in two
related Georgia state court proceedings on the basis that the Georgia State
Health Planning Agency did not have authority by statute or regulation to permit
the relocation of the facility without a new CON. Regulations have since been
proposed that would permit such a relocation which contain a grandfather
provision that would be applicable to the Northlake facility. If the proposed
regulations are not finally adopted as published or are challenged and held
invalid, or if Surgical Health does not prevail on the issue of whether the
facility was properly grandfathered from the CON requirements, Surgical Health
may be required to discontinue operation of the Northlake facility and apply for

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a new CON. In such event the Company can require Surgical Health to substitute
one or more comparable properties for the Northlake facility.

North Shore. North Shore, an ambulatory surgery facility constructed in
, completely remodeled in 1988 and acquired in 1992 by Surgical
Health, is a 5,100 net rentable square foot, single-story facility located on
approximately 2.2 acres in Cook County, Illinois. Physicians practicing the
following specialties are expected to use the two surgery suites located at the
facility: general surgery, gastroenterology, urology, gynecology and
orthopaedics. One of Surgical Health's Subsidiaries will lease the facility from
the Company, which Lease will be guaranteed by Surgical Health. The Base Rent
per square foot will be $20.71.

ACQUISITION OF INITIAL PROPERTIES

The Company has signed letters of intent to acquire the 20 Initial
Properties and expects to sign Purchase Agreements as soon as practical. The
Purchase Agreements are expected to include customary representations and
warranties from each current owner of the particular Initial Property relating
to such matters as title, compliance with laws, condition of the properties and
other similar items. Certain of the warranties may be qualified and may not
afford the Company as much protection as unqualified warranties.

The Company intends to close the purchase of all of the Initial Properties
into escrow on or before the Effective Date of the Offering and to release the
Initial Properties from escrow immediately after the closing of the Offering,
except for the South County Medical Center facility which will be acquired as
soon as practical after the completion of its construction and the issuance by
the proper authority of a certificate of occupancy. If the acquisition of any of
the Initial Properties does not occur by the date specified in the applicable
Purchase Agreement, the seller of such Initial Property will no longer be
contractually bound to sell such property to the Company. The Company has no
reason to believe that it will not be able to acquire the Initial Properties
under the terms of the Purchase Agreements. The consummation of the closings of
the Initial Properties held in escrow is contingent only upon the closing of the
Offering no later than June 30, 1994. The closing for the purchase of the South
County Medical Center facility pursuant to the applicable Purchase Agreement is
subject to satisfaction of conditions which are generally customary in similar
real estate transactions. Because certain of the Initial Properties are subject
to governmental regulation and indebtedness which require consent prior to a
change of ownership, no assurance can be given that all of the Initial
Properties will be available for purchase by the Company.

The purchase price for each of the Initial Properties has been determined
by negotiation with the sellers after taking into consideration the rentals,
operating history, age and condition of each of the Initial Properties, and
other relevant factors, including appraisals. The applicable Disinterested
Directors have approved the purchase price and other terms relating to the
acquisition of each of the Initial Properties. In the opinion of management,
each of the Initial Properties is well maintained, in good repair, and suitable
for its intended use.

APPRAISALS

Current appraisals for each of the Initial Properties have been received by
the Company. Each of the appraisals was prepared by appraisers unrelated to the
Company and to HEALTHSOUTH and the other sellers of the Initial Properties. The
appraisals indicated that the Initial Properties have an aggregate current fair
market value of $120,402,000. Each of the Initial Properties will be purchased
at a purchase price not more than its appraised value.

The appraised values of the Initial Properties were generally developed
based on considerations of the following valuation approaches: cost, market and
income. The cost approach considers the land value of the sites and depreciated
replacement cost of the improvements. The market approach analyzes sales of
other going concern facilities in comparison to the Initial Properties. The
income approach develops a going concern value of the Initial Properties by
capitalizing their projected operating income. The appraisals of the Initial
Properties valued the Initial Properties on a going-concern basis. The income
approach normally provides the most reliable value estimate for multi-tenant
professional office buildings. The value of the property is strongly related to
the expected income stream of the property. Although the buyers of professional
office buildings are usually owner/occupants, these buyers are generally aware
of the property's cash flow potential and its value from an investor's
perspective. For this reason, appraisers consider the income approach the best
indicator of

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value for the subject. Appraisals based upon the liquidation approach may
produce values lower than those produced by the income approach.

Operating data, financial data and legal descriptions provided to the
appraisers were assumed by the appraiser to be accurate and correct, and no
audit or verification was undertaken by the appraiser in connection with its
report. The appraisers did not assume responsibility for matters of title.

Because the appraisals represent only an estimate of value, and are subject
to numerous assumptions, the appraisals do not purport to represent precise
measures of realizable value and should not be relied upon for purposes of
determining such value at any particular time. The appraisals assume that the
appraised facilities could be sold on an orderly basis under stable market
conditions. The estimate of the aggregate value of the appraised facilities is
the sum of the values determined for the individual facilities. No adjustment
was made with respect to a bulk sale of a group of facilities.

LEASES

The following description of the Leases does not purport to be complete,
but rather contains a general summary of certain provisions thereof. Reference
is made to the Leases filed with the SEC as exhibits to the Registration
Statement of which this Prospectus is a part, and the following summary is
qualified in its entirety by such reference.

Each Lease relates to a healthcare facility, comprised generally of the
land, buildings, other improvements and certain fixtures, for a use, in most
cases, restricted to the intended healthcare related use and for such other uses
as may be necessary in connection with or incidental to such use (the "Primary
Intended Use"). Generally, personal property is not being purchased or leased,
although the Company has been granted an option to purchase any personal
property necessary or appropriate for the operation of the Initial Properties
for an amount equal to the then-current book value (original cost less
accumulated depreciation on the books of the Lessee). The Leases have initial
terms ranging from 10 to 15 years with one or more renewal terms exercisable by
the Lessee of at least 10 additional years. The Leases are subject to earlier
termination upon the occurrence of certain contingencies. Base Rent varies by
Lease, taking into consideration many factors, including the credit of the
Lessee, operating performance of the facility, location, type and physical
condition of the facility. All of the Leases provide for Additional Rent
commencing after the first year based on either a set percentage increase or on
67% to 100% of the percentage increase in the applicable consumer price index,
with annual increases generally limited to a maximum of 5%.

Each Lease is a Triple Net Lease and the Lessee is responsible thereunder,
in addition to Base Rent and any Additional Rent, for all additional charges,
including every fine, penalty, interest and cost which may be levied for
nonpayment or late payment thereof, all taxes, assessments, levies, fees, water
and sewer rents and charges, all governmental charges with respect to each of
the Initial Properties, all utility and other charges, including insurance
premiums, incurred in connection with the operation of the Initial Property and
including ground rent in the case of the Virginia Beach and North Shore
facilities.

Each Lessee is required, at its expense, to maintain its leased property in
good order and repair. The Company is not required to repair, rebuild or
maintain the Initial Properties. Under certain Leases, the Company must purchase
from the Lessees certain structural capital improvements and replacements made
by such Lessees.

Most Leases also contain provisions which generally permit the Lessees,
under certain circumstances, to terminate the Leases and to repurchase the
leased property for a price equal to the Minimum Repurchase Price (as defined in
the Leases) or to substitute another property or properties for the applicable
Initial Property. These circumstances include (i) the occurrence of certain
damage to or destruction of one of the Initial Properties, (ii) condemnation,
and (iii) mutual agreement of the parties. The Lessees also have a right of
first refusal to purchase the leased property during the terms of the Leases and
for a short period of time following the expiration of the terms of the Leases
on the same terms and conditions as the Company may propose to sell one of the
Initial Properties.

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INSURANCE

The Company will require the Lessees to obtain title insurance with respect
to each of the Initial Properties in amounts equal to their respective purchase
prices, insuring that the Company holds title to each of the Initial Properties
free and clear of all liens and encumbrances, except those approved by the
Company. In the opinion of the management of the Company, the Initial Properties
will be adequately covered by comprehensive liability, fire, flood (if
available) and extended coverage with respect to the Initial Properties with
policy specifications and insured limits customarily carried for similar
properties. While the Company believes that its insurance coverage will be
adequate, there are certain types of losses which may either be uninsurable or
not economically insurable. Except with respect to the Midway facility, the
Company generally does not require the Lessees to carry earthquake insurance
with respect to its Initial Properties. This decision was based upon a number of
factors, including the structural design of the buildings and the general lack
of seismic activity in the areas where the Initial Properties are located.
Should an uninsured loss occur the Company could lose its investment in, and
anticipated profits and cash flow from, an Initial Property.

MEDICAID, MEDICARE, BLUE CROSS AND OTHER REVENUE

Payments for patient care earned by Lessees and Sublessees are received
from the federal Medicare program, state Medicaid programs, private insurance
carriers, employers and Blue Cross plans, health maintenance organizations,
preferred provider arrangements and directly from patients. Medicare payments to
acute care hospitals for inpatient services are made pursuant to the Prospective
Payment System ("PPS") under which a hospital is paid a prospectively
established rate based on diagnosis. In general, Medicare payments for
psychiatric care and rehabilitative care are exempt from PPS and continue to be
reimbursed on a cost basis system.

Under regulations effective November 1, 1991, the capital related costs of
PPS hospitals are to be reimbursed by the Medicare program on a prospective
basis, phased in over a ten-year transition period, eventually to be a set
federal rate. The effects of the new payment methodology on actual levels of
reimbursement cannot yet be predicted. Properties not subject to PPS will
continue to be reimbursed by Medicare for capital costs on a percentage of cost
basis. Payments from state Medicaid programs for acute care, rehabilitative and
psychiatric care are based on reasonable costs or are at fixed rates. Medicare
and Medicaid payments are generally below a facility's actual charge schedule
and in some cases payments are limited, delayed or reduced because of federal
and sometimes state budget deficits.

In recent years, fundamental changes in the Medicare program (including the
implementation of a PPS for inpatient services at medical surgical hospitals)
have resulted in reduced levels of payment for a substantial portion of
healthcare services. Moreover, healthcare facilities have experienced increasing
pressures from private payors attempting to control healthcare costs, that have
reduced reimbursement to levels approaching that of government payors.
Considerable uncertainties surround the future determination of payment levels
under the Medicare program for inpatient hospital services as well as outpatient
services.

Blue Cross payments in different states and areas are based on costs,
negotiated rates or retail rates. Payments from health maintenance organizations
and preferred provider organizations generally are negotiated, usually at a
discount from published charge schedules, which may take the form of a flat
payment per enrollee in the plan offered by such organizations.

FUTURE ACQUISITIONS OF HEALTHCARE FACILITIES

The Company's strategy is to become a leading provider of healthcare
facility capital by investing in a high quality portfolio of properties managed
by established operators including long-term care, hospital management,
rehabilitation and alternate-site care companies. The Company intends to
diversify its portfolio by operator, geography, facility type and healthcare
industry segment. Its investment criteria emphasize the credit quality of the
guarantor, competitive position of the property, attractiveness of the industry
segment, and fit with the Company's existing portfolio. The Company believes
that there currently is significant demand for REIT financing capital in the
healthcare industry. In addition, the Company believes the substantial
healthcare industry experience and numerous relationships of its management and
directors will help the

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Company identify, evaluate and complete additional investments. Management
believes that opportunities for property acquisitions are currently particularly
attractive because of the increasing demand for alternate site and outpatient
healthcare services, anticipated capital requirements by the healthcare industry
to fund these and other properties, and the reduced supply of available
financing from traditional sources. Management also believes that there are
opportunities to provide development funding to established healthcare industry
operators on a selective basis.

The following are brief descriptions of the types of healthcare facilities
in which the Company will seek additional investment:

Ancillary Hospital Facilities and Acute Care Hospitals

Ancillary hospital facilities are generally not subject to separate
licensing requirements, although certain hospital ancillary services may be
subject to licensing, CON and other regulatory requirements in addition to those
applicable to acute care hospitals. The success of an ancillary hospital
facility is dependent on its proximity to a hospital. The Company may purchase
one or more hospital properties in the future. Acute care hospitals are subject
to extensive federal, state and local legislation and regulation. Acute care
hospitals undergo periodic inspections regarding standards of medical care,
equipment and hygiene as a condition of licensure. Various licenses and permits
also are required for narcotics, laboratories, pharmacies, radioactive materials
and certain equipment. Accreditation by the Joint Commission on Accreditation of
Healthcare Organizations is generally required for participation in government
sponsored provider programs. Acute care hospitals are subject to and comply with
various forms of utilization review. In addition, under PPS, each state must
have a Professional Review Organization to carry out a federally mandated system
of review of Medicare patient admissions, treatment and discharges in acute care
hospitals. Medical and surgical services and practices are extensively
supervised by committees of staff doctors at each acute care hospital, and are
reviewed by each acute care hospital's local governing board and quality
assurance personnel. New regulations governing the control of disposal of
hazardous wastes may increase the costs of operating acute care facilities.

Physician Clinics

Physician clinics are subject to extensive federal, state, and local
legislation and regulation. Every state imposes licensing requirements on
individual physicians and on facilities and services operated by physicians. In
addition, federal and state laws regulate health maintenance organizations and
other managed care organizations with which the physician groups may have
contracts. Many states require regulatory approval, including CONs, before
establishing certain types of physician-directed clinics, offering certain
services or making expenditures in excess of statutory thresholds for healthcare
equipment, facilities, or programs. In connection with the expansion of existing
operations and the entry into new markets, physician clinics and affiliated
practice groups may become subject to compliance with additional regulation.

Ambulatory Surgery Centers

Ambulatory surgery centers are subject to extensive federal, state and
local legislation and regulation. Ambulatory surgery centers undergo periodic
inspections regarding standards of medical care, equipment and hygiene as a
condition of licensure. Many states require regulatory approval, including CONs,
before establishing certain types of healthcare facilities, offering certain
services or making expenditures in excess of statutory thresholds for healthcare
equipment, facilities or programs. License and certification standards vary by
jurisdiction and undergo periodic revision. In connection with the expansion of
existing operations and the entry into new markets, ambulatory surgery centers
may become subject to compliance with additional regulation.

Long-Term Care and Sub-Acute Care Facilities.

Long-term care and sub-acute care facilities are licensed by state
healthcare agencies, and are subject to extensive federal, state, and local
regulatory and inspection requirements. License, CON and certification standards
and requirements vary by jurisdiction and undergo periodic revision. These
requirements relate to,

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among other things, the quality of the nursing care, the qualifications of
administration personnel and nursing staff, the condition of the long-term care
facility and the adequacy of its equipment, and continuing compliance with laws
and regulations to the operation of the facilities.

GOVERNMENT REGULATION AND RECENT DEVELOPMENTS

The financial condition of Lessees or sublessees may be affected by changes
in the reimbursement, licensing and certification policies of federal, state and
local governments for healthcare related facilities. Certain of the Initial
Properties may also be affected by changes in accreditation standards or
procedures of accrediting agencies that are recognized by governments in the
certification process. In addition, expansion (including the addition of new
beds or services or acquisition of medical equipment) and occasionally the
discontinuation of services of healthcare facilities is generally subjected to
state regulatory approval through CON programs.

Rental arrangements are subject to federal and state laws and regulations
governing illegal rebates and kickbacks where co-investors are physicians or
others in a position to refer patients to the facilities. The effect of these
laws and regulations is generally to prohibit, through the imposition of
criminal and civil penalties (including program exclusion), payment arrangements
that are construed to include compensation for patient referrals. Although there
can be no assurance that government enforcement agencies' and courts'
interpretations of these laws will be consistent with that of the Company, the
Company does not believe it or any of the Lessees or sublessees of the Initial
Properties has any Base Rent arrangements that do not comply in all material
respects with these laws. Legislative and regulatory proposals may be enacted or
adopted in the future that adversely affect physicians and other healthcare
providers that invest in healthcare facilities, regardless of whether there is
compensation for referrals, by limiting reimbursement by the Medicare and
Medicaid programs of otherwise covered services, requiring disclosures of such
interests, or imposing civil monetary and criminal penalties for violations of
proscriptions against referrals to such facilities.

State CON statutes generally provide that, prior to the addition of new
beds, the construction of new facilities or the introduction of new services, a
state health planning designated agency ("SHPDA") must determine that a need
exists for those beds, facilities or services. The CON process is intended to
promote comprehensive healthcare planning, assist in providing high quality
healthcare at the lowest possible cost and avoid unnecessary duplication by
ensuring that only those healthcare facilities that are needed will be built.

Typically, the provider of services submits an application to the
appropriate SHPDA with information concerning the area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan and the cost per patient day for the type of care contemplated. Whether the
CON is granted is based upon a finding of need by the SHPDA in accordance with
criteria set forth in CON statutes and state and regional health facilities
plans. If the proposed facility or service is found to be necessary and the
applicant to be the appropriate provider, the SHPDA will issue a CON containing
a maximum amount of expenditure and a specific time period for the holder of the
CON to implement the approved project.

Licensure and certification are separate, but related, regulatory
activities. The former is usually a state or local requirement and the latter is
a federal requirement. In almost all instances, licensure and certification will
follow specific standards and requirements that are set forth in readily
available public documents. Compliance with the requirements is monitored by
annual on-site inspections by representatives of various government agencies.
The Gravois facility and the Mountain View facility are currently required to be
licensed.

Loss by a facility of its ability to participate in government sponsored
programs because of licensing, certification or accreditation deficiencies or
because of program exclusion resulting from violations of law would have adverse
effects on its revenues.

Legislation has been introduced in Congress that, if enacted, would
prohibit physician referrals to most facilities in which they have an ownership
interest or with which they have a financial relationship. The list of

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services that could not be referred include clinical laboratory services,
physical therapy services, radiology services, radiation therapy services, the
furnishing of durable medical equipment, the furnishing of outpatient
prescription drugs, ambulance services, parenteral and enteral nutrition
equipment and supplies, occupational therapy services and inpatient and
outpatient hospital services (including services furnished at psychiatric and
rehabilitation hospitals). It is generally believed that this legislation would
not apply to investments by physicians or other referral sources in facilities
in which physicians perform services provided through group practices, in-office
ancillary services of physicians, and investments in large publicly held
corporations appear to be unaffected by the proposed legislation. If this
legislation is adopted, physicians or other persons or entities in a position to
make or influence referrals could make referrals to facilities subject to Leases
only if the Company is able to satisfy the exceptions contained in the current
law. The failure of the Company to comply with applicable exceptions, such as
the exception for large, publicly-held corporations, would prevent physicians
with an ownership interest in the Company from making referrals to facilities
subject to Leases for services affected by such legislation.

In December 1992, the American Medical Association modified its ethical
position on physician referrals to facilities in which they have an ownership
interest. Generally, physicians are prohibited from making referrals to
facilities in which they have an ownership interest unless they provide services
at the facility (such as surgeons at surgery centers and physicians with staff
privileges at hospitals). A narrow exception to this rule is permitted when a
facility is clearly needed in a community and alternative financing is not
available if certain strict conditions are satisfied. While it is generally
believed that these regulations are not intended to affect physician ownership
in large, publicly-traded companies such as the Company, physicians considering
an investment to the Company should be aware of the existence of these ethical
considerations and consider the potential applicability to the proposed
investment.

In recent years, a number of proposals have been introduced in Congress
that would reform various aspects of the healthcare system, including
malpractice reform, universal access to healthcare, global budgeting of public
and private healthcare spending. Medicare payment reform and establishment of
national health or single payor insurance programs financed by the federal
government. Legislation introduced in Congress known as "The Managed Competition
Act of 1992" would have, if enacted, (i) provided tax incentives to employers
who provide basic healthcare benefits coverage for their employees, but would
limit deductions for providing additional benefits; (ii) provided universal
access to coverage through varying levels of direct government subsidies for
individuals with incomes below 200% of the poverty level; (iii) incorporated
insurance reform and malpractice reform to reduce costs; and (iv) encouraged
through tax incentives the establishment of accountable health plans consisting
of providers and insurance companies that compete on the basis of offering high
quality, low cost healthcare.

In September 1993, President Clinton proposed plans for healthcare reform.
Although elements of the Managed Competition Act, along with other health reform
initiatives, are being considered, no assurance can be given as to what elements
will be included in the President's comprehensive national healthcare reform
package, whether such proposal will be enacted into law, or what effect such
proposals would have on the operations of Initial Properties.

REGULATORY COMPLIANCE

The Company believes that healthcare regulations will continue to change
and, therefore, regularly monitors developments in healthcare law. There can be
no assurance that all facilities to be subject to Leases can remain in
compliance with applicable law.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances and
regulations, an owner of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, under or disposed of in
connection with such property, as well as certain other potential costs relating
to hazardous or toxic substances (including fines and injuries to persons and
adjacent property). Most, if not all, of these laws, ordinances and regulations
contain stringent enforcement provisions including,but not limited to,

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the authority to impose substantial administrative, civil and criminal fines and
penalties upon violators. Such laws often impose liability without regard to
whether the owner knew of, or was responsible for, the presence or disposal of
such substances and may be imposed on the owner in connection with the
activities of an operator of the property. The cost of any required remediation,
removal, fines or personal or property damages and the owner's liability
therefor could exceed the value of the property and/or the aggregate assets of
the owner. In addition, the presence of such substances, or the failure to
properly dispose of or remediate such substances, may adversely affect the
owner's ability to sell or lease such property or to borrow using such property
as collateral.

Operations at the Initial Properties have been and will continue to be
subject to numerous federal, state, and local environmental laws, ordinances and
regulations, including those relating to the generation, segregation, handling,
packaging and disposal of medical wastes as well as facility siting,
construction, occupational training and safety, disposal of non-medical wastes,
underground storage tanks and ash emissions from incinerators. Operations of
nuclear medicine departments at some of the Initial Properties also involve the
use and handling, and subsequent disposal of, radioactive isotopes and similar
materials, activities which are closely regulated by the Nuclear Regulatory
Commission and state regulatory agencies. In addition, several of the Initial
Properties were built prior to the time prohibitions on the use of asbestos in
building construction were enacted and other such facilities may be acquired by
the Company in the future. Seven of the Initial Properties contain non-friable
asbestos-containing materials, and other facilities may contain friable and
non-friable asbestos-containing materials. The presence of such materials could
result in significant costs in the event that any friable asbestos-containing
materials requiring immediate removal and/or encapsulation are located in or on
any of such facilities or in the event of any future renovation activities.

The Company has had new environmental audits conducted on only some of the
Initial Properties, while recent audits were relied upon with respect to the
balance of the Initial Properties. All of the Purchase Agreements and leases
pertaining to the Initial Properties contain indemnification provisions relating
to environmental liabilities or conditions, although there can be no assurances
that the seller will be able to fulfill its indemnification obligations. In
addition, the scope of such indemnification obligations may be limited and there
can be no assurances that such indemnification obligations will apply to all
environmental costs or liabilities incurred by the Company. The Leases do not
give the Company control over the operations of the Lessees, nor will the
Company monitor the Lessees with respect to environmental matters.

No assurance can be given that the provisions of either the Purchase
Agreements or the Leases will fully protect the Company or that any prior owner,
Lessee or future lessee of a Initial Property did not and will not create
environmental conditions not known to the Company.

Although the Company has not, in many cases, conducted or received an
independent investigation or analysis of the environmental conditions or
liabilities associated with the Initial Properties, the Company is not aware of
any such condition or liability that management presently believes would have a
material adverse effect on the Company's earnings, expenditures or continuing
operations.

COMPANY OFFICES

The Company's headquarters are located in offices at One Perimeter Park
South, Suite 335-S, Birmingham, Alabama 35243, which are leased by the Company
from Birmingham Realty Company until May 31, 1994. Annual rental is $7,755.00.
The office lease covers approximately 1,500 square feet at rent of $5.17 per
square foot.

LEGAL PROCEEDINGS

In June 1993, Mr. Gerald Chandler filed a lawsuit in the Circuit Court for
Jefferson County, Alabama, against Richard M. Scrushy, Larry R. House, Michael
D. Martin, John W. McRoberts and a to be formed REIT, seeking damages arising
out of the defendants' alleged breaches of alleged verbal agreements to employ
Mr. Chandler. The Company is of the opinion that this lawsuit is without merit
and will not have a material adverse effect on the Company and is defending the
lawsuit vigorously.

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<PAGE> 44

INVESTMENT AND OTHER POLICIES

The following is a summary of the Company's investment policy and policies
with respect to certain other activities.

INVESTMENT POLICY

The Company's investment objectives are to (i) generate current income for
stockholders, (ii) provide increased returns to stockholders through the
acquisition and development of additional properties, which may require the use
of additional debt or equity financing, (iii) provide the opportunity to realize
capital growth resulting from appreciation, if any, in the residual values of
any properties acquired and (iv) preserve and protect stockholders' capital.
There can be no assurance that any of these objectives will be realized.

The Bylaws of the Company permit the Board of Directors with the consent of
a majority of the Executive Committee, but without the approval of the
stockholders, to alter the Company's investment policies if they determine in
the future that such a change is in the best interests of the Company and its
stockholders. The methods of implementing the Company's investment policies may
vary as new investment and financing techniques are developed.

The Company intends to invest in real property, principally for the
production of income, although the prospect for capital appreciation is a factor
that will be considered in making such investments. The Company's present policy
is not to have any single property or lease account for more than 20% of either
its assets or annualized rental revenue. There are no limitations on the number
or amount of mortgages that may be placed on any single property, but the
Company's present policy prohibits aggregate debt (secured or unsecured) in
excess of 50% of the Company's total capitalization. The Company intends to
close all of the Initial Properties in escrow on or before the Effective Date of
the Offering and to release the Initial Properties from escrow immediately after
the closing of this Offering, except for the South County Medical Center
facility which will be purchased after the completion of its construction and
the issuance by the proper authority of a certificate of occupancy. Thereafter,
the Company intends to seek growth through the acquisition of additional
income-producing projects developed by third parties. The Company will
concentrate on investments in healthcare-related facilities, including acute
care hospitals, rehabilitation hospitals, physician clinics, ambulatory surgery
centers, clinical laboratories, ancillary hospital facilities, long-term care
facilities, and medical centers, but may also consider opportunities in other
kinds of income-producing real property. Management has no present intention to
invest in properties unrelated to the healthcare industry.

The Company may acquire additional income-producing properties, expand and
improve its properties or sell such properties when, in the opinion of the
Company, circumstances warrant. The Company may also participate with other
entities in property ownership, through joint ventures or other types of
co-ownership, so long as the Company is the controlling party in any such
venture. While the Company presently intends to acquire equity investments in
real estate, it may, in its discretion, invest in mortgages and other types of
interests in real estate. The Company may also invest in securities of concerns
engaged in real estate activities or securities of other issuers, either for
investment purposes or for the purpose of exercising control, subject to
limitations on such investments necessary for REIT qualification.The Company has
the authority to invest in securities of other issuers and interests in real
estate, but has no present plans to do so. Except for the policy

42
<PAGE> 45

that no one property may account for more than 20% of the Company's assets or
annualized rental revenue, there is no limit to the percentage of assets that
may be invested in securities or interests in real estate.

The Company may enter into build-to-suit type agreements that by their
terms require conversion to leases upon the completion of the development of the
facility. During the term of the development of the facility, funds will be
advanced pursuant to requests made by the developer in accordance with the terms
and conditions of the applicable development agreement. Simultaneously with the
commencement of the development of a facility, the Company will enter into a
lease with the developer. The Base Rent under such a lease will be established
at a specified rate or at a specified number of basis points over an agreed-upon
United States treasury security's yield in effect at the time of certified
substantial completion of the facility.

The Company's development program will generally include a variety of
additional forms of security and collateral beyond that provided by the Leases,
such as irrevocable letters of credit from financial institutions, payment and
performance completion bonds or completion guarantees. In addition, prior to any
advance of funds by the Company under a development agreement, the developer
generally must provide: (i) satisfactory evidence in the form of an endorsement
to the Company's title insurance policy that no intervening liens have been
placed on the property since the date of the Company's previous advance; (ii) a
certificate executed by the architect-of record that indicates that all
construction work completed on the facility conforms with the requirements of
the plans, specifications, and any change orders previously approved by the
Company; (iii) a certificate executed by the general contractor or construction
manager that all work requested for reimbursement has been completed; and (iv)
satisfactory evidence that the funds remaining unadvanced are sufficient for the
payment of all costs necessary for the completion of the facility in accordance
with the terms and provisions of the agreement. As a further safeguard during
the development period, the Company will generally retain a percentage of
construction costs incurred until it has received satisfactory evidence that the
facility has been substantially completed in accordance with the applicable
plans, specifications, and approved change-orders, and the period during which
liens may be perfected with respect to any work performed, or labor or materials
supplied, in connection with the construction of the facility has expired. The
Company anticipates that it will also monitor the progress of the development of
each facility and the accuracy of the developer's requests for funds by having a
third-party inspector perform monthly on-site inspections.

In evaluating potential investments, the Company will consider such factors
as: (i) the geographic area, type of property and demographic profile; (ii) the
location, construction quality, condition and design of the property; (iii) the
current and anticipated cash available for distribution and its adequacy to meet
operational needs and lease obligations and to provide a competitive market
return on equity to the Company's investors; (iv) the potential for capital
appreciation, if any; (v) the growth, tax and regulatory environment of the
communities in which the properties are located; (vi) the occupancy and demand
for similar health facilities in the same or nearby communities; (vii) an
adequate mix of private and government sponsored patients; (viii) any potential
alternative uses of the facilities; (ix) prospects for liquidity through
financing or refinancing; (x) industry segment and operator diversification; and
(xi) the suitability of the potential investments in light of maintaining REIT
status.

In making future investments, the Company intends to focus on established,
credit-worthy potential lessees which meet the Company's standards for quality
and experience of management. In order to determine creditworthiness of
potential lessees, the Company will review historical and prospective financial
information of the lessee, together with appropriate financial information of
any guarantor. Factors considered in connection with such financial review with
respect to the lessee and any guarantor will include the net worth,
profitability and cash flow, debt position, and the ability of the lessee and
any guarantor to provide additional credit enhancements.

The Company will actively seek to maintain diversification of its
investments in terms of geographic location, lessee and facility types, although
investments are not limited (as to percentage of assets or otherwise) to any
geographic area or any specific type of property. A fundamental investment
objective of the Company will be to obtain contractual Base Rent escalations
under long-term, noncancellable, Triple Net Leases and to obtain credit
enhancements based upon the credit of the Lessee or its parent.

43
<PAGE> 46

Management of the Company will conduct market research and analysis for all
potential investments. Management also will review the value of the property,
the interest rates and debt service coverage requirements of any debt to be
assumed and the anticipated sources of repayment for the investment. There are
no limitations on the percentage of the Company's total assets that may be
invested in any one property or joint venture or other investment. The Board of
Directors may establish limitations as it deems appropriate from time to time
without a vote of the stockholders of the Company. No limits have been set on
the number of properties in which the Company will seek to invest, or on the
concentration of investment in any one property or any one city or state.

The Company may determine to finance acquisitions through the exchange of
properties or the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its Common Stock or any
other securities and may determine to do so in the future.

To the extent that the Company's Board of Directors determines to obtain
additional capital, the Company may raise such capital through additional equity
offerings, debt financings or retention of cash available for distribution
(subject to provisions of the Code concerning the taxability of undistributed
income of REITs), or a combination of these methods. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and " -- Other Policies" below.

The Company expects to hold its properties as long-term investments and has
no maximum period for retention of each investment. To the extent that the
Company holds its properties for long periods, it may not have sufficient funds
available to acquire additional properties unless such funds are available
through the Bank Credit Facility or other borrowings, or are raised through
additional equity or debt financing, including debt incurred by mortgaging
existing properties.

The Company may invest its cash in certain short-term investment grade
instruments. Such investments may be in interest-bearing bank accounts,
certificates of deposit, money-market securities, United States government
securities, mortgage-backed securities guaranteed by the Government National
Mortgage Association, mortgages insured by the Federal Housing Administration or
guaranteed by the Veterans Administration, mortgage loans, mortgage loan
participation and certain other similar investments. The Company's ability to
make certain of these investments may be limited by tax considerations.

The Company may sell a property if such property has significantly
appreciated in value. The Company anticipates that the value of the properties
that it intends to acquire will appreciate over the term of its ownership.
Appreciation of the properties is dependent upon many factors, including: (i)
growth of the healthcare industry in general, which in turn is dependent upon a
rising demand for healthcare services, (ii) availability of financial resources
to pay for increased healthcare services, and (iii) supply of healthcare
facilities within the geographical area of the Company's properties which is
available to satisfy the demand for such facilities. Supply and demand for
healthcare facilities within the geographical area of the Company's properties
is dependent, among other considerations, upon (i) availability of capital for
construction of new healthcare facilities; (ii) competing healthcare facilities;
and (iii) population growth and the demographic composition thereof. The
Company, in employing its investment criteria, has selected properties for
acquisition with respect to which it believes there is reasonable likelihood for
appreciation based upon the foregoing considerations.

In the event the Company sells or otherwise disposes of any of its
properties, the Board of Directors will determine whether and to what extent the
Company will acquire additional properties or distribute the proceeds to the
stockholders.

OTHER POLICIES

The Company may incur indebtedness when, in the opinion of the Board of
Directors, it is advisable to do so subject to the limitation described in
" -- Investment Policy" and limitations imposed by financing as described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company has obtained a
written commitment from NationsBank for

44
<PAGE> 47

the $30 million Bank Credit Facility, which will be used to purchase the Initial
Properties, acquire additional properties and for general corporate purposes.
The Company may from time to time negotiate lines of credit or arrange for other
short-term borrowings from banks or otherwise. The Company may also arrange for
long-term borrowings from public offerings, banks or other institutional
investors. Such borrowings may be for general corporate purposes, to improve or
expand existing properties, to acquire additional properties or to fund any
shortfall of cash necessary to meet its cash distribution requirements that
could arise if its taxable income exceeds it cash available for distribution.

In addition, the Company may incur mortgage indebtedness on real estate
which it owns. Where terms are deemed favorable, the Company may invest in
properties subject to existing mortgages, deeds of trust or similar liens on the
properties. The Company also may obtain non-recourse or other mortgage financing
for unleveraged properties in which it has invested or may refinance properties
acquired on a leveraged basis. There is no limitation on the number or amount of
mortgages which may be placed on any one property, although the Company's policy
is not to incur indebtedness in excess of 50% of its total capitalization.

The Company has no present intention to issue senior securities; however,
its Articles of Incorporation authorize the Board of Directors to classify or
reclassify any unissued shares of stock, including the right to issue up to
10,000,000 shares of preferred stock in series, and the Company may in the
future issue senior securities to raise equity or debt capital, to acquire real
estate or other assets or in connection with a merger or other business
acquisition or for any other corporate purposes. The Company may repurchase or
otherwise reacquire its own shares, although it may not issue stock that is
redeemable at the option of the holder.

The Company intends to hold the properties it acquires for long-term
investment. The Company will seek to sell the properties it owns when management
determines that the continued ownership no longer meets its then current
criteria or where a higher yield would be achieved through another investment.
Proceeds from the sale of properties may be used by the Company to acquire
additional investments.

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<PAGE> 48

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ------------------------------------------
<S> <C> <C>
John W. McRoberts(1)(3) 41 President, Chief Executive Officer and
Director
William C. Harlan 42 Senior Vice President and Head of
Acquisitions
Andrew L. Kizer 37 Vice President, Chief Financial Officer,
Secretary and Treasurer
Richard M. Scrushy(1) 41 Chairman of the Board
Michael D. Martin(1)(3) 33 Director
Robert N. Elkins(3) 49 Director
William B. Luttrell(2) 49 Director
Eric R. Hanson(3) 39 Director
Larry D. Striplin, Jr.(2) 64 Director
W. Barry Morton(1) 56 Director
George E. Bogle(2) 56 Director
</TABLE>

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

(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee

Officers are appointed by and serve at the discretion of the Board of
Directors. All current officers were appointed on March 31, 1994. The officers
will devote substantially their full business time to the business and affairs
of the Company.

Mr. McRoberts was a senior officer of AmSouth Bank N.A., headquartered in
Birmingham, Alabama, prior to becoming a co-founder, President and Chief
Executive Officer of the Company. He was employed by AmSouth Bank from 1977 to
1993 and most recently was head of Corporate Banking for the Birmingham area.
Mr. McRoberts' responsibilities at AmSouth also included oversight of the bank's
entire healthcare lending portfolio and the Birmingham based real estate lending
portfolio.

Mr. Harlan was a senior officer of SouthTrust Bank, N.A., headquartered in
Birmingham, Alabama, prior to becoming employed by the Company. He was employed
by SouthTrust Bank from 1976 to 1993 and was most recently head of the bank's
healthcare lending area. Mr. Harlan serves on the advisory board of Carraway
Medical Center, Inc.

Mr. Kizer, a CPA, was a senior manager with KPMG Peat Marwick in their
Birmingham office prior to becoming employed by the Company. Mr. Kizer was
employed by KPMG Peat Marwick from 1984 to 1993. Prior to that time he was
employed by Arthur Andersen in their Birmingham office.

Mr. Scrushy is Chairman, President and Chief Executive Officer of
HEALTHSOUTH Rehabilitation Corporation and is a co-founder of the Company. Prior
to founding HEALTHSOUTH in 1983, Mr. Scrushy served as a Vice President of
Lifemark Corporation, a NYSE listed company. He also serves on the Board of
Directors of Surgical Health Corporation, Integrated Health Services, Inc.,
Diagnostic Health Corporation, MedPartners, Inc., Caretenders Healthcorp, Omega
Pharmaceuticals, Inc., and Scandipharm, Inc.

Mr. Martin, is Senior Vice President and Treasurer of HEALTHSOUTH
Rehabilitation Corporation and a co-founder of the Company. Prior to joining
HEALTHSOUTH in 1989, he had been employed by AmSouth Bank N.A. since 1982. At
the time of his departure from AmSouth Bank, Mr. Martin was Vice President and
served in a corporate lending function. Mr. Martin serves on the Board of
Directors of Caretenders Healthcorp.

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<PAGE> 49

Mr. Elkins has served as Chairman and Chief Executive Officer of Integrated
Health Services, Inc., since March 1986. Prior to his founding Integrated
Health, Mr. Elkins served as a co-founder and Vice President of Continental Care
Centers, Inc., an operator of long-term healthcare facilities.

Mr. Luttrell has been President and Chief Executive Officer of Surgical
Health Corporation, a privately held company that operates outpatient surgery
centers throughout the country, since its inception in July 1991. Prior to
co-founding Surgical Health Corporation, Mr. Luttrell was Chief Executive
Officer and a member of the Board of FLR Health Resources, a national healthcare
consulting company. From 1981 through 1987, Mr. Luttrell was associated with
Surgical Care Affiliates, Inc., a publicly held company that operates surgery
centers in partnership with physicians and hospitals.

Mr. Hanson is Chairman and Chief Executive Officer of U.S. Strategies
Corp., a national public affairs and development company specializing in
healthcare and urban affairs. Mr. Hanson founded U.S. Strategies Corp. in 1984
and has served U.S. Strategies Corp. in his current capacity since that time.

Mr. Striplin is President and Chief Executive Officer of Circle "S"
Industries, a holding company with headquarters in Selma, Alabama. Among the
Circle 'S' companies are Nelson/Brantley Glass Company, DISCO Aluminum Products,
American Fine Wire, Clearview Properties, Aim Leasing Company. Mr. Striplin
serves on the boards of directors of Omega Pharmaceuticals, Inc. and Med
Partners, Inc.

Mr. Morton is President and Chief Executive Officer of The Robins & Morton
Group, a Birmingham-based construction company that specializes in the
construction of hospitals and related healthcare facilities throughout the
southeast. Mr. Morton has served in his current capacity since 1982 and has been
affiliated with The Robins & Morton Group his entire career.

Mr. Bogle is Chairman and Chief Executive Officer of USA Health Holding,
Inc. USA Health Holding, Inc. is the parent of USA Health Network, the nation's
largest preferred provider organization; USA Workers Insurance Network (WIN),
the nation's largest workers compensation network; and USA Transnet, the
nation's largest trauma and transplant network. Mr. Bogle founded USA Health
Network in 1984.

A director holds office until the next annual meeting and until his
successor is elected and qualified. A director may be removed from office with
or without cause only at a meeting of the stockholders called for that purpose
by the affirmative vote of the holders of not less than two-thirds of the shares
then outstanding and entitled to vote on the election of directors.

The Company's Bylaws provide that a majority of the Company's directors not
interested in a transaction, including a majority of the Disinterested
Directors, is required to approve any transactions between the Company and any
of its officers, directors, or their affiliates. The Company's Bylaws do not
otherwise limit transactions between the Company and interested persons. No
family relationship exists among the officers and directors.

EXECUTIVE COMPENSATION

The Company was organized on March 31, 1994, and has had no operations
since that time.

The Company has agreed to reimburse the Partnership up to $1,475,000 upon
closing of the Offering for actual costs related to organizing the Company,
negotiating the Initial Property acquisitions, performing due diligence
investigations related to the Initial Properties, performing corporate work in
contemplation of the Offering, preparing the Registration Statement and
providing interim financing for and closing the acquisition of the Initial
Properties. These costs include certain costs related to performing property due
diligence, certain property closing and financing costs, employee compensation,
travel and overhead. These costs include salaries of executive officers from
January 1, 1994, through , 1994, to John W. McRoberts ($ ),
William C. Harlan ($ ), and Andrew L. Kizer ($ ). All other
amounts paid in connection with pre-formation activities were paid by the
Partnership to unaffiliated third parties for services rendered on behalf of the
Company.

The following table sets forth certain summary information concerning the
annual base salaries to be paid to the Company's chief executive officer and the
two other executive officers of the Company for 1994:

47
<PAGE> 50

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
-------------------- --------------
PRINCIPAL BASE STOCK
NAME POSITION YEAR SALARY($)(1) BONUS OPTIONS (#)(3)
- -------------------------- ---------------------------------- ---- ------------ ----- --------------
<S> <C> <C> <C> <C> <C>
John W. McRoberts......... President and Chief Executive 1994 $200,000 (2) 125,000
Officer
William C. Harlan......... Senior Vice President and 1994 100,000 (2) 85,000
Head of Acquisitions
Andrew L. Kizer........... Vice President and 1994 80,000 (2) 50,000
Chief Financial Officer
</TABLE>

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

(1) Annualized for year ended December 31, 1994.
(2) Annual bonuses will be determined by the Compensation Committee of the
Company's Board of Directors.
(3) Options to purchase a total of 260,000 shares of Common Stock will be
granted to executive officers of the Company on the date of this
Prospectus at the initial public offering price. See "Management -- 1994
Stock Incentive Plan."

<TABLE>
<CAPTION>
OPTIONS GRANTED IN FISCAL YEAR 1994
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------- VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
TOTAL OF SHARE PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OR OPTION PERIOD
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
- ------------------------------- ------- ------------ ----------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John W. McRoberts.............. 125,000 48% $ 19.00 , 2004 $1,493,625 $3,785,138
William C. Harlan.............. 85,000 33 19.00 , 2004 1,015,665 2,573,894
Andrew L. Kizer................ 50,000 19 19.00 , 2004 597,450 1,514,055
</TABLE>

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

(1) Based on the mid-point of the filing range of the estimated initial public
offering price of the Common Stock.

The Company intends to adopt and implement a bonus arrangement for its
executive officers to be administered by the Compensation Committee.

COMPENSATION COMMITTEE AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

The members of the Compensation Committee of the Company's Board of
Directors are Richard M. Scrushy, John W. McRoberts and Eric R. Hanson. There
are no interlocks among the members of the Compensation Committee. Although John
W. McRoberts serves on the Company's Compensation Committee, he does not
participate in any decisions regarding his own compensation as an executive
officer.

DEFERRED COMPENSATION PLAN

The Company intends to adopt a Deferred Compensation Plan (the "Plan"),
pursuant to which eligible participants may elect to defer and invest a portion
of their compensation. The Company intends to match a portion of the deferred
amount. The amounts credited to a participant's account will be credited with
the results of a selected investment option, which are expected to include funds
primarily investing in debt issued by the United States Government, equity
securities, or a combination or debt and equity securities. All amounts in an
account of a participant will be fully vested at all times and may be withdrawn
by a participant 30 days following such participant's termination of employment.
The participant will be able to request that his benefits be paid as a single
lump sum or over a period of between three and ten years as specified by the
participant. The Plan will be administered by a committee consisting of three or
more persons selected by the

48
<PAGE> 51

Compensation Committee of the Board of Directors. The Plan committee will have
broad powers to interpret and administer the Plan, including designating
participants and investment options.

1994 STOCK INCENTIVE PLAN

The Board of Directors has adopted the 1994 Stock Incentive Plan (the
"Stock Incentive Plan"). After the closing of the Offering, the Stock Incentive
Plan will be administered by the Stock Option Committee appointed by the Board
of Directors.

The Company may issue incentive awards for up to 418,600 of its outstanding
shares of Common Stock under the Stock Incentive Plan. Under the Stock Incentive
Plan, the Stock Option Committee appointed by the Board of Directors may grant
to employees and members of the Board of Directors of the Company or its
subsidiaries or affiliates stock awards or non-transferable options to purchase
Shares of the Company's Common Stock for terms not longer than ten years, at
prices to be determined by the Board of Directors or the Stock Option Committee,
which may not be less than 95% of the fair market value of the Common Stock on
the date of grant. Options granted under the Stock Incentive Plan may be subject
to other conditions set by the Stock Option Committee, may be exercised by
payment of cash, shares valued at fair market value, or, at the option of the
Stock Option Committee, by a note secured by shares. Unless terminated earlier,
the Stock Incentive Plan will terminate on , 2004.

Options to purchase a total of 260,000 shares of Common Stock will be
granted to executive officers of the Company on the date of this Prospectus at
the initial public offering price.

RETIREMENT PLANS

The Company intends to adopt a retirement plan for its executive officers
pursuant to which an eligible executive may receive upon normal retirement
(defined to be when the participant reaches age 65 and has completed five years
of service with the Company) certain benefits based on average earnings and
years of service. The plan will be unfunded and will be paid from earnings of
the Company. All three of the Company's executive officers will be eligible
participants.

COMPENSATION OF DIRECTORS

No officer who is a member of the Board receives compensation for serving
on the Board. Each other member of the Board receives annual compensation of
$5,000 for serving on the Board, plus a fee of $1,000 for each Board and
committee meeting attended, except that only one fee will be paid in the event
that more than one such meeting is held on a single day. All directors receive
reimbursement of travel expenses incurred in attending Board and committee
meetings.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Articles of Incorporation provide that a director or officer
shall not be personally liable to the Company or its stockholders for money
damages unless (i) it is proved that the person actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property, or services actually received, or (ii) a judgement
or other final adjudication adverse to the person is entered in a proceeding
based on a finding in the proceeding that the person's action, or failure to
act, was the result of active and deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding. The Articles of Incorporation
further provide that if the law of the State of Maryland is amended to authorize
corporate action further limiting or eliminating the personal liability of
directors or officers then the liability of directors and officers to the
corporation or its stockholders shall be limited or eliminated to the fullest
extent permitted. While liability for monetary damages may be eliminated under
certain circumstances as a result of these provisions, equitable remedies such
as injunctive relief or rescission remain available.

The Company's Articles of Incorporation provide that the Company shall
indemnify directors, officers, employees and agents to the fullest extent
permitted by the law of the State of Maryland. The Company's Bylaws require it
to indemnify each director, officer, employee and agent of the Company and
purchase and

49
<PAGE> 52

maintain liability insurance for those persons as, and to the extent permitted
by Maryland law. Maryland law provides that any present or former director or
officer who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his services in that
capacity may be indemnified against judgments, penalties, fines, settlements and
reasonable expenses incurred by him in connection with the proceeding unless it
is established that: (i) his act or omission was committed in bad faith or was
the result of active or deliberate dishonesty; (ii) he actually received an
improper personal benefit in money, property, or services; or (iii) in the case
of a criminal proceeding, he had reasonable cause to believe that his act or
omission was unlawful, but, if the proceeding is one by, or in the right of
Company, indemnification is not permitted with respect to any proceeding in
which the director has been adjudged to be liable to the Company. The
termination of any proceeding by conviction or upon a plea of nolo contendere or
its equivalent creates a rebuttable presumption that the director failed to meet
the requisite standard of conduct required for permitted indemnification. The
termination of any proceedings by judgement, order or settlement, however, does
not create a presumption that the director failed to meet the requisite standard
of conduct for permitted indemnification. In addition, Maryland law provides
that reasonable expenses incurred by a director or officer who is a party to a
proceeding may be paid or reimbursed, in advance of final deposition of a
proceeding, provided that the Company shall have received (i) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (ii) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met.

Indemnification under the provisions of the Maryland General Corporation
Law ("MGCL") is not deemed exclusive of any other rights, by indemnification or
otherwise, to which a director may be entitled under the Article of
Incorporation, Bylaws, resolutions of stockholders or allegation, conduct or
otherwise.

Indemnification of the Company's directors and officers is subject to
certain limitations where claims of securities laws violations are involved.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors and
officers of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that, in the opinion of the SEC, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.

INSURANCE

The Company expects to maintain appropriate liability insurance and
casualty insurance on the Company's office premises and directors' and officers'
liability insurance for the officers and directors of the Company.

CERTAIN TRANSACTIONS

Ten of the Initial Properties will be purchased by the Company from and
leased to Subsidiaries of HEALTHSOUTH and the Leases for such Initial Properties
will be guaranteed by HEALTHSOUTH. Richard M. Scrushy and Michael D. Martin,
directors of the Company, are officers, directors and/or stockholders of
HEALTHSOUTH.

Two of the Initial Properties will be purchased by the Company from and
leased to Subsidiaries of Integrated Health and such Leases will be guaranteed
by Integrated Health. Robert N. Elkins, a director of the Company, is Chairman,
Chief Executive Officer and a stockholder of Integrated Health, and Richard M.
Scrushy, Chairman of the Board of the Company, is a director of Integrated
Health.

Three of the Initial Properties will be purchased by the Company from and
leased to Subsidiaries of Surgical Health and such Leases will be guaranteed by
Surgical Health. William B. Luttrell, a director of the Company, is Chairman,
President, Chief Executive Officer and a stockholder of Surgical Health, and
Richard M. Scrushy, Chairman of the Board of the Company, is a director of
Surgical Health.

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The Midway facility will be acquired prior to the Effective Date of this
Offering by MACI, an Alabama corporation all of the stock of which is owned by
Richard M. Scrushy, John W. McRoberts and Michael D. Martin, which will be
acquired by the Company pursuant to the terms of the Merger Agreement. The
consideration to be paid for MACI is the assumption of the indebtedness incurred
by MACI to purchase the Midway facility.

The Company has agreed to reimburse the actual costs incurred by the
Partnership on behalf of the Company upon closing of the Offering. These costs
relate to organizing the Company, negotiating the Initial Property acquisitions,
performing due diligence related to the Initial Properties, performing corporate
work in contemplation of the Offering, preparing the Registration Statement and
providing interim financing for and closing the acquisition of the Initial
Properties. These costs include certain costs related to performing property due
diligence, certain property closing and financing costs, employee compensation,
travel and overhead. The Company estimates that these reimbursements will be
approximately $1,475,000. These reimbursements will be paid from the proceeds of
the Offering.

PRINCIPAL STOCKHOLDERS

The following table sets forth the anticipated ownership of shares of the
Company's Common Stock by certain officers and directors of the Company upon the
closing of this Offering:

<TABLE>
<CAPTION>
PERCENT OF STOCK OWNED
SHARES ----------------------
NAME AND ADDRESS BENEFICIALLY PRIOR TO AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ----------------------------------------------------------- ------- -------- --------
<S> <C> <C> <C>
Richard M. Scrushy......................................... 82,656 45.92% 1.38%
HEALTHSOUTH................................................ 71,280 39.60 1.19
John W. McRoberts.......................................... 18,000 10.00 .30
Michael D. Martin.......................................... 8,064 4.48 .13
------- ------- -----
Total...................................................... 180,000 100.00% 3.00%
------- ------ -----
------- ------ -----
</TABLE>

DESCRIPTION OF SECURITIES

The summary of the terms of the Common Stock of the Company set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Articles of Incorporation and Bylaws of the Company, copies
of which are exhibits to the Registration Statement of which this Prospectus is
a part. See "Additional Information."

GENERAL

The Articles of Incorporation of the Company provide that the Company may
issue up to 60,000,000 shares of stock, consisting of 50,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, par value $.001 per share
("Preferred Stock"). As of March 31, 1994, 180,000 shares of Common Stock were
issued and outstanding and held by four record holders and no shares of
Preferred Stock were outstanding. Under Maryland law, stockholders generally are
not liable for the corporation's debts or obligations.

COMMON STOCK

Holders of Common Stock will be entitled to receive such dividends as the
Board of Directors may declare out of funds legally available for the payment of
dividends. Upon issuance, the Common Stock will be fully paid and nonassessable
and have no preferences or conversion, exchange, or preemptive rights. In the
event of any liquidation, dissolution, or winding-up of the Company, the holders
of Common Stock are entitled to share ratably in any of the Company's assets
remaining after the satisfaction of all obligations and liabilities of the
Company and after required distributions to holders of Preferred Stock, if any.
The Common Stock is subject to restrictions on transfer under certain
circumstances. See "-- Restrictions on Transfer."

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<PAGE> 54

Each share of Common Stock will be entitled to one vote on all matters
voted upon by the holders of Common Stock. Holders of Shares will have no
cumulative voting rights. The Company's Bylaws provide that the President or a
majority of the Board may call a special meeting and the Secretary of the
Company must call a special meeting of stockholders upon written request of
stockholders entitled to cast at least 25% of all votes entitled to be cast at
the meeting.

The transfer agent and registrar for the Company's Common Stock is AmSouth
Bank N.A.

The Company intends to apply to list the Common Stock on the New York Stock
Exchange. Prior to this Offering, there has been no market for the Common Stock.

PREFERRED STOCK

The Board of Directors is empowered by the Company's Articles of
Incorporation to designate and issue from time to time one or more classes or
series of Preferred Stock and to classify or reclassify any shares of unissued
stock without stockholder approval. The Board of Directors may determine the
relative rights, preferences and privileges of each class or series of Preferred
Stock so issued. Because the Board of Directors has the power to establish the
preferences and rights of each class or series of Preferred Stock, it may afford
the holders in any series or class of Preferred Stock preferences, powers and
rights, voting or otherwise, senior to the rights of holders of Common Stock.
The issuance of Preferred Stock could have the effect of delaying or preventing
a change in control of the Company. The Board of Directors has no present plans
to issue any shares of Preferred Stock.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code in any taxable year
alter the first year of its election to be treated as a REIT, (i) not more than
50% in value of its outstanding Stock (as defined below) may be owned, directly
or indirectly (after application of certain complex attribution rules), by five
or fewer individuals at any time during the last half of its taxable year, and
(ii) its Stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year.

In connection with the foregoing, if the Board of Directors shall, at any
time and in good faith, believe that direct or indirect ownership (as determined
under applicable federal tax attribution rules) of at least 9.8% or more in
value of the outstanding Common Stock and/or Preferred Stock (collectively, the
"Stock") has or may become concentrated in the hands of one beneficial owner,
the Board of Directors has the power to refuse to transfer or issue Stock to a
person whose acquisition of such Stock would cause a beneficial holder to hold
in excess of 9.8% in value of the outstanding Stock. Further, any transfer of
Stock that would create a beneficial owner of more than 9.8% of the outstanding
Stock shall be deemed null and void, and the intended transferee shall be deemed
never to have had an interest therein.

If at any time there is a transfer in violation of such restrictions, the
Excess Shares shall be deemed to have been transferred to the Company, as
trustee for the benefit of such persons to whom the Excess Shares are later
transferred. Subject to the Company's right to purchase the Excess Shares, the
interest in the trust representing the Excess Shares shall be freely
transferable by the intended transferee at a price that does not exceed the
price paid by the intended transferee for the Excess Shares. Excess Shares shall
have no voting rights, and shall not be considered for the purpose of any
stockholder vote or determining a quorum, but shall continue to be reflected as
issued and outstanding stock. No dividends shall be paid with respect to Excess
Shares. The Company shall have the right to purchase Excess Shares for the
lesser of the amount paid by the intended transferee for the Excess Shares or
the market price. The market price for any Stock so purchased, shall be equal to
the fair market value of such Shares reflected in (i) the closing sales price
for the Stock, if then listed on only one national securities exchange, (ii) the
average closing sales price of such Stock if then listed on more than one
national securities exchange, or (iii) if the Stock are not then listed on a
national securities exchange the latest bid quotation for the Stock if then
traded over-the-counter, as of the day immediately preceding the date on which
notices of such purchase are sent by the Company. If no such

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<PAGE> 55

closing sales prices or quotations are available, the purchase price shall equal
the net asset value of such Stock as determined by the Board of Directors in
good faith.

The market price for any Stock so purchased, shall be equal to the fair
market value of such Shares reflected in (i) the closing sales price for the
Stock, if then listed on only one national securities exchange, or (ii) the
average closing sales price of such Stock if then listed on more than one
national securities exchange, or (iii) if the Stock is not then listed on a
national securities exchange the latest bid quotation for the Stock if then
traded over-the-counter, as of the day immediately preceding the date on which
notices of such purchase are sent by the Company. If no such closing sales
prices or quotations are available, the purchase price shall equal the net asset
value of such Stock as determined by the Board of Directors in good faith.

DIVIDEND REINVESTMENT PLAN

The Company intends to adopt a Dividend Reinvestment Plan to provide
registered owners of the Company's Common Stock with a simple and convenient
method of investing dividends and other distributions paid in cash ("dividends")
in additional Shares of the Company's Common Stock at a 5% discount from current
market value and without payment of any brokerage commission or service charge.
Since such additional shares of Common Stock will be purchased from the Company,
the Company will receive additional funds which will be used for its general
corporate purposes.

Participating stockholders ("Participants") may have cash dividends on all
or a portion of their shares of Common Stock automatically reinvested in
additional shares of the Company's Common Stock ("Plan Shares"). Participants'
funds will be fully invested because the Dividend Reinvestment Plan permits
fractions of shares to be credited to a Participant's account. Dividends on such
fractions, as well as on whole shares, will be reinvested in additional shares,
and such shares will be credited to a Participant's account. Participants will
avoid the need for safe keeping of stock certificates for Plan Shares credited
to their accounts under the Dividend Reinvestment Plan.

Regular statements reflecting all current activity, including purchases and
latest balances and, if applicable, amounts withheld in conformity with any
United States federal income tax requirements, will simplify Participants'
recordkeeping.

Implementation of the Dividend Reinvestment Plan will commence upon
compliance with applicable federal and state securities laws.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering there has not been any public market for securities
of the Company. No prediction can be made as to the effect, if any, that market
sales of Common Stock or the availability of Common Stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market could
adversely affect the prevailing market prices.

Upon completion of this Offering, a total of 5,980,000 shares of Common
Stock will be outstanding, assuming no exercise of options under the Stock
Incentive Plan to purchase shares of Common Stock. The 5,800,000 Shares sold in
this Offering will be freely tradeable without restriction or further
registration under the Securities Act, except (i) for shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act and (ii) for shares governed by the Excess Share provisions. See
"-- Restrictions on Transfer."

The remaining 180,000 shares are deemed "Restricted Shares" under Rule 144
in that they were originally issued and sold by the Company in private
transactions in reliance upon exemptions from the registration requirements of
the Securities Act. An aggregate of 180,000 shares held by existing stockholders
are subject to "lock-up agreements" under which the holders of such shares have
agreed not to sell or otherwise dispose of any of their shares without the prior
written consent of the Representatives of the Underwriters for 180 days after
the date of this Prospectus. After the expiration of these "lock-up agreements,"
certain of the shares subject to such agreements will be eligible for sale in
the public market

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<PAGE> 56

subject to volume limitations, holding period requirements and other
requirements of Rule 144 promulgated by the SEC under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of the
then outstanding shares of the Common Stock (59,800 shares based on the number
of shares to be outstanding after this Offering) or the average weekly trading
volume in the public market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
and notice of sale and the availability of public information concerning the
Company. In addition, a person who is not deemed to have been an affiliate of
the Company at any time during the three months preceding a sale, and who has
beneficially owned the Shares proposed to be sold for at least three years,
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above.

The Company has reserved 418,600 shares of Common Stock to be outstanding
from time to time for issuance pursuant to grants under its Stock Incentive
Plan. See "Management -- 1994 Stock Incentive Plan." Options to purchase a total
of 260,000 shares of Common Stock will be granted to executive officers of the
Company on the date of this Prospectus at the initial public offering price.

CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS

The following paragraphs summarize certain provisions of Maryland law and
the Company's Articles of Incorporation and Bylaws. The summary does not purport
to be complete and is subject to and qualified in its entirety by reference to
Maryland law and the Company's Articles of Incorporation and Bylaws for complete
information.

REMOVAL OF DIRECTORS

The Articles of Incorporation provide that a director may be removed with
or without cause only by the affirmative vote of at least two-third of the votes
entitled to be cast in the election of directors. This provision, when coupled
with the provision in the Bylaws authorizing the Board of Directors to fill
vacant directorships, may preclude stockholders from removing incumbent
directors except upon a substantial affirmative vote and filling the vacancies
created by such removal with their own nominees.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the Board of Directors of such corporation
and approved by the affirmative vote of at least (i) 80% of the vote entitled to
be cast by holders of outstanding voting shares of the corporation and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation other than shares held by the Interested Stockholder
with whom the business combination is to be effected, unless, among other
things, the corporation's stockholders receive a minimum price (as defined in
the MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the Board of Directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder.

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CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power, would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power; (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority of all voting power. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "Control share acquisition"
means the acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of stockholders to
be held within 45 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a stockholder meeting and the acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
such appraisal rights may not be less than the highest price per share paid by
the acquiror in the control share acquisition.

The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.

The business combination statute and the control share acquisition statute
could have the effect of discouraging offers to acquire the Company and of
increasing the difficulty of consummating any such offer.

AMENDMENT OF THE ARTICLES OF INCORPORATION

Certain provisions of the Company's Articles of Incorporation, including
the provisions governing removal of directors, may be amended only by the
affirmative vote of the holders of not less than 90% of all of the votes
entitled to be cast on the matter.

DISSOLUTION OF THE COMPANY

The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two-thirds of all of the votes entitled to be cast
on the matter or the written consent of all holders of shares entitled to vote
on the matter.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board
of Directors, or (iii) by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice procedures set forth in the Bylaws. The
Bylaws further provide that with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders, and nominations of persons for election of
the Board of Directors may be made only

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(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Directors, or (iii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.

The provisions in the Bylaws for removal of directors, the business
combination and control share acquisition provisions of the MGCL, and the
advance notice provisions of the Bylaws could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of Common Stock might receive a premium for their shares over the then
prevailing market price or which such holders might believe to be otherwise in
their best interests.

FEDERAL INCOME TAX CONSIDERATIONS

GENERAL

The following discussion summarizes the material federal income tax
considerations to the Company and a prospective holder of Common Stock. Based
upon representations of the Company with respect to certain facts set forth
herein, Sirote & Permutt, P.C., which has acted as tax counsel to the Company in
connection with the formation of the Company and the Company's election to be
taxed as a REIT commencing with its taxable year ending December 31, 1994, is of
the opinion that the following discussion fairly summarizes the material federal
income tax considerations to the Company and a holder of Common Shares. This
discussion and such opinion are based on current law. The following discussion
is not exhaustive of all possible tax considerations. This summary does not give
a detailed discussion of any state, local or foreign tax considerations, nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective stockholder in light of his or her particular
circumstances or, unless otherwise indicated, to certain types of stockholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws.

PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE
URGED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES RELATING TO THE PURCHASE, OWNERSHIP
AND DISPOSITION OF SUCH SHARES OF COMMON STOCK.

TAXATION OF THE COMPANY

The Company intends to elect and to qualify as a REIT for federal income
tax purposes under Sections 856 through 860 of the Code (the "REIT Provisions of
the Code"), commencing with its taxable year ending December 31, 1994. The
Company believes that, commencing with such taxable year, it will be organized
and will operate in such a manner as to qualify for taxation as a REIT under the
Code, and the Company intends to continue to operate in such a manner. No
assurance can be given, however, that the Company will operate in a manner so as
to qualify or remain qualified as an REIT. It should be noted that the Code,
rules, regulations, and administrative and judicial interpretations are all
subject to change (possibly on a retroactive basis).

In the opinion of Sirote & Permutt, P.C., upon consummation of the
Offering, the Company will be organized in conformity with the requirements for
qualification as a REIT and its proposed method of operation as described in
this Prospectus will permit it to meet the requirements for qualification and
taxation as a REIT under the Code. This opinion is based on various assumptions
relating to the organization and operation of the Company and is conditioned
upon certain representations made by the Company as to certain relevant factual
matters, including matters related to the organization and expected manner of
operation of the Company. Qualification of the Company as a REIT will depend
upon its ability to meet, through actual annual operating results, the various
qualification tests imposed under the Code, as discussed below. Sirote &
Permutt, P.C. will not review compliance with these tests on a continuing basis.
The Company will receive an opinion of Sirote & Permutt, P.C. that it has been
organized in conformity with the requirements for REIT status under the Code and
that its proposed ownership and method of operations, as described in this

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Prospectus, will enable it to meet the requirements for qualification and
taxation as a REIT under the Code. Such opinion will be based upon a review of
the Leases in place before the Offering, representations and opinions as to
reasonable values, and other matters set forth in the opinion. Such opinion
assumes, although no assurance can be given, that the actual results of the
Company's operations for any one taxable year will satisfy such requirements.
See " -- Failure to Qualify" below.

In brief, if certain detailed conditions imposed by the REIT Provisions of
the Code are met, entities such as the Company that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations subject to regular corporate income tax are generally not taxed at
the corporate level on their "REIT taxable income" that is distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
both the corporate and stockholder level) that generally results from the use of
corporate investment vehicles.

If the Company were to fail to qualify as a REIT in any year, however, it
would be subject to federal income tax at regular corporate income tax rates as
if it were a domestic corporation, and its stockholders would be taxed in the
same manner as stockholders of regular corporations. In this event, the Company
could be subject to potentially significant tax liabilities, and, therefore, the
amount of cash available for distribution to its stockholders would be reduced.

General. If the Company qualifies for taxation as a REIT, it generally
will not be subject to federal income tax on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The Company will
be subject to federal income tax, however, as follows: First, the Company will
be taxed at regular corporate rates on any undistributed "REIT taxable income,"
including undistributed net capital gains. Second, under certain circumstances,
the Company may be subject to the "alternative minimum tax" on its items of tax
preference, if any. Third, if the Company has net income from the sale or other
disposition of foreclosure property that is held primarily for sale to customers
in the ordinary course of business or other nonqualifying income from
foreclosure property, it will be subject to tax on such income at the highest
corporate rate. Fourth, any net income that the Company has from prohibited
transactions (which are, in general, certain sales or other dispositions of
property other than foreclosure property held primarily for sale to customers in
the ordinary course of business) will be subject to a 100% tax. Fifth, if the
Company was to fail to satisfy either the 75% or 95% gross income tests (as
discussed below), and nonetheless maintain its qualification as a REIT because
certain other requirements have been met, it would be subject to a 100% tax on
the net income attributable to the greater of the amount by which the Company
fails the 75% or 95% gross income tests, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company fails to distribute
during each year at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from preceding periods, then the Company would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, provided certain federal tax
elections are made, if, during the 10-year period commencing on the day on which
assets having a net unrealized built-in gain are acquired by the Company from a
C corporation in a transaction in which the Company inherits the tax basis in
such assets from the C corporation, the Company recognizes a gain from the
disposition of all or a portion of such assets, then the Company will be subject
to tax at the highest regular corporate rate on the excess, if any, of the fair
market value over the adjusted basis of any such asset disposed of determined as
of the beginning of the relevant 10 year period.

Requirements for Qualification as a REIT. To qualify as a REIT for a
taxable year under the Code, the Company must elect or have in effect an
election to be so treated and must meet other requirements, all of which are
summarized below, including percentage tests relating to the sources of its
gross income, the nature of the Company's assets, and the distribution of its
income to stockholders. Such election, if properly made and assuming continuing
compliance with the qualification tests described herein, will continue in
effect for subsequent years.

The Code defines a REIT as a corporation, trust or association: (1) which
is managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (3) which would be taxable, but for the REIT Provisions of
the

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Code, as an association taxable as a domestic corporation; (4) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (5) the beneficial ownership of which is held by 100 or more
persons, determined without reference to any rules of attribution (the share
ownership test); (6) which is not closely held as determined under the personal
holding company stock ownership test of Section 542(a) (as applied with certain
modifications); and (7) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(1) through (4), inclusive, must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
By reason of condition (6) above, the Company will fail to qualify as a REIT for
a taxable year if at any time during the last half of such year more than 50% in
value of its outstanding stock is owned directly or indirectly by five or fewer
individuals (the five or fewer test). For purposes of the five or fewer test,
any stock held by a qualified trust described in Section 401(a) of the Code will
be treated as if the stock is held directly by the beneficiaries of the trust in
proportion to their actual interest in the trust rather than as held by the
trust. The five or fewer test and the share ownership test do not apply to the
first taxable year for which an election is made to be treated as a REIT. Prior
to the consummation of the Offering, the Company will not satisfy the five or
fewer or share ownership tests of conditions (5) and (6) above. The Company
anticipates issuing sufficient Shares pursuant to the Offering to allow it to
satisfy the share ownership test and the five or fewer test. In addition, the
Company's Articles of Incorporation will provide restrictions regarding the
transfer of Common Stock that are intended to assist the Company in continuing
to satisfy the share ownership test and the five or fewer test described in (5)
and (6) above. See "Description of Securities -- Restrictions on Transfer."

In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company will have a calendar year taxable
year.

If a REIT owns a qualified REIT subsidiary, the Code provides that the
qualified REIT subsidiary is disregarded for federal income tax purposes, and
all assets, liabilities, and items of income, deduction and credit of the
qualified REIT subsidiary are treated as assets, liabilities and such items of
the REIT itself. A qualified REIT subsidiary is a corporation all of the
outstanding capital stock of which has been owned by the REIT from the
commencement of such subsidiary corporation's existence.

Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income that must be satisfied annually.

1. The 75% Test. At least 75% of the Company's gross income from the
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interest in real property; (iii)
gains from the sale or other disposition of interests in real property and real
estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITS, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale of
property reduced to possession following a lessee's default under the terms of a
lease or, of property acquired at or in lieu of a foreclosure of the mortgage
collateralized by such property ("foreclosure property"); (vii) commitment fees
received for agreeing to make loans collateralized by mortgages on real property
or to purchase or lease real property; and (viii) certain qualified temporary
investment income attributable to the investment of new capital received by the
Company in exchange for its shares (including the Shares issued pursuant to the
Offering) during the one-year period following the receipt of such new capital.

2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test. Similarly, any
payments made to the Company by a financial institution pursuant to a rate
protection agreement that hedges variable rate

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indebtedness incurred by the Company to acquire or carry real estate assets will
be included as qualifying income for purposes of the 95% gross income test, but
not for purposes of the 75% test.

For purposes of determining whether the Company complies with the 75% and
95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property, excluding
sales of foreclosure property and certain sales of dealer property exempted from
the prohibited transaction tax by virtue of a limited safe harbor rule.

In order to qualify as rents from real property, the amount of rent
received generally must not be determined on the income or profits of any
person, but may be based on a fixed percentage or percentages of receipts or
sales. The Code also provides that rents will not qualify as rents from real
property, in satisfying the gross income tests, if the REIT owns 10% or more of
the tenant, whether directly or pursuant to certain attribution rules. The
Company intends to lease property only under circumstances such that
substantially all rents from such property would qualify as rents from real
property. Although it is possible that a tenant could sublease space to a
sublessee in which the REIT is deemed to own directly or indirectly 10% or more
of the tenant, the Company believes that as a result of the provisions in the
Articles of Incorporation limiting ownership to 9.8% such occurrence would be
unlikely. Application of the 10% ownership rule is, however, dependent upon
complex attribution rules provided in the Code and circumstances beyond the
control of the Company. Ownership, directly or by attribution, by an
unaffiliated third party of more than 10% of the Company's Common Stock and more
than 10% of the stock of any lessee or sublessee would result in a violation of
the rule.

In order to qualify as interest on obligations secured by mortgages on real
property, the amount of interest received generally must not be determined on
the income or profits of any person, but may be based on a fixed percentage or
percentages of receipts or sales.

In addition, the Company must not manage its properties or furnish or
render services to the tenants of its properties, except through an independent
contractor from whom the Company derives no income. There is an exception to
this rule permitting a REIT to perform directly certain customary tenant
services which are "reasonable and customary" in the geographic area in which
the services are performed. The Company anticipates that any services provided
for tenants will meet this requirement.

If rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not qualify
as rents from real property. Generally, this 15% test is applied separately to
each lease. The portion of rental income treated as attributable to personal
property is determined according to the ratio of the tax basis of the personal
property to the total tax basis of the property which is rented. The
determination of what fixtures and other property constitute personal property
for federal tax purposes is difficult and imprecise. The Company does not
believe that it will have 15% in value of any of its real properties classified
as personalty. If however, rent payments do not qualify, for reasons discussed
above, as rents from real property for purposes of Section 856 of the Code, it
will be more difficult for the Company to meet the 95% or 75% gross income
tests.

The Company may temporarily invest its working capital in short-term
investments, including shares in other REITs or interests in REMICs. Although
the Company will use its best efforts to ensure that its income generated by
these investments will be of a type which satisfies the 75% and 95% gross income
tests, there can be no assurance in this regard (see the discussion above of the
new capital rule under the 75% gross income test). Moreover, the Company may
realize short-term capital gain upon sale or exchange of such investments, and
such short-term capital gain would be subject to the limitations imposed by the
30% gross income test. The Company generally expects to meet the 75% and 95%
gross income tests through the rental of the property it acquires.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. It is not
possible, however, to know whether the Company would be entitled to the benefit
of these relief provisions as the application of the relief provisions is
dependent on future facts and circumstances. If these

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relief provisions apply, a special tax generally equal to 100% is imposed upon
the net income attributable to the greater of the amount by which the Company
failed the 75% or 95% gross income tests, multiplied by a fraction intended to
reflect the Company's profitability.

3. The 30% test. Not more than 30% of the Company's gross income for each
taxable year may be derived from the sale or other disposition of (i) stock or
securities held for less than one year, (ii) dealer property that is not
foreclosure property, and (iii) real property held for fewer than four years
(apart from involuntary conversions and sales of foreclosure property).

Asset Tests. At the close of each quarter of the Company's taxable year,
it must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must consist of real estate
assets (including interests in real property and interests in mortgages on real
property as well as its allocable share of real estate assets held by joint
ventures or partnerships in which the Company participates, if any), cash, cash
items and government securities. Second, not more than 25% of the Company's
total assets may be represented by securities other than those includible in the
75% asset class. Finally, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities. The Company may own
100% of another corporation, however, if it is a qualified REIT subsidiary.
Under that circumstance, the qualified REIT subsidiary is ignored and the
assets, income, gain, loss and other attributes are treated as being owned or
generated directly by the Company for federal income tax purposes. The Company
has one or more wholly-owned REIT subsidiaries.

If the Company meets the Asset Tests described above at the close of any
quarter, it will not lose its REIT status merely because of a change in the
value of its assets in a subsequent quarter unless, subject to a 30 day grace
period ending after the close of such subsequent quarter, such change exists
immediately after the acquisition of any security or other property and is
wholly or partly the result of such an acquisition during such quarter. The
Company intends to maintain adequate records of the value of its assets to
maintain compliance with the Asset Tests.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount equal to or greater than the excess of (A) the sum
of (i) 95% of the Company's real estate investment trust taxable income
(computed without regard to the dividends paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, (after tax) from
foreclosure property, over (B) the sum of certain non-cash income (from certain
imputed rental income and income from transactions inadvertently failing to
qualify as like-kind exchanges). To the extent that the Company does not
distribute all of its net long-term capital gain and all of its real estate
investment trust taxable income, it will be subject to tax thereon. In addition,
the Company will be subject to a 4% excise tax to the extent it fails within a
calendar year to make required distributions to its stockholders of 85% of its
ordinary income and 95% of its capital gain net income plus the excess, if any,
of the grossed up required distribution for the preceding calendar year over the
amount treated as distributed for such preceding calendar year. For this
purpose, "grossed up required distribution" for any calendar year is the sum of
the taxable income of the Company for the taxable year (without regard to the
deduction for dividends paid) and all amounts from earlier years that are not
treated as having been distributed under the provision. Dividends declared in
the last quarter of the year (October, November or December) and paid during the
following January, will be treated as having been paid and received on December
31.

It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirements due to
timing differences between actual receipt of income and actual payment of
deductible expenses or dividends on the one hand and the inclusion of such
income and deduction of such expenses or dividends in arriving at real estate
investment trust taxable income of the Company on the other hand. The problem of
inadequate cash to make required distributions could also occur as a result of
the repayment in cash of principal amounts due on the Company's outstanding
debt, particularly in the case of balloon repayments or as a result of capital
losses on short-term investments of working capital. Therefore, the Company
might find it necessary to arrange for short-term, or possibly long-term,
borrowing or new equity financing. If the Company were unable to arrange such
borrowing or financing as might be necessary to provide funds for required
distributions, its REIT status could be jeopardized.

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Under certain circumstances, the Company may be able to rectify a failure
to meet the annual REIT distribution requirements for a taxable year by paying
deficiency dividends to stockholders within a specified period.

Share Ownership Test. As described above, the Company's Common Stock must
be held by a minimum of 100 persons for at least approximately 92% of the days
in each taxable year subsequent to 1994. In addition, at all times during the
second half of each taxable year subsequent to 1994, no more than 50% in value
of the shares of beneficial interest of the Company may be owned, directly or
indirectly, and by applying certain constructive ownership rules, by five or
fewer individuals. In order to ensure compliance with this test, the Company has
placed certain restrictions on the transfer of the Common Stock to prevent
further concentration of share ownership. Moreover, to evidence compliance with
these requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligations to
maintain records, the Company must and will demand written statements each year
from the record holders of designated percentages of its Common Stock disclosing
the actual owners of such Common Stock. A list of those persons failing or
refusing to comply with such demand must be maintained as a part of the
Company's records. A stockholder failing or refusing to comply with the
Company's written demand must submit with his tax returns a similar statement
disclosing the actual ownership of Common Stock and certain other information.
In addition, the Company's declaration of trust provides restrictions regarding
the transfer of its shares that are intended to assist the Company in continuing
to satisfy the share ownership requirements.

Other REIT Issues. With respect to property acquired from and leased back
to the same or an affiliated party of a lessee, the IRS could assert that the
Company realized prepaid rental income in the year of purchase to the extent
that the value of the leased property exceeds the purchase price paid by the
Company for that property. In litigated cases involving sale-leasebacks which
have considered this issue, courts have concluded that buyers have realized
prepaid rent where both parties acknowledged that the purported purchase price
for the property was substantially less than fair market value and the purported
rents were substantially less than the fair market rentals. Because of the lack
of clear precedent and the inherently factual nature of the inquiry, complete
assurance cannot be given that the IRS could not successfully assert the
existence of prepaid rental income. The value of and fair market rent for
properties involved in sale-leasebacks are inherently factual matters and always
subject to challenge.

Subject to a safe harbor exception for annual sales of up to seven
properties (or properties with a basis of up to 10% of the REIT's assets) that
have been held for four years, gain from the sale of a property held for sale to
customers in the ordinary course of business is subject to a 100% tax. The
simultaneous exercise of rights of first refusal granted to certain Lessees or
other events could result in sales of properties by the Company that exceed this
safe harbor. However, the Company believes that in such event, it will not have
held such properties for sale to customers in the ordinary course of business.

Depreciation of Initial Properties. For tax purposes, the Company's real
property generally is expected to be depreciated over 40 years and personal
property over seven years utilizing the straight-line method of depreciation.

Failure to Qualify. If the Company fails to qualify for taxation as an REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current or
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Failure to qualify and to maintain qualification as a REIT would force the
Company to significantly reduce its distributions and possibly incur substantial
indebtedness or liquidate substantial investments in order to pay the resulting
corporate taxes. In addition, the Company, once having obtained REIT status and
having lost such status, would not be eligible to elect REIT status for the four
subsequent taxable years, unless its failure to maintain its qualification was
due to reasonable cause and not willful neglect, and certain other requirements
were satisfied. In order to elect again to be taxed as a REIT, the Company would
be required to distribute all of its earnings and profits accumulated in any
non-REIT taxable year.

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TAXATION OF DOMESTIC STOCKHOLDERS

Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions other than capital gain dividends (including
reinvestments pursuant to the Company's dividend reinvestment plan, if any) made
to the Company's taxable domestic stockholders out of current or accumulated
earnings and profits will be taken into account by them as ordinary income, and
corporate stockholders will not be eligible for the dividends received
deduction. Distributions that are designated as capital gain dividends will be
taxed as long-term capital gains to the extent they do not exceed the Company's
actual net capital gain for the taxable year, although corporate stockholders
may be required to treat up to 20% of any such capital gain dividend as ordinary
income. Distributions in excess of current or accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of a stockholder's shares of Common Stock, but will reduce the
basis of such stockholder's shares of Common Stock. To the extent that such
distributions exceed the adjusted basis of a stockholder's shares of Common
Stock, they will be included in income as long-term capital gain (or short-term
capital gain if the shares of Common Stock have been held for not more than one
year) assuming the shares of Common Stock are a capital asset in the hands of
the stockholder. Stockholders may not include, in their respective income tax
returns, any net operating losses or capital losses of the Company.

Dividends declared by the Company in the last quarter of the calendar year
(October through December) to stockholders of record on a date in such quarter,
shall be treated as both paid by the Company and received by such stockholders
on December 31 of such year, provided that the Company actually pays such
dividends during January of the following calendar year.

In general, any gain or loss recognized by a stockholder on the sale or
other taxable disposition of shares of Common Stock will be treated as capital
gain or loss, provided the shares are a capital asset in the hands of the
seller. In general, any loss upon a sale or exchange of shares of Common Stock
by a stockholder who has held such shares for not more than six months (after
applying certain rules), will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
stockholder as long-term gain.

Tax preference and other items which are treated differently for regular
and alternative minimum tax purposes are to be allocated between a REIT and its
stockholders under regulations which are to be prescribed. It is likely that
these regulations would require tax preference items to be allocated to the
Company's stockholders with respect to any accelerated depreciation claimed by
the Company.

Backup Withholding. Under certain circumstances, taxable domestic
stockholders may be subject to backup withholding at the rate of 31% imposed for
payments of interest, dividends and payments of gross proceeds by brokers. This
withholding applies only if a stockholder, among other things, (i) fails to
furnish the Company with his taxpayer identification number certified under
penalties of perjury, (ii) furnishes the Company an incorrect taxpayer
identification number, (iii) fails properly to report interest or dividends from
any source or (iv) under certain circumstances fails to provide the Company or
his securities broker with a certified statement, under penalties of perjury,
that he or she is not subject to backup withholding. Stockholders should consult
their tax advisors as to their qualification for exemption from withholding and
the procedure for obtaining such an exemption. Finally, United States persons
are required to certify their United States status in order to receive dividends
without the withholding imposed by the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA").

The Company will report to its stockholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.

Taxation of Tax-Exempt Stockholders. As a general rule, amounts
distributed by a REIT to a tax-exempt entity do not constitute unrelated
business taxable income ("UBTI") and thus distributions by the Company to a
stockholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of Common Stock with
"acquisition indebtedness" within the meaning of the Code and the shares of
Common Stock are not otherwise used in an unrelated trade or business of the
tax-exempt entity. If a REIT constitutes a "pension-held REIT" in a taxable
year,

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distributions by such REIT to a tax-exempt employee's pension trust that owns
more than 10% of the REIT may be treated as UBTI in an amount equal to the
percentage of gross income of the REIT that is derived from an "unrelated trade
or business" (determined as if the REIT were a pension trust and subject to
certain de minimus rules) divided by the gross income of the REIT for the year
in which the dividends are paid. This rule only applies, however, if (i) the
percentage of the gross income derived from the REIT for the year in which the
dividends are paid is at least five percent, (ii) the REIT qualifies as a REIT
only because the pension trust is not treated as a single individual for
purposes of the "five-or-fewer" rule (see " -- Taxation of the
Company -- Requirements for Qualification as a REIT)") and (iii) (A) one pension
trust owns more than 25% of the value of the REIT, or, (B) a group of pension
trusts individually holding more than 10 percent of the value of the REIT
collectively own more than 50 percent of the value of the REIT. The Company does
not expect that it will constitute a "pension-held REIT" in part because the
ownership limits in the Company's Articles of Incorporation (assuming no waiver
of such limits by the Board of Directors) would prevent such a pension trust
from acquiring Common Stock in excess of the Ownership Limit.

TAXATION OF FOREIGN STOCKHOLDERS

The following is a discussion of certain anticipated U.S. federal income
and estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such shares. A "Non-U.S. Holder" is any person
other than (i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any state thereof, or (iii) an estate or trust whose income
is includible in gross income for U.S. federal income tax purposes regardless of
its source. The discussion is based on current law and is for general
information only. The discussion addresses only certain and not all aspects of
U.S. federal income and estate taxation.

Distributions from the Company

Ordinary Dividends. The portion of dividends received by Non-U.S. Holders
payable out of the Company's earnings and profits which are not attributable to
capital gains of the Company and which are not effectively connected with a U.S.
trade or business of the Non-U.S. Holder will be subject to U.S. withholding tax
at the rate of 30% (unless reduced by treaty). In general, Non-U.S. Holders will
not be considered engaged in a U.S. trade or business solely as a result of
their ownership of Common Stock. In cases where the dividend income from a
Non-U.S. Holder's investment in Common Shares is (or is treated as) effectively
connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the
Non-U.S. Holder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. stockholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax in the case of a Non-U.S.
Holder that is a foreign corporation).

To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are presumed
under current Treasury Regulations to be paid to a resident of that country.
Treasury regulations proposed in 1984 which have not been finally adopted,
however, would require Non-U.S. Holders to file certain forms to obtain the
benefit of any applicable tax treaty providing for a lower rate of withholding
tax on dividends. Such forms would contain the holder's name and address and
other pertinent information, to be certified by such holder under penalties of
perjury, and an official statement by the competent authority (as defined in the
applicable treaty) in the foreign country attesting to the holder's status a
resident thereof.

Non-Dividend Distributions. Distributions by the Company which do not
represent dividends paid out of the current and accumulated earnings and profits
of the Company will not be subject to a Non-U.S. Holder withholding tax. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. The Non-U.S. Holder may seek a refund of such amounts from the IRS,
however, if it is subsequently determined that such distribution was, in fact,
in excess of current and accumulated earnings and profits of the Company.

Capital Gain Dividends. Under FIRPTA, a distribution made by the Company
to a Non-U.S. Holder, to the extent attributable to gains from dispositions of
United States Real Property Interests ("USRPIs")

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such as the Initial Properties beneficially owned by the Company ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or business
of the Non-U.S. Holder and subject to U.S. income tax at the rate applicable to
U.S. individuals or corporations, without regard to whether such distribution is
designated as a capital gain dividend. In addition, the Company will be required
to withhold tax equal to 35% of the amount of dividends to the extent such
dividends constitute USRPI Capital Gains. Distributions subject to FIRPTA may
also be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder that is not entitled to treaty exemption.

Dispositions of Common Stock

Unless the Common Shares constitute a USRPI, a sale of Common Stock by a
Non-U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. The
Common Stock will not constitute a USRPI if the Company is a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which, at all
times during a specified testing period, less than 50% in value of its shares is
held directly or indirectly by Non-U.S. Holders. It is currently anticipated
that the Company will be a domestically controlled REIT, and therefore that the
sale of Common Shares will not be subject to taxation under FIRPTA. Because the
Common Stock will be publicly traded, however, no assurance can be given the
Company will continue to be a domestically controlled REIT.

If the Company does not constitute a domestically controlled REIT, a
Non-U.S. Holder's sale of Common Stock generally will still not be subject to
tax under FIRPTA as a sale of a USRPI provided that (i) the Company's Common
Stock are "regularly traded" (as defined by applicable Treasury Regulations) on
an established securities market (e.g., the NYSE, on which the Common Stock will
be listed) and (ii) the selling Non-U.S. Holder held 5% or less of the Company's
outstanding Common Stock at all times during a specified testing period.

If gain on the sale of Common Stock were subject to taxation under FIRPTA,
the Non-U.S. Holder would be subject to the same treatment as a U.S. stockholder
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of Common Stock could be required to withhold 10% of the
purchase price and remit such amount to the IRS.

Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Holder in two cases: (i) if the Non-U.S. Holder's
investment in Common Stock is effectively connected with a U.S. trade or
business conducted by such Non-U.S. Holder, the Non-U.S. Holder will be subject
to the same treatment as a U.S. stockholder with respect to such gain, or (ii)
if the Non-U.S. Holder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, the nonresident alien individual will be subject to a 30%
tax on the individual's capital gain.

Estate Tax

Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for U.S. federal estate tax purposes)
of the United States at the time of death will be includible in the individual's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise. Such individual's estate may be subject to U.S.
federal estate tax on the property includible in the estate for U.S. federal
estate tax purposes.

Information Reporting and Backup Withholding

The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends (including any capital gain dividends) paid to, and the tax
withheld with respect to, each Non-U.S. Holder. These reporting requirements
apply regardless of whether withholding was reduced or eliminated by an
applicable tax treaty. Copies of these returns may also be made available under
the provisions of a specific treaty or agreement with the tax authorities in the
country in which the Non-U.S. Holder resides.

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U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required under
the U.S. information reporting requirements) and information reporting will
generally not apply to dividends (including any capital gain dividends) paid on
Common Stock to a Non-U.S. Holder at an address outside the United States.

The payment of the proceeds from the disposition of Common Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding unless the owner, under penalties of perjury, certifies,
among other things, its status as a Non-U.S. Holder, or otherwise establishes an
exemption. The payment of the proceeds from the disposition of Common Stock to
or through a non-U.S. office of a non-U.S. broker generally will not be subject
to backup withholding and information reporting except as noted below. In the
case of a payment of proceeds from the disposition of Common Stock to or through
a non-U.S. office of a broker which is (i) a U.S. person, (ii) a "controlled
foreign corporation" for U.S. federal income tax purposes, or (iii) a foreign
person 50% or more of whose gross income for certain periods is derived from a
U.S. trade or business unless the broker has documented that such holder is a
Non-U.S. Holder and certain other conditions are met.

Backup withholding with respect to foreign stockholders is not an
additional tax. Rather, the amount of any backup withholding with respect to a
payment to a Non-U.S. Holder will be allowed as a credit against any United
States federal income tax liability of such Non-U.S. Holder. If withholding
results in an overpayment of taxes, a refund may be obtained provided that the
required information is furnished to the IRS.

OTHER TAX CONSEQUENCES

The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Common Stock of the Company.

The Company will report to its stockholders and the IRS the amount of
dividends paid or deemed paid during each calendar year, and the amount of tax
withheld, if any.

There may be other federal, state, local or foreign income, or estate and
gift tax considerations applicable to the circumstances of a particular
investor. Stockholders should consult their own tax advisors with respect to
such matters.

DIVIDEND REINVESTMENT PLAN

Stockholders participating in any dividend reinvestment plan adopted by the
Company will be deemed to have received the gross amount of any cash
distributions which would have been paid by the Company to such stockholders had
they not elected to participate. These deemed distributions will be treated as
actual distributions from the Company to the participating stockholders and will
retain the character and tax effects applicable to distributions from the
Company generally. See " -- Taxation of Taxable Domestic Stockholders" and
" -- Taxation of Foreign Stockholders." Participants in the dividend
reinvestment plan are subject to Federal income tax on the amount of the deemed
distributions to the extent that such distributions represent dividends or
gains, even though they receive no cash. Shares of Common Stock received under
the plan will have a holding period beginning with the day after purchase, and a
tax basis equal to their cost (which is the gross amount of the deemed
distribution).

ERISA CONSIDERATIONS

The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances. A

65
<PAGE> 68

PROSPECTIVE INVESTOR THAT IS AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA, A TAX-
QUALIFIED RETIREMENT PLAN, AN IRA, OR A GOVERNMENTAL, CHURCH, OR OTHER PLAN THAT
IS EXEMPT FROM ERISA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR REGARDING THE
SPECIFIC CONSIDERATIONS ARISING UNDER APPLICABLE PROVISIONS OF ERISA, THE CODE,
AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE COMMON
STOCK BY SUCH PLAN OR IRA.

A fiduciary of a pension, profit-sharing, or other employee benefit plan
(an "Employee Plan") subject to ERISA should consider fiduciary standards under
ERISA in the context of the Employee Plan's particular circumstances before
authorizing an investment of all or any portion of such Employee Plan's assets
in the Shares. Among other factors, such fiduciary should consider (i) whether
the investment satisfies the prudence requirements of Section 404(a)(1)(B) of
ERISA, (ii) whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of ERISA and (iii) whether the investment is in accordance
with the documents and instruments governing the plan as required by Section
404(a)(1)(D) of ERISA. In addition, persons who control the investments of
individual retirement accounts ("IRAs") should consider that IRAs may only make
investments that are authorized by the appropriate governing documents and under
applicable state law.

In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit a wide range of transactions involving the assets of an Employee
Plan or IRA and persons who have certain specified relationships to the Employee
Plan or IRA ("parties in interest" within the meaning of ERISA or "disqualified
persons" within the meaning of the Code). Such transactions are treated as
"prohibited transactions" under Section 406 of ERISA and Section 408(e)(2) of
the Code and excise taxes are imposed upon such persons by Section 4975 of the
Code. Thus, a fiduciary of an Employee Plan or a person making the investment
decision for an IRA should consider whether the acquisition or the continued
holding of the Shares might constitute or give rise to a direct or indirect
non-exempt prohibited transaction.

The Department of Labor (the "DOL") has issued final regulations (the "DOL
Regulations") as to what constitutes assets of an employee benefit plan under
ERISA. Under the DOL Regulations, if an Employee Plan or IRA acquires an equity
interest in an entity, which interest is neither a publicly offered security nor
a security issued by an investment company registered under the Investment
Company Act of 1940, as amended, the Employee Plan's or IRA's assets would
include, for purposes of the fiduciary responsibility provisions of ERISA, both
the equity interest and an undivided interest in each of the entity's underlying
assets unless certain specified exceptions apply. The DOL Regulations define a
publicly-offered security as a security that is "widely held," "freely
transferable" and either (i) part of a class of securities registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or (ii) sold pursuant to an effective registration statement under
the Securities Act, if the class of securities of which such security is a part
is registered under the 1934 Act within 120 days alter the end of the fiscal
year of the issuer during which the offering occurs. The Shares will be sold
pursuant to an effective registration statement under the Securities Act and
will be registered under the 1934 Act.

The DOL Regulations provide that a security is widely held only if it is
part of a class of securities that is owned by 100 or more investors independent
of the Company and of one another. A security will not fail to be widely held
because the number of independent investors falls below 100 subsequent to the
Offering as a result of events beyond the Company's control. The Company expects
the Common Stock to be "widely held" upon completion of the Offering.

The DOL Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations further provide that when
a security is part of the Offering in which the minimum investment is $10,000 or
less, as is the case with this offering, certain restrictions ordinarily will
not, alone or in combination, affect the finding that such securities are freely
transferable. Employee Plan and IRA fiduciaries should be aware that the
Company's Articles of Incorporation contain certain restrictions on any transfer
of Shares that would create a beneficial owner of more than 9.8% in value of the
Company's outstanding Common Stock. See "Description of

66
<PAGE> 69

Securities -- Restrictions on Transfer." While the Company believes that such a
restriction is generally permitted under the DOL Regulations and is not likely
to result in the failure of the Common Stock to be freely transferable, the DOL
Regulations only establish a presumption in favor of the finding of free
transferability, and, therefore, no assurance can be given that the DOL and the
Treasury Department will not reach a contrary conclusion.

Assuming that the Common Stock will be widely held, the Company believes
that the Common Stock will be publicly offered securities for purposes of the
DOL Regulations and that the assets of the Company will not be deemed to be plan
assets of any Employee Plan or IRA that invests in the Common Stock.

Employee Plans and IRAs and their fiduciaries are strongly urged to consult
with their advisors before acquiring Common Stock of the Company.

67
<PAGE> 70

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below have severally agreed to purchase from the Company, and
the Company has agreed to sell to them, the following respective numbers of
Shares at the initial public offering price less the underwriting discounts set
forth on the cover of this Prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------- ---------
<S> <C> <C>
Smith Barney Shearson Inc............................................................
---------
Total...................................................................... 5,800,000
---------
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares offered hereby are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all the
Shares offered hereby (other than those covered by the over-allotment option
described below) if any of such Shares are taken.

The Company has been advised by Smith Barney Shearson Inc. (the
"Representative") that the Underwriters propose to offer the Shares to the
public at the initial public offering price set forth on the cover of this
Prospectus and to certain dealers at such price, less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Representative.

The Company has granted to the Underwriters an option, exercisable not
later than 30 calendar days from the date of this Prospectus, to purchase up to
870,000 additional shares at the same price per share as the Company receives
for the shares that the Underwriters have agreed to purchase. To the extent that
the Underwriters exercise such option to purchase up to a total of 870,000
shares, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares to be
purchased by it shown in the above table bears to the total number of shares
shown in the above table, and the Company will be obligated, pursuant to the
option, to sell such shares to the Underwriters. The Underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
the shares offered hereby. If purchased, the Underwriters will sell such
additional 870,000 shares on the same terms as those on which the shares are
being offered.

The Company will pay an advisory fee equal to 0.67% of the gross proceeds
of the Offering (including any exercise of the Underwriters' over-allotment
option) to Smith Barney Shearson Inc. for advisory services in connection with
the evaluation, analysis and structuring of the Company's formation and the
Offering.

68
<PAGE> 71

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

The Company has agreed, and shall cause each officer, director and existing
stockholder of the Company to agree that, without the prior written consent of
the Representative, such person will not register, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any Shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or warrants to purchase Common Stock, for a period of 180 days,
subject to certain exceptions set forth in the Underwriting Agreement.

The Representative has engaged and may in the future engage in investment
banking services for certain affiliates of the Company.

Prior to this Offering there has been no established public market for the
Common Stock. Consequently, the offering price has been determined by
negotiation between the Company and the Representative. Among the factors
considered in such negotiations were the number of shares to be offered, the
projected revenues to the Company under the Leases and the expected cash
available to the Company for distribution to its stockholders, the current
yields and prices of publicly traded securities believed to be somewhat
comparable to the Company, prevailing market conditions and other factors deemed
relevant.

The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed upon for the
Company by Sirote & Permutt, P.C. of Birmingham, Alabama. Sirote & Permutt, P.C.
has represented HEALTHSOUTH on matters unrelated to the Offering. Both the
Company and HEALTHSOUTH have consented to this arrangement. Skadden, Arps,
Slate, Meagher & Flom, New York, N.Y., will pass upon certain legal matters
relating to the Offering for the Underwriters.

EXPERTS

The balance sheet of Crescent Capital Trust, Inc. at March 31, 1994,
included herein and elsewhere in the registration statement has been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

The consolidated financial statements of HEALTHSOUTH Rehabilitation
Corporation and Subsidiaries appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young, independent auditors, to the
extent indicated in their reports thereon also appearing elsewhere herein and in
the Registration Statement. Such consolidated financial statements have been
included herein in reliance on their reports given on the authority of such firm
as experts in accounting and auditing.

69
<PAGE> 72

AVAILABLE INFORMATION

The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Shares offered by this Prospectus, which
includes this Prospectus plus additional information. The Company will also file
reports, proxy statements and other information with the SEC under the
Securities Exchange Act of 1934. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located in Room 1204, Everett McKinley
Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60605, and 14th
Floor, 75 Park Place, New York, New York 10007. Copies of these materials can be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549,
at prescribed rates.

The Company will also furnish to its stockholders annual reports containing
audited financial statements and quarterly reports for the first three quarters
of each fiscal year containing unaudited financial information.

70
<PAGE> 73

GLOSSARY

The following are definitions of certain terms used in this Prospectus.
Unless the context otherwise requires, the following terms shall have the
meanings set forth below for the purposes of this Prospectus:

"Additional Rent" means increases to the Base Rent commencing after
the first year based on either a set percentage increase or on 67% to 100%
of the percentage increase in the applicable consumer price index, with
annual increases generally limited to a maximum of 5%.

"AHF" means ancillary hospital facility.

"AmSouth" means AmSouth Bank N.A.

"Articles of Incorporation" means the Articles of Incorporation of the
Company.

"ASF" means ambulatory surgery facility.

"ASMI" means American Sports Medicine Institute.

"Bank Credit Facility" means the $30 million line of credit from
NationsBank to be used to fund a portion of the purchase price for the
Initial Properties, to fund the acquisition of additional properties and
for general corporate purposes.

"Base Rent" means the minimum annual rental payment payable by each
Lessee as set forth in its respective Lease.

"Bylaws" means the Bylaws of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Common Stock" means the common stock, par value $.001 per share, of
the Company.

"Company" means Crescent Capital Trust, Inc., a Maryland corporation,
and one or more of its subsidiaries or, as the context may require,
Crescent Capital Trust, Inc. only.

"CON" means certificate of need.

"CPI" means the Consumer Price Index.

"Disinterested Director" means any member of the Company's Board of
Directors who is not affiliated with any seller of properties to the
Company. For this purpose, an "affiliate" of the Company shall mean a
person who is an officer, director or employee of a seller or who
beneficially owns 5% or more of any class of equity securities of a seller
or of any entity that controls, is controlled by or is under common control
with a seller, or a member of whose immediate family has one of the
foregoing relationships with a seller.

"Dividend Reinvestment Plan" means the Company's plan pursuant to
which holders of its Common Stock may elect to reinvest dividends
automatically in additional shares of Common Stock.

"Effective Date" means the date that the SEC executes an order
declaring the Registration Statement effective under the Securities Act.

"Excess Shares" means those shares owned beneficially (under the
applicable rules and regulations of the Commission) by any stockholder of
the Company in excess of 9.8% in value of the Company's outstanding stock.

"Guarantor" means each of HEALTHSOUTH, Integrated Health, Quorum,
Surgical Health and OrNda.

"HEALTHSOUTH" means HEALTHSOUTH Rehabilitation Corporation.

"HEALTHSOUTH Initial Properties" means each property identified in
this Prospectus owned by HEALTHSOUTH or one or more of its Subsidiaries
with respect to which the Company expects to enter into a definitive
Purchase Agreement.

"Initial Properties" means the 20 properties identified in this
Prospectus with respect to which the Company expects to enter into a
definitive Purchase Agreement or the Merger Agreement as soon as practical.

"Integrated Health" means Integrated Health Systems, Inc.

71
<PAGE> 74

"IRS" means the United States Internal Revenue Service.

"Lease" means the agreement to be entered into by each Lessee to lease
one or more Initial Properties, or a portion thereof, from the Company.

"Lessee" means an entity leasing one or more Initial Properties from
the Company.

"LTCF" means long-term care facility.

"MACI" means Midway Acquisition Company, Inc.

"Merger Agreement" means the Agreement and Plan of Merger between MACI
and the Company, dated April , 1994.

"NationsBank" means NationsBank of Georgia, N.A.

"Offering" means the transaction by which the Shares of the Company
are offered and sold pursuant to this Prospectus.

"ORF" means outpatient rehabilitation facility.

"OrNda" means OrNda HealthCorp.

"Partnership" means Crescent Capital Partners, an Alabama general
partnership.

"PPS" means the Medicare prospective payment system.

"Prospectus" means the prospectus that will be issued in connection
with the Offering.

"Purchase Agreement" means each agreement, including the Merger
Agreement, relating to the acquisition by the Company of one or more of the
Initial Properties.

"Quorum" means Quorum Health Group, Inc.

"Registration Statement" means the Company's Form S-11 Registration
Statement under the Securities Act of 1933.

"REIT" means a real estate investment trust as defined pursuant to
Sections 856 through 860 of the Code.

"Representative" means Smith Barney Shearson Inc. as representative of
the Underwriters.

"RF" means research facility.

"SACF" means sub-acute care facility.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means the shares of Common Stock being offered by this
Prospectus.

"SHPDA" means a state health planning and development agency.

"Stock Incentive Plan" means the Company's 1994 Stock Incentive Plan.

"Subsidiary" means a wholly-owned corporate subsidiary of the
Guarantors and a limited partnership, the general partner of which is one
of the Guarantors or one of its wholly-owned corporate subsidiaries.

"Surgical Health" means Surgical Health Corporation.

"Treasury Regulations" means the income tax regulations promulgated
under the Code.

"Triple Net Lease" means a lease pursuant to which the lessee pays all
operating expenses, taxes, assessments, ground rents, water, sewer or other
rents and charges, excises, tax levies, fees and all other governmental
charges, utility charges and insurance premiums.

"UBTI" means unrelated business taxable income as defined in Section
512(a) of the Code.

"Underwriters" means the underwriters named in this Prospectus.

"Underwriting Agreement" means the Underwriting Agreement between the
Company and the Underwriters.

72
<PAGE> 75

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
CRESCENT CAPITAL TRUST, INC.
Report of Independent Auditors.................................................... F-2
Balance Sheet as of March 31, 1994................................................ F-3
Notes to Balance Sheet............................................................ F-4
Unaudited Pro Forma Financial Statements.......................................... F-6
Notes to Unaudited Pro Forma Financial Information................................ F-10
HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES
Report of Independent Auditors.................................................... F-12
Consolidated Balance Sheets as of December 31, 1992 and 1993...................... F-13
Consolidated Statements of Income for the Years Ended December 31, 1991, 1992
and 1993....................................................................... F-14
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1991, 1992 and 1993............................................................ F-15
Consolidated Statements of Cash Flows for the Years Ended December 31, 1991, 1992
and 1993....................................................................... F-16
Notes to Consolidated Financial Statements........................................ F-17
</TABLE>

F-1
<PAGE> 76

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Crescent Capital Trust, Inc.:

We have audited the accompanying balance sheet of Crescent Capital Trust,
Inc. as of March 31, 1994. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Crescent Capital Trust, Inc. at
March 31, 1994, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK

Birmingham, Alabama
April 6, 1994

F-2
<PAGE> 77

CRESCENT CAPITAL TRUST, INC.

BALANCE SHEET
MARCH 31, 1994

ASSETS
Cash.................................................................. $180
----
----
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; 10,000,000 shares authorized; none
issued or outstanding............................................... $ --
Common stock, $.001 par value; 50,000,000 shares authorized; 180,000
issued and outstanding.............................................. 180
----
Total stockholders' equity.................................. $180
----
----

F-3
<PAGE> 78

CRESCENT CAPITAL TRUST, INC.

NOTES TO BALANCE SHEET
MARCH 31, 1994

(1) ORGANIZATION

Crescent Capital Trust, Inc. (the Company) was incorporated in the State of
Maryland on March 31, 1994 and issued a total of 180,000 shares of common stock
to the Company's chairman, its president, one of its directors, and HEALTHSOUTH
Rehabilitation Corporation (HEALTHSOUTH) for total consideration of $180. The
chairman of the Company and one of its directors are executive officers of
HEALTHSOUTH. The Company is in the process of an initial public offering
pursuant to which it plans to issue approximately 5,800,000 additional shares of
common stock (the Offering). The 180,000 shares issued upon incorporation (the
Founders Shares) will constitute approximately 3 percent of the outstanding
shares immediately after consummation of the Offering.

The Company has had no operations. Upon consummation of the Offering, the
Company intends to begin operations by purchasing a diversified portfolio of
healthcare properties and leasing the properties back to the healthcare
operators.

(2) FEDERAL INCOME TAXES

At the earliest possible date, the Company intends to qualify as a real
estate investment trust under the Internal Revenue Code and, accordingly, will
not be subject to federal income taxes on amounts distributed to stockholders
provided it distributes at least 95 percent of its real estate investment trust
taxable income and meets certain other conditions. The Company may, however, be
subject to state or local taxation in various state or local jurisdictions.

(3) PLANNED TRANSACTIONS

The Company plans to use the Offering proceeds and borrowings under a bank
credit facility to purchase 20 healthcare properties for $115,100,000. Ten of
the properties will be acquired from HEALTHSOUTH for $50,920,000 and five of the
properties will be acquired for $27,280,000 from two companies whose chairmen
are directors of the Company.

The Company has agreed to reimburse actual costs incurred on its behalf by
Crescent Capital Partners and its affiliates upon consummation of the Offering.
The actual costs incurred relate to organizing the Company, negotiating property
acquisitions, performing due diligence related to the properties, performing
corporate work in contemplation of the Offering, preparing the registration
statement and providing interim financing for the acquisition of the properties.
This amount is estimated to be approximately $1,475,000 and will only be payable
upon the closing of the Offering and will be paid from the proceeds of the
Offering. The Company's chairman, its president and one of its directors are the
partners in Crescent Capital Partners.

(4) STOCKHOLDERS' EQUITY

For each of the first six quarters in which dividends are paid by the
Company, the founders have consented to contribute to the Company the after-tax
portion of any dividends distributed to them for such quarter if (i) the
annualized dividends paid in such quarter do not exceed $1.70 per Share ($0.425
per Share per quarter) or (ii) the aggregate dividends paid in such quarter on
the outstanding Shares exceed 95% of the cash available for distribution for the
relevant quarterly period.

The Company intends to adopt a dividend reinvestment plan.

F-4
<PAGE> 79

CRESCENT CAPITAL TRUST, INC.

NOTES TO BALANCE SHEET -- (CONTINUED)
MARCH 31, 1994

(5) EMPLOYEE BENEFITS

The Company's board of directors intends to adopt a deferred compensation
plan, a retirement plan for executive officers and has adopted a stock incentive
plan. The Company has reserved 418,600 shares of common stock for issuance under
the stock incentive plan. As of the effective date of the Offering, the Company
intends to grant options to purchase 260,000 shares of common stock.

F-5
<PAGE> 80

CRESCENT CAPITAL TRUST, INC.

PRO FORMA FINANCIAL STATEMENTS

The following pro forma financial statements are based on the balance sheet
of the Company included elsewhere in the Prospectus, adjusted to give effect to
the Offering and the application of the proceeds therefrom.

The pro forma balance sheet as of March 31, 1994 gives effect to the
Offering and the acquisition of the Initial Properties, as if they had occurred,
and the respective Leases as if they had been in effect, on March 31, 1994. The
pro forma statements of income for the year ended December 31, 1993, and for the
three months ended March 31, 1994, give effect to the Offering and the
acquisition of the Initial Properties as if they had occurred, and the
respective Leases as if they had been in effect, on January 1, 1993. The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable. The pro forma financial statements do
not purport to represent what the Company's financial position or results of
operations and cash available for distribution would actually have been if the
transactions had occurred on March 31, 1994 or January 1, 1993 or to project the
Company's financial position or results of operations for any future period.
Differences would result from, among other things, delays in the acquisition of
the Initial Properties and changes in interest rates.

The pro forma financial statements should be read in conjunction with the
balance sheet of the Company and related notes thereto, and other financial
information pertaining to the Company, including "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this Prospectus.

F-6
<PAGE> 81

CRESCENT CAPITAL TRUST, INC.

PRO FORMA BALANCE SHEET
MARCH 31, 1994

<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO THE AS ADJUSTED FOR
OFFERING AND THE OFFERING AND
ACQUISITION OF THE ACQUISITION OF THE
HISTORICAL INITIAL PROPERTIES INITIAL PROPERTIES
---------- ------------------ ------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $180 $ 102,515,000(1) $ 50,000
(115,100,000)(2)
(1,475,000)(3)
14,184,820(4)
(75,000)(5)
Real estate property.............................. -- 115,100,000(2) 116,150,000
375,000(3)
675,000(3)
Bank credit facility commitment fee............... -- 75,000(5) 75,000
Organization costs................................ -- 25,000(3) 25,000
---------- ------------------ ------------------
Total assets............................ $180 $ 116,299,820 $116,300,000
---------- ------------------ ------------------
---------- ------------------ ------------------
LIABILITIES
Bank credit facility.............................. $ -- $ 14,184,820(4) $ 14,184,820
---------- ------------------ ------------------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 10,000,000
shares authorized; none outstanding............. -- -- --
Common stock, $.001 par value, 50,000,000 shares
authorized; 180,000 issued and outstanding;
5,960,000 issued and outstanding, as adjusted... 180 5,800(1) 5,980
Additional paid-in-capital........................ 102,509,200(1) 102,109,200
(400,000)(3)
---------- ------------------ ------------------
Total stockholders' equity.............. 180 102,115,000 102,115,180
---------- ------------------ ------------------
Total liabilities and stockholders'
equity................................ $180 $ 116,299,820 $116,300,000
---------- ------------------ ------------------
---------- ------------------ ------------------
</TABLE>

See notes to pro forma financial statements.

F-7
<PAGE> 82

CRESCENT CAPITAL TRUST, INC.

PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993

<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED TO THE AS ADJUSTED FOR
OFFERING AND THE OFFERING AND
ACQUISITION OF THE ACQUISITION OF THE
HISTORICAL INITIAL PROPERTIES INITIAL PROPERTIES
---------- ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Rental income.................................... -- $ 12,728,964(6) $ 13,872,706
1,143,742(7)
Cost and expense:
Interest......................................... -- 936,993(9) 936,993
Depreciation and amortization.................... -- 2,621,250(8) 2,621,250
Operating and administrative expenses............ -- 1,200,000(9) 1,200,000
---------- ------------------ ------------------
Total expenses..................................... -- 4,758,243 4,758,243
---------- ------------------ ------------------
---------- ------------------ ------------------
Net income......................................... -- $ 9,114,463 $ 9,114,463
---------- ------------------ ------------------
---------- ------------------ ------------------
Net income per share............................... -- $ 1.52
---------- ------------------
---------- ------------------
Shares outstanding................................. -- 5,980,000
---------- ------------------
---------- ------------------
</TABLE>

See notes to pro forma financial statements

F-8
<PAGE> 83

CRESENT CAPITAL TRUST, INC.

PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1994

See notes to pro forma financial statements

F-9
<PAGE> 84

CRESCENT CAPITAL TRUST, INC.

NOTES TO PRO FORMA FINANCIAL STATEMENTS

(1) Issuance of 5,800,000 Shares of Common Stock for $110,200,000 at $19.00 per
share, less underwriting discount of $7,685,000.

(2) Cost of the Initial Properties of $115,100,000.

(3) Payment to Crescent Capital Partners for reimbursement of actual costs
incurred related to providing interim financing ($375,000), negotiating
Initial Property acquisitions ($675,000), organizing the Company ($25,000),
and preparing the Offering ($400,000).

(4) Borrowings of $14,184,820 under the Bank Credit Facility to maintain cash
and cash equivalents of $50,000.

(5) Payment of Bank Credit Facility commitment fee of $75,000.

(6) Rental income from the Initial Properties for the year ended December 31,
1993 is assumed to be $12,728,964 ($3,182,241 for the three months ended
March 31, 1994), which represents Base Rent (assuming no Additional Rent)
from the Initial Properties under the terms of the Leases. Each Lease is a
Triple Net Lease and the Lessee is responsible thereunder, in addition to
the rent, for all operating expenses, taxes, assessments, ground rents,
water, sewer or the rents and charges, excises, tax levies, fee and all
other governmental charges, utility charges and insurance premiums.

(7) Certain of the leases provide for scheduled annual rent increases.
Generally accepted accounting principles require that these rent increases
be recognized on a straight-line basis over the term of the lease. The
additional rental income recognized in this manner is assumed to be
$1,143,742 for the year ended December 31, 1993 ($285,935 for the three
months ended March 31, 1994).

(8) Depreciation of buildings and land improvements is calculated using the
straight-line method and useful remaining lives of approximately 40 years
and 20 years, respectively. Amortization of organization costs is
calculated using the straight-line method over a five-year period. The Bank
Credit Facility commitment fee is amortized using the straight-line method
over the 24-month life of the related facility.

<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1994 DECEMBER 31, 1993
-------------------- -----------------
<S> <C> <C>
Depreciation:
Buildings................................ $619,687 $ 2,478,750
Land improvements........................ 25,000 100,000
----------- -----------------
644,687 2,578,750
----------- -----------------
Amortization:
Organization costs....................... 1,250 5,000
Financing commitment fee................. 9,375 37,500
----------- -----------------
10,625 42,500
----------- -----------------
Total depreciation and amortization........ $655,312 $ 2,621,250
----------- -----------------
----------- -----------------
</TABLE>

(9) Operating and administrative expenses of $1,200,000 for the year ended
December 31, 1993 ($300,000 for the three months ended March 31, 1994)
consist of compensation and related benefits, professional fees, travel,
rent, interest expense calculated at a rate of 6.1875% of the outstanding
balance of the Bank Credit Facility plus 0.375% of the unused portion of
the Bank Credit Facility and other costs.

F-10
<PAGE> 85

CRESCENT CAPITAL TRUST, INC.

NOTES TO PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)

OTHER DATA -- CASH AVAILABLE FOR DISTRIBUTION

Cash available for distribution is net income plus depreciation,
amortization and other non-cash items less accrued rent. Distributions in excess
of net income generally constitute a return of capital. Management considers
cash available for distribution to be an informative measure of the performance
of an equity REIT and consistent with measures used by analyst to evaluate
equity REITs. Cash available for distribution does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles, is not necessarily indicative of cash available to fund cash needs
and should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow as a
measure of liquidity.

<TABLE>
<CAPTION>
AS ADJUSTED FOR THE OFFERING AND
ACQUISITION OF THE INITIAL
PROPERTIES
----------------------------------
THREE MONTHS
ENDED MARCH YEAR ENDED
31, 1994 DECEMBER 31, 1993
-------------- -----------------
<S> <C> <C>
Pro forma cash available for distribution:
Net income.................................... $2,278,616 $ 9,114,463
Accrued rent income (non-cash income) (See
Note 7).................................... (285,935) (1,143,742)
Depreciation, amortization and other non-cash
expenses................................... 675,313 2,701,250
-------------- -----------------
Cash available for distribution............... $$2,667,994 $10,671,971
-------------- -----------------
-------------- -----------------
Cash available for distribution per share..... $ 0.45 $ 1.78
-------------- -----------------
-------------- -----------------
Shares outstanding............................ 5,980,000 5,980,000
-------------- -----------------
-------------- -----------------
</TABLE>

F-11
<PAGE> 86

REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS

The Board of Directors
HEALTHSOUTH Rehabilitation Corporation

We have audited the accompanying consolidated balance sheets of HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries as of December 31, 1992 and 1993,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries at December 31, 1992 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.

ERNST & YOUNG

Birmingham, Alabama
February 28, 1994

F-12
<PAGE> 87

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1992 1993
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2)................................. $ 70,842 $ 53,470
Other marketable securities (Note 2)............................... 15,074 8,968
Accounts receivable, net of allowances for doubtful accounts and
contractual adjustments of $42,820,000 in 1992 and $104,323,000
in 1993......................................................... 94,381 143,807
Inventories........................................................ 10,800 20,783
Prepaid expenses and other current assets.......................... 21,444 34,682
-------- ----------
Total current assets....................................... 212,541 261,710
Other assets:
Loans to officers.................................................. 1,111 1,488
Other (Note 3)..................................................... 11,092 21,244
-------- ----------
12,203 22,732
Initial Property, plant and equipment, net (Note 4).................. 335,058 708,205
Intangible assets, net (Note 5)...................................... 81,997 175,421
-------- ----------
Total assets............................................... $641,799 $1,168,068
-------- ----------
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 19,972 $ 41,200
Salaries and wages payable......................................... 8,084 21,442
Accrued interest payable and other liabilities..................... 11,452 22,606
Current portion of long-term debt (Note 6)......................... 2,907 4,859
-------- ----------
Total current liabilities.................................. 42,415 90,107
Long-term debt (Note 6).............................................. 299,508 779,690
Deferred income taxes................................................ 12,050 5,098
Other long-term liabilities.......................................... 49 --
Minority interests-limited partnerships.............................. (2,355) (1,799)
Commitments and contingent liabilities (Note 11)
Stockholders' equity:
Preferred Stock, $.10 par value -- 1,500,000 shares authorized;
issued and outstanding -- none.................................. -- --
Common Stock, $.01 par value -- 50,000,000 shares authorized;
issued and outstanding -- 28,823,000 in 1992 and 29,026,000 in
1993............................................................ 288 290
Additional paid-in capital......................................... 241,093 243,229
Retained earnings.................................................. 68,393 70,648
Treasury stock, at cost (20,000 shares)............................ -- (263)
-------- ----------
309,774 313,904
Receivable from Employee Stock Ownership Plan (Note 12).............. (19,642) (18,932)
-------- ----------
Total stockholders' equity................................. 290,132 294,972
-------- ----------
Total liabilities and stockholders' equity................. $641,799 $1,168,068
-------- ----------
-------- ----------
</TABLE>

See accompanying notes.

F-13
<PAGE> 88

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues....................................................... $225,485 $406,968 $482,304
Operating expenses:
Operating units.............................................. 157,654 303,604 348,912
Corporate general and administrative......................... 7,947 10,245 14,020
Provision for doubtful accounts................................ 5,298 11,000 12,680
Depreciation and amortization.................................. 14,718 25,485 36,494
Interest expense............................................... 9,912 10,836 12,683
Interest income................................................ (5,483) (4,340) (3,173)
NME Selected Hospitals Acquisition related expense (Note 9).... -- -- 49,742
Terminated merger expense (Note 14)............................ -- 3,665 --
-------- -------- --------
190,046 360,495 471,358
-------- -------- --------
Income before income taxes and minority interests.............. 35,439 46,473 10,946
Provision for income taxes..................................... 11,500 15,333 4,069
-------- -------- --------
23,939 31,140 6,877
Minority interests............................................. 1,568 1,402 190
-------- -------- --------
Net income..................................................... $ 22,371 $ 29,738 $ 6,687
-------- -------- --------
-------- -------- --------
Weighted average common and common equivalent shares
outstanding.................................................. 25,905 29,887 29,858
-------- -------- --------
-------- -------- --------
Net income per common and common equivalent share.............. $ .86 $ 1.00 $ .22
-------- -------- --------
-------- -------- --------
Net income per common share-assuming full dilution............. $ .83 $ N/A $ N/A
-------- -------- --------
-------- -------- --------
</TABLE>

See accompanying notes.

F-14
<PAGE> 89

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON COMMON PAID-IN RETAINED TREASURY RECEIVABLE STOCKHOLDERS'
SHARES STOCK CAPITAL EARNINGS STOCK FROM ESOP EQUITY
------ ------ ---------- --------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990... 12,713 $127.1 $100,442.7 $27,331.2 $ -- $ -- $ 127,901.0
Proceeds from issuance of
common shares at $32.00 per
share........................ 2,300 23.0 69,581.3 -- -- -- 69,604.3
Conversion of subordinated
debentures................... 3,081 30.8 50,159.2 -- -- -- 50,190.0
Issuance of shares in
connection with stock
split........................ 9,348 93.5 (93.5) -- -- -- --
Proceeds from exercise of
options...................... 602 6.0 5,761.8 -- -- -- 5,767.8
Income tax benefits related to
incentive Stock Options...... -- -- 4,373.1 -- -- -- 4,373.1
Common shares exchanged in the
exercise of options.......... -- -- (11.9) -- -- -- (11.9)
Loan to Employee Stock
Ownership Plan............... -- -- -- -- -- (10,000.0) (10,000.0)
Purchase of limited partnership
units........................ -- -- -- (854.2) -- -- (854.2)
Net income..................... -- -- -- 22,371.0 -- -- 22,371.0
------ ----- ---------- --------- -------- ---------- -------------
BALANCE AT DECEMBER 31, 1991... 28,044 280.4 230,212.7 48,848.0 -- (10,000.0) 269.341.1
Proceeds from exercise of
options...................... 762 7.6 6,648.6 -- -- -- 6,656.2
Income tax benefits related to
Incentive Stock Options...... -- -- 3,827.7 -- -- -- 3,827.7
Common shares exchanged in the
exercise of options.......... (4) -- (95.6) -- -- -- (95.6)
Loan to Employee Stock Own
ership Plan.................. -- -- -- -- -- (10,000.0) (10,000.0)
Reduction in Receivable from
Employee Stock Ownership
Plan......................... -- -- -- -- -- 358.0 358.0
Purchase of limited partnership
units........................ 21 .2 499.8 (10,193.4) -- -- (9,693.4)
Net income..................... -- -- -- 29,738.0 -- -- 29,738.0
------ ----- ---------- --------- -------- ---------- -------------
BALANCE AT DECEMBER 31, 1992... 28,823 288.2 241,093.2 68,392.6 -- (19,642.0) 290,132.0
Proceeds from exercise of
options...................... 203 $ 2.0 $ 1,709.6 $ -- $ -- $ -- $ 1,711.6
Income tax benefits related to
Incentive Stock Options...... -- -- 425.7 -- -- -- 425.7
Reduction in Receivable from
Employee Stock Ownership
Plan......................... -- -- -- -- -- 710.1 710.1
Purchase of limited partnership
units........................ -- -- -- (4,431.7) -- -- (4,431.7)
Purchase of treasury stock..... (20) -- -- -- (263.0) -- (263.0)
Net income..................... -- -- -- 6,687.1 -- -- 6,687.1
------ ------ ---------- --------- -------- ---------- -------------
BALANCE AT DECEMBER 31, 1993... 29,006 $290.2 $243,228.5 $70,648.0 $(263.0) $(18,931.9) $ 294,971.8
------ ------ ---------- --------- -------- ---------- -------------
------ ------ ---------- --------- -------- ---------- -------------
</TABLE>

See accompanying notes

F-15
<PAGE> 90

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income............................................................ $ 22,371 $ 29,738 $ 6,687
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 14,718 25,485 36,494
Provision for doubtful accounts..................................... 5,298 11,000 12,680
NME Selected Hospitals Acquisition related expense.................. -- -- 49,742
Income applicable to minority interests of limited partnerships..... 1,568 1,402 190
Provision (benefit) for deferred income taxes....................... 3,168 4,695 (6,611)
Provision for deferred revenue from contractual agencies............ (109) (279) (49)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable................................................. (15,216) (31,007) (19,545)
Inventories, prepaid expenses and other current assets.............. (7,860) (11,749) (14,317)
Accounts payable and accrued expenses............................... 6,144 5,784 (12,928)
--------- --------- ---------
Net cash provided by operating activities............................. 30,082 35,069 52,343
INVESTING ACTIVITIES
Purchases of property, plant and equipment............................ (71,974) (86,240) (110,800)
Additions to intangible assets, net of effects of acquisitions........ (8,270) (24,976) (38,190)
Assets obtained through acquisitions, net of liabilities assumed...... (41,693) (41,343) (385,077)
Changes in other assets............................................... (648) 1,834 (4,868)
Proceeds received on sale of other marketable securities.............. 11,286 14,041 12,106
Investments in other marketable securities............................ (26,339) (4,945) (6,000)
--------- --------- ---------
Net cash used in investing activities................................. (137,638) (141,629) (532,829)
FINANCING ACTIVITIES
Proceeds from borrowings.............................................. 102,158 169,800 482,710
Principal payments on long-term debt and leases....................... (35,524) (58,890) (17,687)
Proceeds from exercise of options..................................... 5,756 6,561 1,711
Proceeds from issuance of common stock................................ 69,604 -- --
Purchase of treasury stock............................................ -- -- (263)
Loans to Employee Stock Ownership Plan................................ (10,000) (10,000) --
Reduction in Receivable from Employee Stock Ownership Plan............ -- 358 710
Proceeds from investment by minority interests........................ 547 971 614
Purchase of limited partnership interests............................. (993) (11,495) (3,784)
Payment of cash distributions to limited partners..................... (3,146) (2,833) (897)
--------- --------- ---------
Net cash provided by financing activities............................. 128,402 94,472 463,114
--------- --------- ---------
Increase (decrease) in cash and cash equivalents...................... 20,846 (12,088) (17,372)
Cash and cash equivalents at beginning of year........................ 62,084 82,930 70,842
--------- --------- ---------
Cash and cash equivalents at end of year.............................. $ 82,930 $ 70,842 $ 53,470
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest............................................................ $ 12,205 $ 12,469 $ 11,049
Income taxes........................................................ 6,701 9,201 15,608
</TABLE>

NON-CASH FINANCING ACTIVITIES:

The holders of the Company's $52,000,000 in aggregate principal amount of
7 3/4% Convertible Subordinated Debentures Due 2014 surrendered the Debentures
for conversion into 3,081,446 shares (on a pre-split basis) of the Company's
common stock on various dates during 1991.

During 1991 the Company had a three-for-two stock split on its common
stock, which was effected in the form of a fifty percent stock dividend.

The Company received a tax benefit from the disqualifying disposition of
incentive stock options of $4,373,000, $3,828,000 and $426,000 for the years
ended December 31, 1991, 1992, and 1993, respectively.

See accompanying notes.

F-16
<PAGE> 91

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993

1. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed by HEALTHSOUTH Rehabilitation
Corporation and its subsidiaries (the Company) are presented as an integral part
of the consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of HEALTHSOUTH
Rehabilitation Corporation (HEALTHSOUTH) and its wholly-owned subsidiaries, as
well as its limited partnerships (see Note 8). All significant intercompany
accounts and transactions have been eliminated in consolidation.

HEALTHSOUTH Rehabilitation Corporation is engaged in the business of
providing comprehensive rehabilitative and clinical healthcare services on an
inpatient and outpatient basis.

MARKETABLE SECURITIES

Marketable securities are stated at cost, which approximates market,
adjusted for amortization of premium and accretion of discount. The adjusted
cost of the specific security sold method is used to compute gain or loss on the
sale of securities.

ACCOUNTS RECEIVABLE AND THIRD-PARTY REIMBURSEMENT ACTIVITIES

Receivables from patients, insurance companies and third-party contractual
insured accounts (Medicare and Medicaid) are based on payment agreements which
generally result in the Company collecting an amount different from the
established rates. Final determination of the settlement is subject to review by
appropriate authorities. Adequate allowances are provided for doubtful accounts
and contractual adjustments. Uncollectible accounts are written off against the
allowance for doubtful accounts after adequate collection efforts are made. Net
accounts receivable include only those amounts estimated by management to be
collectible.

The concentration of net accounts receivable from third-party contractual
payors and others, as a percentage of total net accounts receivable, was as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1992 1993
---- ----
<S> <C> <C>
Medicare.................................................. 34% 31%
Medicaid.................................................. 2% 4%
Other..................................................... 64% 65%
---- ----
100% 100%
---- ----
---- ----
</TABLE>

INVENTORIES

Inventories are stated at the lower of cost or market using the specific
identification method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost. Upon sale or retirement
of property, plant or equipment, the cost and related accumulated depreciation
are eliminated from the respective account and the resulting gain or loss is
included in the results of operations.

Interest cost incurred during the construction of a facility is
capitalized. The Company incurred interest of $11,880,000, $12,815,000 and
$15,067,000 of which $1,968,000, $1,979,000 and $2,384,000 was capitalized
during 1991, 1992 and 1993, respectively.

F-17
<PAGE> 92

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets or the term of the lease, as
appropriate. The estimated useful life of buildings is 30-40 years and the
general range of useful lives for leasehold improvements, furniture, fixtures
and equipment is 10-15 years.

INTANGIBLE ASSETS

Cost in excess of net asset value of purchased facilities is amortized over
20 to 40 years using the straight-line method. Organization and start-up costs
incurred prior to opening a new facility and partnership formation costs are
deferred and amortized on a straight-line basis over a period of 36 months.
Organization, partnership formation and start-up costs for a project that is
subsequently abandoned are charged to operations in that period. Debt issue
costs are amortized over the term of the debt. Noncompete agreements are
amortized using the straight-line method over the term of the agreements.

MINORITY INTERESTS

The equity of minority investors in limited partnerships of the Company is
reported on the balance sheet as minority interests. Minority interests reported
in the income statement reflect the respective shares of income or loss of the
limited partnerships attributable to the minority investors, the effect of which
is removed from the results of operations of the Company.

REVENUES

Revenues include net patient service revenues and other operating revenues.
Net patient service revenues are reported at the estimated net realizable
amounts from patients, third-party payors and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors.

INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Income per common and common equivalent share is computed based on the
weighted average number of common shares and common equivalent shares
outstanding during the periods. Common equivalent shares include dilutive
employees' stock options, less the number of treasury shares assumed to be
purchased from the proceeds using the average market price of the Company's
common stock. Fully diluted earnings per share (based on 27,855,000 shares in
1991) assumes conversion of the 7 3/4% Convertible Subordinated Debentures Due
2014 issued in May 1989. The debentures were converted to common stock in 1991.

RECLASSIFICATIONS

Certain amounts in the 1991 and 1992 Consolidated Financial Statements have
been reclassified to conform with the 1993 presentation. Such reclassifications
had no material effect on the previously reported financial position, net income
or cash flows of the Company.

F-18
<PAGE> 93

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

2. CASH, CASH EQUIVALENTS AND OTHER MARKETABLE SECURITIES (INCLUDING FUNDS
SUBJECT TO WITHDRAWAL RESTRICTIONS)

Cash, cash equivalents and other marketable securities consisted of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Cash...................................................... $ 6,041 $ 32,221
Municipal put bonds....................................... 49,330 9,800
Tax advantaged auction preferred stocks................... -- 4,000
Municipal put bond mutual funds........................... 8,000 2,000
Money market funds........................................ 7,447 5,449
Bankers acceptances....................................... 24 --
---------- ----------
Total cash and cash equivalents......................... 70,842 53,470
---------- ----------
Certificates of deposit................................... 1,279 1,108
Municipal put bonds....................................... 13,795 1,860
Municipal put bond mutual funds........................... -- 5,000
Collateralized mortgage obligations....................... -- 1,000
---------- ----------
Total other marketable securities....................... 15,074 8,968
---------- ----------
Total cash, cash equivalents and other marketable
securities (approximates market value)............... $ 85,916 $ 62,438
---------- ----------
---------- ----------
</TABLE>

3. OTHER ASSETS

Other assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1992 1993
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Notes and accounts receivable............................. $ 2,187 $ 2,968
Investment in Caretenders Health Corp..................... 7,380 7,382
Investments in other unconsolidated subsidiaries.......... -- 3,991
Investment in land held for expansion..................... -- 3,023
Other..................................................... 1,525 3,880
---------- ----------
$ 11,092 $ 21,244
---------- ----------
---------- ----------
</TABLE>

The Company has a 24% ownership interest in Caretenders Health Corp.
(Caretenders). Accordingly, the Company's investment is being accounted for
using the equity method of investments in common stock. The investment was
initially valued at $7,250,000. The Company's equity in earnings of Caretenders
for the years ended December 31, 1992 and 1993 was not material to the Company's
results of operations. At December 31, 1993, the Company guaranteed $6,000,000
on a line of credit for Caretenders. The line of credit bears interest at the
banks' prime rate plus 1/2% and is secured by Caretender's receivables and
inventory pursuant to an asset based lending formula. In return for the
guarantee, Caretenders granted the Company warrants to purchase 500,000 shares
of Caretenders common stock at a price of $2.50 per share that expire on
December 31, 2002.

F-19
<PAGE> 94

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1992 1993
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land......................................................... $ 37,334 $ 60,048
Buildings.................................................... 170,216 441,885
Leasehold improvements....................................... 11,729 16,454
Furniture, fixtures and equipment............................ 120,097 215,590
Construction in progress..................................... 33,399 29,274
-------- --------
372,775 763,251
Less accumulated depreciation and amortization............... 37,717 55,046
-------- --------
$335,058 $708,205
-------- --------
-------- --------
</TABLE>

5. INTANGIBLE ASSETS

Intangible assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1992 1993
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Organization, partnership formation and start-up costs....... $ 35,408 $ 41,939
Debt issue costs............................................. 1,308 1,527
Noncompete agreements........................................ 19,983 24,862
Cost in excess of net asset value of purchased facilities.... 46,632 136,196
-------- --------
103,331 204,524
Less accumulated amortization................................ 21,334 29,103
-------- --------
$ 81,997 $175,421
-------- --------
-------- --------
</TABLE>

6. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1992 1993
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Notes and bonds payable:
Advances under a $390,000,000 credit agreement with a
bank.................................................... $288,000 $370,000
Due to National Medical Enterprises, Inc................... -- 361,164
Notes payable to banks and various other notes payable..... 4,415 4,201
Noncompete agreements payable with payments due at varying
intervals through December 2003............................ 10,000 12,050
Hospital revenue bonds payable............................... -- 24,862
Other........................................................ -- 12,272
-------- --------
302,415 784,549
Less amounts due within one year............................. 2,907 4,859
-------- --------
$299,508 $779,690
-------- --------
-------- --------
</TABLE>

F-20
<PAGE> 95

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During 1992, the Company entered into a Credit Agreement with NationsBank
of North Carolina, N.A. and participating banks (the 1992 Credit Agreement)
which consists of a $390,000,000 revolving facility and term loan. The 1992
Credit Agreement replaced a previous credit agreement with AmSouth Bank N.A.
Interest is paid quarterly based on LIBOR rates plus a pre-determined margin, a
base rate, or competitively bid rates from the participating banks. The Company
is required to pay a fee of 0.25% on the unused portion of the 1992 revolving
credit facility. The principal amount is payable on November 20, 1995. The
maturity date is extendible for two one year periods upon the mutual agreement
of the Company and the lenders. The Company has provided a negative pledge of
all its assets and has granted a first priority security interest in and lien on
all shares of stock of its subsidiaries and rights and interests in its
partnerships.

Effective December 31, 1993, the Company completed an acquisition of
selected rehabilitation facilities from National Medical Enterprises, Inc. (NME)
(see Note 9). The acquisition was financed by the Company through a $410,000,000
Acquisition and Revolving Credit Facility (the NME Acquisition Credit Facility)
with NationsBank of North Carolina, N.A., and six participating banks. Interest
is paid quarterly based on LIBOR or a base rate plus a predetermined margin.
This credit facility has an initial term ending June 30, 1994, but may be
extended to June 30, 1995. The Company has provided a negative pledge on all
assets acquired in the NME Selected Hospitals Acquisition and granted the banks
a first priority security interest in all shares of stock of its subsidiaries
and rights and interests in its controlled partnerships relating to facilities
acquired in the NME Selected Hospitals Acquisition.

The amount shown as Due to National Medical Enterprises, Inc. at December
31, 1993 was subsequently financed through the NME Acquisition Credit Facility.

On February 1, 1994, the Company filed a Registration Statement on Form S-3
with the Securities and Exchange Commission to issue $250,000,000 ($287,500,000
if the underwriter's over-allotment option is exercised in full) in Senior
Subordinated Notes Due 2001 and $100,000,000 ($115,000,000 if the underwriters'
over-allotment option is exercised in full) Convertible Subordinated Debentures
Due 2001. The Company intends to use proceeds from these debt offerings to repay
indebtedness outstanding under its existing bank credit facilities. Accordingly,
all amounts outstanding under the Company's existing bank credit facilities are
shown as non-current in the accompanying financial statements at December 31,
1993.

Principal maturities of notes and bonds payable are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
----------------------------------------- --------------
<S> <C>
1994..................................... $ 4,859
1995..................................... 375,630
1996..................................... 5,544
1997..................................... 4,602
1998..................................... 3,462
After 1998............................... 390,452
--------------
$784,549
--------------
--------------
</TABLE>

7. STOCK OPTIONS

The Company has various stockholder-approved stock option plans which
provide for the grant of options to Directors, officers and other key employees
to purchase common stock at 100% of the fair market value as of the date of
grant. During 1993, the Company's Board of Directors adopted the 1993 Stock
Option Plan, which is subject to approval by the stockholders at their next
meeting. The Board of Directors administers the stock option plans. Options may
be granted as incentive stock options or as non-qualified stock options.
Incentive stock options vest 25% annually, commencing upon completion of one
year of employment

F-21
<PAGE> 96

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

subsequent to the date of grant. Non-qualified stock options generally are not
subject to any vesting provisions. The options expire at dates ranging from five
to ten years from the date of grant.

The following table summarizes activity in the stock option plans:

<TABLE>
<CAPTION>
1991 1992 1993
------------- --------------- ---------------
<S> <C> <C> <C>
Options outstanding January 1:................. 2,580,113 3,368,571 5,339,742
Granted...................................... 1,725,750 2,762,000 1,770,000
Exercised.................................... 898,854 765,328 180,455
Cancelled.................................... 38,438 25,501 53,501
------------- --------------- ---------------
Options outstanding at December 31............. 3,368,571 5,339,742 6,875,786
------------- --------------- ---------------
------------- --------------- ---------------
Option price range for options granted during
the period................................... $18.33-$27.41 $15.25-$19.88 $13.50-$16.88
Option price range for options exercised during
the period................................... $2.67-$21.41 $5.67-$21.41 $5.91-$19.17
Options exercisable at December 31............. 1,901,565 4,155,817 5,332,940
Options available for grant at December 31..... 1,473,075 546,050 324,550
</TABLE>

8. LIMITED PARTNERSHIPS

HEALTHSOUTH operates a number of rehabilitation centers as limited
partnerships. HEALTHSOUTH serves as the general partner and operates the
partnerships as comprehensive outpatient rehabilitation facilities or inpatient
rehabilitation facilities. These limited partnerships are included in the
consolidated financial statements (as more fully described in Note 1 under
"Minority Interests"). The limited partners share in the profit or loss of the
partnerships based on their respective ownership percentage (ranging from 1% to
50% at December 31, 1993) during their ownership period.

Beginning in 1992, due to federal and state regulatory requirements, the
Company began the process of buying back the partnership interests of its
physician limited partners. The buyback prices for the interests were in general
based on a pre-determined multiple of projected cash flows of the partnerships.
The excess of the buyback price over the book value of the limited partners'
capital amounts was charged to the Company's retained earnings.

9. ACQUISITIONS

Effective December 31, 1993, the Company completed an acquisition from
National Medical Enterprises, Inc. (NME) of 28 inpatient rehabilitation
facilities and 45 outpatient rehabilitation centers, which constituted
substantially all of NME's rehabilitation services division (the NME Selected
Hospitals Acquisition). The purchase price was approximately $296,661,000 cash,
plus net working capital of $64,503,000, subject to certain adjustments as of
June 30, 1994, the assumption of approximately $16,313,000 of current
liabilities and the assumption of approximately $17,111,000 in long-term debt
(see Note 6).

Also, at various dates during 1993, the Company acquired outpatient
operations in nineteen cities located throughout the United States. The Company
also acquired eight satellite locations. The combined purchase price of these
acquired outpatient operations and satellites was approximately $23,943,000.

In connection with these transactions, the Company entered into non-compete
agreements totaling $4,730,000.

The fair value of the total net assets acquired in 1993 was approximately
$301,382,000. The total cost for 1993 acquisitions exceeded the fair value of
the net assets acquired by approximately $83,725,000. This excess is being
amortized over a forty-year period on a straight-line basis. The allocation of
the purchase price of the

F-22
<PAGE> 97

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NME Selected Hospitals Acquisition is tentative pending completion of appraisals
on the facilities and equipment acquired. The allocation may change with the
completion of these appraisals.

All of the acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements from their
respective dates of acquisition.

The following table summarizes the unaudited consolidated pro forma results
of operations, assuming the NME Selected Hospitals Acquisition described above
had occurred at the beginning of each of the following periods. This pro forma
summary does not necessarily reflect the results of operations as they would
have been had the Company and the acquired entities constituted a single entity
during such periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1992 1993
-------- --------
<S> <C> <C>
(In thousands, except for per share amounts)
Revenues................................................... $922,136 $937,173
Net income................................................. 45,869 14,566
Net income per common and common equivalent share.......... 1.53 .49
</TABLE>

As a result of the NME Selected Hospitals Acquisition, the Company has
recognized an expense of approximately $49,742,000 during the year ended
December 31, 1993. By recognizing this expense, the Company has provided for the
write-down of certain assets to realizable value as the result of anticipated
facility reorganizations and consolidations, related costs of certain employee
separations, and the write-off of certain capitalized development project costs.

10. INCOME TAXES

HEALTHSOUTH and its subsidiaries file a consolidated federal income tax
return. The limited partnerships file separate income tax returns. HEALTHSOUTH's
allocable portion of each partnership's income (loss) is included in the taxable
income of the Company. The remaining income (loss) of each partnership is
allocated to the limited partners.

Effective January 1, 1993, the Company changed its method of accounting for
income taxes to the liability method required by Financial Accounting Standards
Board (FASB) Statement No. 109, "Accounting for Income Taxes". The cumulative
effect of adopting Statement 109 was not material. Previously, the Company had
used the liability method as prescribed by FASB Statement No. 96.

Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1993 are as
follows:

<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
------- ---------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation and amortization.......................... $ -- $ 24,497 $24,497
Other.................................................. 340 -- 340
------- ---------- -------
Total deferred tax liabilities......................... 340 24,497 24,837
Deferred tax assets:
NME Selected Hospitals Acquisition related expense..... -- 19,399 19,399
------- ---------- -------
Total deferred tax assets................................ -- 19,399 19,399
------- ---------- -------
Net deferred tax liabilities............................. $ 340 $ 5,098 $ 5,438
------- ---------- -------
------- ---------- -------
</TABLE>

F-23
<PAGE> 98

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The current portion of the Company's deferred tax liability is included
with accrued interest payable and other current liabilities on the accompanying
balance sheet.

The provision for income taxes was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Currently payable:
Federal............................................. $ 7,639 $ 9,497 $ 9,695
State............................................... 693 1,141 985
------- ------- -------
8,332 10,638 10,680
Deferred expense (benefit):
Federal............................................. 2,616 4,175 (5,933)
State............................................... 552 520 (678)
------- ------- -------
3,168 4,695 (6,611)
------- ------- -------
Total provision..................................... $11,500 $15,333 $ 4,069
------- ------- -------
------- ------- -------
</TABLE>

The components of the provision for deferred income taxes for the years
ended December 31, 1991 and 1992 are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1991 1992
------ ------
<S> <C> <C>
(IN THOUSANDS)
Depreciation and amortization.................................. $1,579 $5,483
Bad debts...................................................... 1,264 (953)
Installment sale............................................... 240 --
Other.......................................................... 85 165
------ ------
$3,168 $4,695
------ ------
------ ------
</TABLE>

The difference between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
taxes was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1991 1992 1993
------- ------- ------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal taxes at statutory rates....................... $11,516 $15,324 $3,765
Add (deduct):
State income taxes, net of federal tax benefit....... 457 753 650
Tax-exempt interest income........................... (1,267) (1,012) (382)
Other................................................ 794 268 36
------- ------- ------
------- ------- ------
$11,500 $15,333 $4,069
------- ------- ------
------- ------- ------
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

At December 31, 1993, anticipated capital expenditures for the next twelve
months approximate $100,000,000. This amount includes expenditures for the
construction and equipping of additions to existing facilities, the construction
of three inpatient rehabilitation facilities for which regulatory approval has
been obtained and the acquisition or development of comprehensive outpatient
rehabilitation facilities.

F-24
<PAGE> 99

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that at December 31, 1993 the Company has adequate reserves to cover
losses on asserted and unasserted claims.

Operating leases

Operating leases generally consist of short-term lease agreements for
buildings where facilities are located. These leases generally have 5-year
terms, with one or more renewal options, with terms to be negotiated at the time
of renewal. Total rental expense for all operating leases was $8,801,000,
$13,099,000 and $18,177,000 for the years ended December 31, 1991, 1992 and
1993, respectively.

The following is a schedule of future minimum lease payments under all
operating leases having initial or remaining non-cancelable lease terms in
excess of one year:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 (IN THOUSANDS)
----------------------------------------------------------------------- --------------
<S> <C>
1994............................................................ $ 35,922
1995............................................................ 33,207
1996............................................................ 30,530
1997............................................................ 28,295
1998............................................................ 26,151
After 1998...................................................... 92,834
--------------
Total minimum payments required...................................... $246,939
--------------
--------------
</TABLE>

12. EMPLOYEE BENEFIT PLANS

The Company has a 401(k) savings plan which matches 15% (10% in 1991) of
the first 4% of earnings that an employee contributes. All contributions are in
the form of cash. All employees who have completed one year of service with a
minimum of 1,000 hours worked are eligible to participate in the plan. Company
contributions are gradually vested over a seven-year service period.
Contributions to the plan by the Company were approximately $196,000, $396,000,
and $430,000 in 1991, 1992 and 1993, respectively.

In 1991, the Company established an Employee Stock Ownership Plan (ESOP)
for the purpose of providing substantially all employees of the Company the
opportunity to save for their retirement and acquire a proprietary interest in
the Company. The ESOP currently owns approximately 830,000 shares of the
Company's Common Stock, which were purchased with funds borrowed from the
Company, $10,000,000 in 1991 (the 1991 ESOP Loan) and $10,000,000 in 1992 (the
1992 ESOP Loan). At December 31, 1993, the combined ESOP Loans had a balance of
$18,932,000. The 1991 ESOP Loan, which bears an interest rate of 10%, is payable
in annual installments covering interest and principal over a ten-year period
beginning in 1992. The 1992 ESOP Loan, which bears an interest rate of 8.5%, is
payable in annual installments covering interest and principal over a ten-year
period beginning in 1993. Company contributions to the ESOP began in 1992 and
shall at least equal the amount required to make all ESOP Loan amortization
payments for each plan year. The Company recognizes compensation expense based
on the shares allocated method. The total compensation expense related to the
ESOP recognized by the Company was $367,000, $1,701,000 and $3,198,000 in 1991,
1992 and 1993, respectively. Interest incurred on the ESOP Loans was
approximately $367,000, $964,000 and $1,743,000, in 1991, 1992 and 1993,
respectively.

F-25
<PAGE> 100

HEALTHSOUTH REHABILITATION CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. CAPITAL STOCK

On October 17, 1991, the Company's Board of Directors authorized a
three-for-two stock split to be effected in the form of a 50 percent stock
dividend. The stock dividend was distributed on December 31, 1991 to holders of
record on December 13, 1991. An amount equal to the par value of the shares
issued has been transferred from additional paid-in capital to the common stock
account. All weighted average share and per share amounts have been restated to
give effect to the stock split.

14. TERMINATED MERGER

On January 2, 1992, the Company and Continental Medical System, Inc. (CMS)
jointly announced an agreement to combine their business operations as provided
in an Agreement and Plan of Reorganization (the Plan). On May 6, 1992, the
Company and CMS jointly announced the termination of the Plan. Accordingly, all
costs and expenses incurred in connection with the Plan were charged to
operations in 1992 and reported as terminated merger expense in the accompanying
statements of income.

F-26
<PAGE> 101

- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 12
Use of Proceeds....................... 19
Distributions to Stockholders......... 20
Dilution.............................. 20
Capitalization........................ 21
Selected Historical and Pro Forma
Financial Information............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 26
Investment and Other Policies......... 42
Management............................ 46
Principal Stockholders................ 51
Description of Securities............. 51
Certain Provisions of Maryland Law and
of The Company's Articles of
Incorporation and Bylaws............ 54
Federal Income Tax Considerations..... 56
ERISA Considerations.................. 65
Underwriting.......................... 68
Legal Matters......................... 69
Experts............................... 69
Available Information................. 70
Glossary.............................. 71
Index to Financial Statements......... F-1
</TABLE>

------------------
UNTIL , 1994 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------

- ------------------------------------------------------
- ------------------------------------------------------
5,800,000 SHARES

CRESCENT CAPITAL TRUST, INC.

COMMON STOCK
------------------

PROSPECTUS

MAY , 1994
------------------
SMITH BARNEY SHEARSON INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 102

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock
offered hereby.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................................ $46,000
NASD Filing Fee.................................................................... 13,840
New York Stock Exchange Original Listing Fee....................................... *
Blue Sky Fees and Expenses......................................................... *
Legal Fees and Expenses............................................................ *
Accounting Fees.................................................................... *
Printing and Engraving Costs....................................................... *
Transfer Agent's Fee............................................................... *
Miscellaneous Expenses............................................................. *
-------
Total.................................................................... $ *
-------
-------
</TABLE>

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

* To be supplied by amendment

ITEM 31. SALES TO SPECIAL PARTIES

The Company sold an aggregate of 180,000 shares of Common Stock to Richard
M. Scrushy (82,656 shares), HEALTHSOUTH Rehabilitation Corporation (71,280
shares), John W. McRoberts (18,000 shares) and Michael D. Martin (8,064 shares),
its Founding Stockholders, for $.001 per share (an aggregate of $180) on March
31, 1994.

ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES

The Company sold an aggregate of 180,000 shares of Common Stock to the four
Founding Stockholders for an aggregate of $180 on March 31, 1994 pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of
1933, as amended.

ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Articles of Incorporation of the Company provides for indemnification
of directors to the full extent permitted by the laws of the State of Maryland.

Section 2-418 of the MGCL generally permits indemnification of any director
made a party to any proceedings by reason of service as a director unless it is
established that (i) the act or omission of such person was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; or (ii) such person actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, such person had reasonable cause to
believe that the act or omission was unlawful. The indemnity may include
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the director in connection with the proceeding; but, if the
proceeding is one by, or in the right of the corporation, indemnification is not
permitted with respect to any proceeding in which the director has been adjudged
to be liable to the corporation. The termination of any proceeding by conviction
or upon a plan of nolo contendere or its equivalent creates a rebuttable
presumption that the director did not meet the requisite standard of conduct
required for permitted indemnification. The termination of any proceeding by
judgment, order or settlement, however, does not create a presumption that the
director failed to meet the requisite standard of conduct for permitted
indemnification.

II-1
<PAGE> 103

Indemnification under the provisions of the MGCL is not deemed exclusive of
any other rights, by indemnification or otherwise, to which a director may be
entitled under the Articles of Incorporation, Bylaws, resolution of stockholders
or directors, contract or otherwise.

The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify and advance expenses to its currently acting and its former
directors to the fullest extent permitted by the MGCL, and that the Company may
indemnify and advance expenses to its officers to the same extent as its
directors and to such further extent as is consistent with law. The MGCL
provides that a corporation may indemnify any director made a party to any
proceeding by reason of service in that capacity unless it is established that:
(1) the act or omission of the director was material to the matter giving rise
to the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty, or (2) the director actually received an
improper personal benefit in money, property or services, or (a) in the case of
any criminal proceeding the director had reasonable cause to believe that the
actor omission was unlawful. The statute permits Maryland corporations to
indemnify its officers, employees or agents to the same extent as its directors
and to such further extent as is consistent with law. The Company's Articles of
Incorporation authorizes the Company to indemnify persons serving as its
officers to the same extent that the Company is obligated to indemnify its
Directors. The Company's Bylaws adopted by the Board of Directors provide that
officers of the Company shall be entitled to such indemnification except to the
extent that the Board of Directors may otherwise prospectively determine in any
situation.

The Registrant intends to obtain officers and directors liability
insurance.

ITEM 34. TREATMENT OF PROCEEDS FROM SECURITIES BEING REGISTERED

Not applicable.

ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements Included in the Prospectus:

1. Audited Balance Sheet of Crescent Capital Trust, Inc. as of March
31, 1994.

2. Unaudited Pro Forma Financial Statements of Crescent Capital Trust,
Inc. as of December 31, 1993.

3. Audited Consolidated Financial Statements of HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries.

(b) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
*1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
*4 Form of stock certificate.
*5 Opinion of Sirote & Permutt, P.C. regarding legality.
*8 Opinion of Sirote & Permutt, P.C. regarding tax consequences.
*10.1 Agreement of Sale and Purchase with respect to American Sports Medicine
Institute, Birmingham Medical Building I and Birmingham Medical Building
II.
*10.2 Agreement of Sale and Purchase with respect to One-7000 Building.
*10.3 Agreement of Sale and Purchase with respect to Coral Gables MRI.
*10.4 Agreement of Sale and Purchase with respect to Little Rock.
*10.5 Agreement of Sale and Purchase with respect to Larkin Medical Building.
*10.6 Agreement of Sale and Purchase with respect to Richmond Medical Building I
and Richmond Medical Building II.
*10.7 Agreement of Sale and Purchase with respect to Virginia Beach.
</TABLE>

II-2
<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
*10.8 Agreement of Sale and Purchase with respect to Midway Medical Plaza.
*10.9 Agreement of Sale and Purchase with respect to Mountain View.
*10.10 Agreement of Sale and Purchase with respect to Gravois.
*10.11 Agreement of Sale and Purchase with respect to Goodyear, Hamiter Building
and Medical Building II.
*10.12 Agreement of Sale and Purchase with respect to Desert Springs.
*10.13 Agreement of Sale and Purchase with respect to South Lake Medical Center.
*10.14 Agreement of Sale and Purchase with respect to Northlake.
*10.15 Agreement of Sale and Purchase with respect to North Shore.
10.16 1994 Stock Incentive Plan of Crescent Capital Trust, Inc.
10.17 Lease Agreement between the Registrant and Birmingham Realty Company, dated
May 25, 1993.
*21 Subsidiaries.
23.1 Consent of Sirote & Permutt, P.C. (included in Exhibits 5 and 8).
23.2 Consent of KPMG Peat Marwick.
23.3 Consent of Ernst & Young.
24 Powers of Attorney (included in Pages II-6 and II-7).
</TABLE>

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

* To be filed by amendment.

ITEM 36. UNDERTAKINGS

The Company undertakes to provide to the Underwriters at the Closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The Company further undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, which post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 105

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Birmingham, State of Alabama, on the 15th day of
April, 1994.

CRESCENT CAPITAL TRUST, INC.

By /s/ JOHN W. MCROBERTS
------------------------------------
John W. McRoberts
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, the
Co-Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Birmingham, State of Alabama, on the 15th day of
April, 1994.

HEALTHSOUTH REHABILITATION CORPORATION

By /s/ RICHARD M. SCRUSHY
------------------------------------
Richard M. Scrushy
President and Chief Executive
Officer

II-4
<PAGE> 106

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John W. McRoberts and Andrew L. Kizer, and each
or either of them, his or her true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ RICHARD M. SCRUSHY Chairman of the Board April 15, 1994
- ---------------------------------------------
Richard M. Scrushy

/s/ JOHN W. MCROBERTS President, Chief Executive April 15, 1994
- --------------------------------------------- Officer and Director (Principal
John W. McRoberts Executive Officer)

/s/ ANDREW L. KIZER Vice President -- Finance Chief April 15, 1994
- --------------------------------------------- Financial Officer, and Secretary
Andrew L. Kizer (Principal Financial and
Accounting Officer)

/s/ MICHAEL D. MARTIN Director April 15, 1994
- ---------------------------------------------
Michael D. Martin

Director April , 1994
- ---------------------------------------------
Robert N. Elkins

Director April , 1994
- ---------------------------------------------
William B. Luttrell

/s/ ERIC R. HANSON Director April 15, 1994
- ---------------------------------------------
Eric R. Hanson

/s/ LARRY D. STRIPLIN, JR. Director April 15, 1994
- ---------------------------------------------
Larry D. Striplin, Jr.

/s/ BARRY MORTON Director April 12, 1994
- ---------------------------------------------
Barry Morton

/s/ GEORGE BOGLE Director April 15, 1994
- ---------------------------------------------
George Bogle
</TABLE>

II-5
<PAGE> 107

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Scrushy and John W. McRoberts, and
each or either of them, his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------
<C> <S> <C>
/s/ RICHARD M. SCRUSHY Chairman of the Board, President April 15, 1994
- --------------------------------------------- and Chief Executive Officer and
Richard M. Scrushy Director (Principal Executive
Officer)

/s/ AARON BEAM, JR. Executive Vice President and April 15, 1994
- --------------------------------------------- Chief Financial Officer and
Aaron Beam, Jr. Director (Principal Financial
Officer)

/s/ WILLIAM T. OWENS Group Vice President -- Finance April 15, 1994
- --------------------------------------------- and Controller (Principal
William T. Owens Accounting Officer)

/s/ ANTHONY J. TANNER Director April 15, 1994
- ---------------------------------------------
Anthony J. Tanner

/s/ LARRY R. HOUSE Director April 15, 1994
- ---------------------------------------------
Larry R. House

/s/ JAMES P. BENNETT Director April 15, 1994
- ---------------------------------------------
James P. Bennett

/s/ PHILLIP C. WATKINS, M.D. Director April 15, 1994
- ---------------------------------------------
Phillip C. Watkins, M.D.

/s/ GEORGE H. STRONG Director April 15, 1994
- ---------------------------------------------
George H. Strong

/s/ C. SAGE GIVENS Director April 15, 1994
- ---------------------------------------------
C. Sage Givens

/s/ CHARLES W. NEWHALL, III Director April 15, 1994
- ---------------------------------------------
Charles W. Newhall, III

/s/ JOHN S. CHAMBERLIN Director April 15, 1994
- ---------------------------------------------
John S. Chamberlin
</TABLE>

II-6
<PAGE> 108

EXHIBIT INDEX

<TABLE>
<CAPTION>
SUBSEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------ ---------------
<C> <S> <C>
*1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
*4 Form of stock certificate.
*5 Opinion of Sirote & Permutt, P.C. regarding legality.
*8 Opinion of Sirote & Permutt, P.C. regarding tax
consequences.
*10.1 Agreement of Sale and Purchase with respect to American
Sports Medicine Institute, Birmingham Medical Building I
and Birmingham Medical Building II.
*10.2 Agreement of Sale and Purchase with respect to One-7000
Building.
*10.3 Agreement of Sale and Purchase with respect to Coral Gables
MRI.
*10.4 Agreement of Sale and Purchase with respect to Little Rock.
*10.5 Agreement of Sale and Purchase with respect to Larkin
Medical Building.
*10.6 Agreement of Sale and Purchase with respect to Richmond
Medical Building I and Richmond Medical Building II.
*10.7 Agreement of Sale and Purchase with respect to Virginia
Beach.
*10.8 Agreement of Sale and Purchase with respect to Midway
Medical Plaza.
*10.9 Agreement of Sale and Purchase with respect to Mountain
View.
*10.10 Agreement of Sale and Purchase with respect to Gravois.
*10.11 Agreement of Sale and Purchase with respect to Goodyear,
Hamiter Building and Medical Building II.
*10.12 Agreement of Sale and Purchase with respect to Desert
Springs.
*10.13 Agreement of Sale and Purchase with respect to South Lake
Medical Center.
*10.14 Agreement of Sale and Purchase with respect to Northlake.
*10.15 Agreement of Sale and Purchase with respect to North Shore.
10.16 1994 Stock Incentive Plan of Crescent Capital Trust, Inc.
10.17 Lease Agreement between the Registrant and Birmingham Realty
Company, dated May 25, 1993.
*21 Subsidiaries.
23.1 Consent of Sirote & Permutt, P.C. (included in Exhibits 5
and 8).
23.2 Consent of KPMG Peat Marwick.
23.3 Consent of Ernst & Young.
24 Powers of Attorney (included in Pages II-6 and II-7).
</TABLE>

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

* To be filed by amendment.

<PAGE> 1

STATE OF MARYLAND

DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201

DATE: MARCH 31, 1994

THIS IS TO ADVISE YOU THAT THE ARTICLES OF INCORPORATION FOR CRESCENT
CAPITAL TRUST, INC. WERE RECEIVED AND APPROVED FOR RECORD ON MARCH 31, 1994 AT
10:32 AM.

FEE PAID: 106.00

(SEAL)

JOSEPH V. STEWART
CHARTER SPECIALIST
<PAGE> 2

THIS INSTRUMENT WAS PREPARED BY:
John H. Cooper
Sirote & Permutt, P.C.
2222 Arlington Avenue South
Birmingham, AL 35205

ARTICLES OF INCORPORATION
OF
CRESCENT CAPITAL TRUST, INC.

ARTICLE I
FORMATION

The undersigned, John W. McRoberts, whose address is 10 Alden
Lane, Birmingham, Alabama 35243, being at least 18 years of age, does hereby
form a corporation under the general laws of the State of Maryland.

ARTICLE II
NAME

The name of this corporation shall be Crescent Capital Trust,
Inc.

ARTICLE III
PURPOSES

The purpose for which this corporation is formed is to engage
in the ownership of real property and any other lawful act or activity for
which corporations may be organized under the Maryland General Corporation Law
as now or hereinafter in force.

Without limiting the generality of such purpose, business and
objects, at such time or times as the Board of Directors of the Corporation
determines that it is in the interests of the Corporation and its stockholders
that the Corporation engage in the business of, and conduct its business and
affairs so as to qualify as, a real estate investment trust ("REIT"), as that
phrase is defined in the Internal Revenue Code of 1986, as amended ("the
Code"), and comply with all provisions of the Code applicable to REITs, and all
regulations, rulings and cases promulgated or decided thereunder ("REIT
Provisions of the Code"), then the purpose of the Corporation shall be to
engage in the business of such a real estate investment trust, but this
reference to such purpose shall not make unlawful or unauthorized any otherwise
lawful act or activity that the Corporation may take that is inconsistent with
such purpose.
<PAGE> 3
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT

SECTION 4.1 Principal Office. The address of the
principal office of the Corporation in the State of Maryland is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202, but
the Corporation may maintain an office or offices in such other place or places
as may be from time to time fixed by its Board of Directors or as may be fixed
by the Bylaws of the Corporation.

SECTION 4.2 Registered Agent. The name of the
resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, and the address is 32 South Street, Baltimore,
Maryland 21202.

ARTICLE V
CAPITAL STOCK

SECTION 5.1 Authorized Capital. The total number
of shares of stock which the Corporation shall have authority to issue
is Sixty Million (60,000,000), of which Fifty Million (50,000,000) shall be
shares of common stock having a par value of $.001 per share ("Common Stock")
(or shares of one or more classes of "Excess Common Shares" as provided in
Section 7.4 hereof) and Ten Million (10,000,000) shall be shares of preferred
stock having a par value of $.001 per share ("Preferred Stock") (or shares of
one or more classes of "Excess Preferred Shares" as provided in Section 7.4
hereof). The Common Stock and the Preferred Stock are sometimes referred to
collectively as the "Capital Stock." The aggregate par value of all said
shares of Capital Stock shall be Sixty Thousand Dollars ($60,000).

SECTION 5.2 Unissued Stock. The Board of Directors
of the Corporation is authorized, subject to limitations prescribed
by law and the provisions of this Section 5.2, to classify or reclassify any
unissued shares stock, and to establish the number of shares to be included in
any series of stock, and to fix the designation, conversion or other rights,
voting powers, restrictions, limitations as to distributions, preferences,
qualifications or terms or conditions of redemption of the shares of each such
series. The authority of the Board of Directors with respect to each such
series shall include, but not be limited to, a determination of the following:

(a) The number of shares constituting that series
and the distinctive designation of that series;

(b) The dividend rate on the shares of that series,
whether dividends shall be cumulative, and if so, from which date or dates, and
whether they should be payable in preference to, or in another relation to, the
dividends payable on any other class or classes or series of stock;

<PAGE> 4
(c) Whether that series shall have voting rights,
and, if so, the terms of such voting rights;

(d) Whether that series shall have conversion or
exchange privileges, and, if so, the terms and conditions of such conversion or
exchange, including provision for adjustments for the conversion or exchange
rate in such events as the Board of Directors shall determine;

(e) Whether or not the shares of that series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if less than all shares
are to be redeemed, the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates;

(f) Whether that series shall be entitled to the
benefit of a sinking fund to be applied to the purchase or redemption of shares
of that series, and, if so, the terms and amounts of such sinking funds;

(g) The right of the shares of that series to the
benefit of conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issuance of any additional stock
(including additional shares of such series or of any other series) and upon
the payment of dividends or the making of other distributions on, and the
purchase, redemption or other acquisition by the Corporation or any subsidiary
of any outstanding stock of the Corporation;

(h) The right of the shares of that series in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation and whether such rights shall be in preference to, or in other
relation to, any comparable rights of any other class or classes or series of
stock; and

(i) Any other relative, participating, optional or
other special rights, qualifications, limitations or restrictions of that
series.

ARTICLE VI
DIRECTORS

SECTION 6.1 Number of Directors. The Corporation
shall have a Board of Directors consisting of eight (8) Directors, which number
may be increased or decreased in accordance with the Bylaws of the Corporation
from time to time, but shall not be less than the number required by the
Maryland General Corporation Law, as amended from time to time.

SECTION 6.2 Initial Directors. The names of the
initial directors of the Corporation are: Richard M. Scrushy, John W. McRoberts,
Michael D. Martin, Robert N. Elkins, William B. Luttrell, Eric R. Hanson,
Larry D. Striplin, Jr., and W. Barry Morton.

3
<PAGE> 5
SECTION 6.3 Removal of Directors. A director may be
removed from office with or without cause only at a meeting of the stockholders
called for that purpose by the affirmative vote of the holders of not less than
two-thirds of the shares then outstanding and entitled to vote in the election
of directors.

ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING, AND
REGULATING CERTAIN POWERS OF THE CORPORATION AND
THE BOARD OF DIRECTORS AND STOCKHOLDERS

In carrying on its business, or for the purpose of attaining
or furthering any of its objects, the Corporation shall have all of the rights,
powers and privileges granted to corporations by the laws of the State of
Maryland, as well as the power to do any and all acts and things that a natural
person or partnership could do as now or hereafter authorized by law, either
alone or in partnership or conjunction with others. In furtherance and not in
limitation of the powers conferred by statute and for purposes of defining,
limiting, and regulating such powers, the rights and powers of the Corporation
and of the Directors and stockholders and shall include the following:

SECTION 7.1 Issuance of Stock. The Board of
Directors of the Corporation is hereby empowered to authorize the issuance from
time to time of shares of its Capital Stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of any
class or classes, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable.

SECTION 7.2 Stockholder Information. Each stockholder
shall upon demand of the Corporation disclose to the Corporation in writing
such information with respect to direct and indirect ownership of shares of
Capital Stock owned (or deemed to be owned, after applying rules referred to in
Subsection 7.4(a) and any other rules applicable to REITs under the REIT
Provisions of the Code) as the Board of Directors in its discretion deems
reasonably necessary or appropriate in order that the Corporation may fully
comply with the REIT Provisions of the Code or the requirements of any taxing
authority or governmental agency.

SECTION 7.3 Transferee Information. Whenever the Board
of Directors deems it reasonably necessary to protect the tax status of the
Corporation as a REIT, the Board of Directors may require a statement or
affidavit from each stockholder or proposed transferee of stock setting forth
the number of shares of Capital Stock of each class already owned (actually or
beneficially) by such proposed transferee and any related person specified in
the form reasonably prescribed by the Board of Directors for that purpose. If,
in the opinion of the Board of Directors, any transfer may jeopardize the
qualification of the Corporation as a REIT, the Board of Directors may refuse
to permit the transfer of such stock to the proposed transferee. All contracts
for the sale or other transfer of Capital Stock shall be subject to this
provision and to all other provisions of this Charter.

4
<PAGE> 6
SECTION 7.4 Limit on Ownership: Excess Shares.

(a) Except as otherwise provided by Section
7.4(f), no person shall at any time directly or indirectly acquire or hold
beneficial ownership in the aggregate of more than the percentage limit
("Ownership Limit") set forth in Section 7.4(b) of the outstanding shares of
Capital Stock of the Corporation. Such shares of Common Stock held by a
stockholder over the Ownership Limit, including any shares of Common Stock that
would exceed the Ownership Limit if stock was redeemed in accordance with
Section 7.4(f) (but excluding any shares exempted by the Board of Directors in
accordance with Section 7.4(g)), are herein referred to as "Excess Common
Shares." Such shares of Preferred Stock held by a stockholder over the
Ownership Limit, including any shares of Preferred Stock that would exceed the
Ownership Limit if stock was redeemed in accordance with Section 7.4(f) (but
excluding any shares exempted by the Board of Directors in accordance with
Section 7.4(g)), are herein referred to as "Excess Preferred Shares." The
Excess Common Shares and the Excess Preferred Shares are sometimes referred to
collectively as the "Excess Shares." For purposes of this Section 7.4, a
person shall be deemed to be the beneficial owner of the stock that such person
(i) actually owns, (ii) constructively owns after applying the rules of Section
544 of the Code as modified in the case of a REIT by Sections 857(a)(6) and
856(b) of the Code, or (iii) has the right to acquire upon exercise of
outstanding rights, options and warrants, or upon conversion of any securities
convertible into stock, if any, if such inclusion will cause such person to own
more than the Ownership Limit.

(b) For purposes of this Section 7.4, the
Ownership Limit shall be the number of shares of Capital Stock that, in the
aggregate, equal 9.8% of the number or value of the then outstanding shares of
Capital Stock.

(c) If, in the opinion of the Board of Directors,
which shall be binding upon any prospective acquiror of shares, any proposed
transfer or issuance would jeopardize the status of the Corporation as a real
estate investment trust under the REIT Provisions of the Code, the Board of
Directors shall have the right, but not the duty, to refuse to permit such
transfer or issuance or refuse to give effect to such transfer or issuance and
to take any action to void any such issuance or cause any such transfer not to
occur.

(d) Upon shares of any class or series of Stock
becoming Excess Shares as defined in this Section 7.4, such shares shall be
deemed automatically to have been converted into a class separate and distinct
from the class or series from which converted and from any other class of
Excess Shares, each such class being designated "Excess Shares of [Name of
Stockholder]." The voting, distribution, redemption and other characteristics
of such class of Excess Shares are as set forth in this Section 7.4. Upon any
shares that have become Excess Shares ceasing to be Excess Shares as defined in
this Section 7.4, such shares if then still outstanding shall be deemed
automatically to have been reconverted back into shares of the class or series
of stock from which they were originally converted.

5
<PAGE> 7
(e) No Stockholder may vote any Excess Shares
held by such Stockholder, and Excess Shares shall not be considered outstanding
for the purpose of determining a quorum at any meeting of Stockholders. The
Corporation, at the direction of the Board of Directors, in its sole
discretion, may choose to accumulate all distributions and dividends payable
upon the Excess Shares of any particular Stockholder in a non-interest bearing
escrow account the proceeds of which shall be payable to the holder of the
Excess Shares only at such time as such Stock ceases to be Excess Shares.

(f) The Corporation, upon authorization by the
Board of Directors, by notice to the holder thereof, may redeem any or all
Shares that are Excess Shares (including Shares that remain or become Excess
Shares because of the decrease in outstanding shares resulting from such
redemption); and from and after the date of giving such notice of redemption
("redemption date") the shares called for redemption shall cease to be
outstanding and the holder thereof shall cease to be entitled to dividends,
voting rights and other benefits with respect to such Shares excepting only the
right to payment by the Corporation of the redemption price determined and
payable as set forth in this Section 7.4(f):

(i) Subject to the limitation on payment
set forth in Subsection (f)(ii) of this Section 7.4, the redemption price of
each Excess Share called for redemption shall be the lesser of (I) the average
daily per share closing sales price of a share of Stock of the class of the
Corporation from which such Excess Share was converted if shares of such class
are listed on a national securities exchange or on the National Association of
Securities Dealers Automated Quotation National Market System, and if such
shares are not so listed shall be the mean between the average per share
closing bid prices and the average per share closing asked prices, in each case
during the 30 day period ending on the business day prior to the redemption
date, or if there have been no sales on a national securities exchange or on
the National Association of Securities Dealers Automated Quotation National
Market System and no published bid and asked quotations with respect to shares
of such class during such 30 day period, the redemption price shall be the
price determined by the Board of Directors in good faith, and (II) the price
paid by such holder for such share.

(ii) Unless the Board of Directors
determines that it is in the interest of the Corporation to make earlier
payment of all of the amount determined as the redemption price per share in
accordance with Subsection (f)(i) of this Section 7.4, the redemption price
shall be payable only upon the liquidation of the Corporation and shall not
exceed an amount which is the sum of the per share distributions designated as
liquidating distributions and return of capital distributions declared
subsequent to the redemption date with respect to unredeemed shares of record
of the class of the Corporation from which such Excess Share was converted, and
no interest shall accrue with respect to the period subsequent to the
redemption date to the date of such payment; provided, however, that in the
event that within 30 days after the redemption date the person from whom the
Excess Shares have been redeemed sells (and notifies the Corporation of such
sale) a number of the remaining shares owned by him of the class of Stock from
which his Excess Shares were converted at least equal to the number of such
Excess Shares (and such sale is to a Person in whose hands the shares sold
would not

6
<PAGE> 8
be Excess Shares), then the Corporation shall rescind the redemption of the
Excess Shares if following such rescission such Person would not be the holder
of Excess Shares, except that if the Corporation receives an opinion of its
counsel that such rescission would jeopardize the tax status of the Corporation
as a REIT or would be unlawful in any regard, then the Corporation shall in
lieu of rescission make immediate payment of the redemption price.

(g) As a condition to any transfer and/or
registration of transfer on the books of the Corporation of any shares or
securities convertible into shares which could result in direct or indirect
ownership of shares in excess of the Ownership Limit, as defined in Section
7.4(b), by any person, such prospective transferee shall give written notice to
the Corporation of the proposed transfer and shall furnish such opinions of
counsel, affidavits, undertakings, agreements and information as may be
required by the Board of Directors no later than the 15th day prior to any
transfer which, if consummated, would result in such ownership.

(h) Notwithstanding any other provision of these
Articles of Incorporation to the contrary, any purported acquisition or
continued ownership of stock of the Corporation that would (i) create a direct
or indirect owner of Excess Shares; (ii) result in the shares of the
Corporation being owned by fewer than 100 persons for purposes of the REIT
Provisions of the Code; (iii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code; or (iv) result in the
disqualification of the Corporation as a REIT shall be null and void ab initio
and the prospective transferee, acquiror or holder thereof shall not be
entitled to any rights afforded to owners of shares hereunder.

(i) Shares described in this Section 7.4(i) shall
not be deemed to be Excess Shares at the times and subject to the terms and
conditions set forth in this Section 7.4(i), as follows:

(i) Subject to the provisions of
Subsection 7.4(j), shares acquired and held by an underwriter in a public
offering of shares, or in a transaction involving the issuance of shares by the
Corporation in which the Board of Directors determines that the underwriter or
other person or party initially acquiring such shares will make a timely
distribution of such shares to or among other holders such that, following such
distribution, none of such shares will be Excess Shares.

(ii) Subject to the provisions of
Subsection 7.4(j), shares which the Board of Directors in its sole discretion
may exempt from the Ownership Limit while owned by a person who has provided
the Corporation with evidence and assurances acceptable to the Board that the
qualification of the Corporation as a REIT would not be jeopardized thereby.

(j) The Board of Directors, in its sole
discretion, may at any time revoke any exception in the case of any stockholder
pursuant to Subsection 7.4(i)(i) or 7.4(i)(ii), and upon such revocation, the
provisions of Subsections 7.4(e) and 7.4(f) shall immediately become applicable
to such stockholder and all shares of which such stockholder may be the
beneficial owner. The decision to exempt or refuse to exempt from the
Ownership Limit

7
<PAGE> 9
ownerships of certain designated shares of stock, or to revoke an exemption
previously granted, shall be made by the Board of Directors at its sole
discretion, based on any reason whatsoever including, but not limited to, the
preservation of the Corporation's qualification as a real estate investment
trust.

(k) In applying the provisions of this Section
7.4, the Board of Directors may take into account the lack of certainty in the
REIT Provisions of the Code relating to the ownership of stock that may prevent
a corporation from qualifying as a REIT and may make interpretations concerning
the Ownership Limit and Excess Shares and attributed ownership and related
matters on as conservative a basis as the Board of Directors deems advisable to
minimize or eliminate uncertainty as to the Corporation's qualification or
continued qualification as a REIT.

(l) Nothing contained in this Section 7.4 or in
any other provision of the Charter shall limit the authority of the Board of
Directors to take such other action as it deems necessary or advisable to
protect the Corporation and the interests of the stockholders by preservation
of the Corporation's qualification as a REIT under the REIT Provisions of the
Code.

(m) If any provision of this Section 7.4 or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issue, the validity of the remaining
provisions of this Section 7.4 shall not be affected and other application of
this provision shall be affected only to the extent necessary to comply with
the determination of such court. To the extent this Section 7.4 may be
inconsistent with any other provision of this Charter, Section 7.4 shall be
controlling.

ARTICLE VIII
LIMITATION OF PREEMPTIVE RIGHTS

No stockholder of the Corporation shall have any preferential
or preemptive right to acquire additional shares of stock of the Corporation of
the same or any other class of stock except to the extent that, and on such
terms as, the Board of Directors from time to time may determine.

ARTICLE IX
AMENDMENTS

SECTION 9.1 Notwithstanding any of the
provisions of these Articles or the Bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law,
these Articles or the Bylaws of the Corporation) the affirmative vote of the
holders of at least ninety percent (90%) of the "voting stock" of the
Corporation, voting together as a single class, shall be required to repeal or
amend any provision inconsistent with Section 6.3 of Article VI, Section 7.4 of
Article VII, Article IX or Article XI.

8
<PAGE> 10

SECTION 9.2 The Corporation reserves the right
from time to time to amend, alter or repeal any provision contained in this
Charter (including the contracts rights, as expressly set forth in the Charter,
of any outstanding stock) in the manner now or hereafter prescribed by statute,
and all rights conferred on shareholders herein are subject to this
reservation.

SECTION 9.3 Notwithstanding any of the
provisions of this Charter or the Bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Charter or the Bylaws of the Corporation), the board of directors shall have
the sole and exclusive right and power to alter, amend, or repeal the Bylaws of
the Corporation.

SECTION 9.4 For purposes of this Article IX,
"voting stock" shall mean any share of stock of the Corporation that is
otherwise entitled generally to vote on matters submitted to the shareholders
for a vote; but excludes shares of stock of a class that is only entitled to
vote for certain members of the Board of Directors.

ARTICLE X
PERPETUAL EXISTENCE

The period of the existence of the Corporation is to be perpetual.

ARTICLE XI
LIMITATION ON PERSONAL LIABILITY
OF DIRECTORS AND OFFICERS; INDEMNIFICATION

SECTION 11.1 Limitation of Liability. To the maximum
extent that the Maryland law in effect from time to time permits limitation of
liability of directors and officers, no director or officer of the Corporation
shall be liable to the Corporation or its stockholders for money damages.
Neither the amendment nor repeal of this Article XI, nor the adoption or
amendment of any other provision of the Charter or Bylaws inconsistent with
this Article XI, shall apply to or affect in any respect the applicability of
the preceding sentence with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.

SECTION 11.2 Indemnification. The Corporation
shall have the power to obligate itself to indemnify, and to pay or reimburse
expenses in advance of a final determination of a proceeding to, directors,
officers, employees and agents of the Corporation to the fullest extent
permitted by the law of the State of Maryland and to purchase and maintain
liability insurance, or make other arrangements for such obligations or
otherwise, to the extent permitted by the law of the State of Maryland, whether
or not the Corporation would have the power to indemnify against liability
under such law.

9
<PAGE> 11
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation and acknowledge the same to be my act on this 30th day of March,
1994.

-----------------
John W. McRoberts

10
<PAGE> 12
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
STATE OF MARYLAND Department of Assessments and Taxation
WILLIAM DONALD SCHAEFER
Governor (LOGO) CHARTER DIVISION
LLOYD W. JONES Room 809
Director 301 West Preston Street
PAUL B. ANDERSON Baltimore, Maryland 21201
Administrator
- ------------------------------------------------------------------------------------------------------------------------------------

DOCUMENT CODE 023.J. BUSINESS CODE 03 COUNTY 74
-------- ---- ----
#__________ _____ P.A. _____ Religious _____ Close X Stock _____ Nonstock
-----

Merging Surviving
(Transferor) Transferee)
_______________________________________________________ ____________________________________________
____________________________________________________________________ _______________________________________________________
____________________________________________________________________ _______________________________________________________
____________________________________________________________________ _______________________________________________________

CODE AMOUNT FEE REMITTED
- ---- ------ ------------
10 50 Expedited Fee (New Name)_____________________________________________
------ _______________________________________________________
20 20 Organ. & Capitalization _______________________________________________________
------
61 20 Rec. Fee (Arts. of Inc.)
------
62 Rec. Fee (Amendment)
------ Change of Name
63 Rec. Fee (Merger, Consol.) -----
------ Change of Principal Office
64 Rec. Fee (Transfer) -----
------ Change of Resident Agent
65 Rec. Fee (Dissolution) -----
------ Change of Resident Agent Address
66 Rec. Fee (Revival) -----
------ Resignation of Resident Agent
52 Foreign Qualification -----
------ Designation of Resident Agent and
50 Cert. of Qual. or Reg. Resident Agent's Address
------ -----
51 Foreign Name Registration Other Change ____________________
------ -----
13 16 1 Certified Copy of Certificate of Incorporation _________________________________
------ -----
56 Penalty
------
54 For. Supplemental Cert.
------
53 Foreign Resolution
------
73 Certificate of Conveyance
------ ___________________________________________________
___________________________________________________
___________________________________________________
75 Special Fee
------
80 For. Limited Partnership
------
83 Cert. Limited Partnership CODE 007
------ -----
84 Amendment to Limited Partnership
------
85 Termination of Limited Partnership
------
21 Recordation Tax
------
22 State Transfer Tax ATTENTION: ____________________________________
------ _______________________________________________
23 Local Transfer Tax _______________________________________________
------
31 ______ Corp. Good Standing
------
NA Foreign Corp. Registration
------
87 ______ Limited Part. Good Standing
------
71 Financial
------
600 _________________________ Personal Property Reports
------ and _____________________ late filing penalties

70 Change of P.O., R.A. or R.A.A. MAIL TO ADDRESS: ______________________________
------ _______________________________________________
91 Amend/Cancellation, For. Limited Part. _______________________________________________
------
99 Art. of Organization (LLC)
------
98 LLC Amend, Diss, Continuation
------
97 LLC Cancellation
------
</TABLE>

<PAGE> 1

CRESCENT CAPITAL TRUST, INC.

BYLAWS

ARTICLE I

OFFICES

SECTION 1. PRINCIPAL OFFICE. The principal office of
the Corporation shall be located at such place or places as the Board of
Directors may designate.

SECTION 2. ADDITIONAL OFFICES. The Corporation may have
additional offices at such places as the Board of Directors may from time to
time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE. All meetings of stockholders shall be
held at the principal office of the Corporation or at such other place within
the United States as shall be stated in the notice of the meeting.

SECTION 2. ANNUAL MEETING. An annual meeting of the
stockholders for the election of directors and the transaction of any business
within the powers of the Corporation shall be held on a date and at the time
set by the Board of Directors during the month of April in each year.

SECTION 3. SPECIAL MEETINGS. The president, chief
executive officer or a majority of the Board of Directors may call special
meetings of the stockholders. Special meetings of stockholders shall also be
called by the secretary of the Corporation upon the written request of the
holders of shares entitled to cast not less than twenty-five percent of all the
votes entitled to be cast at such meeting. Such request shall state the
purpose of such meeting and the matters proposed to be acted on at such
meeting. The secretary shall inform such stockholders of the reasonably
estimated cost of preparing and mailing notice of the meeting and, upon payment
to the Corporation by such stockholders of such costs, the secretary shall give
notice to each stockholder entitled to notice of the meeting. Unless requested
by the stockholders entitled to cast a majority of all the votes entitled to be
cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any meeting of
the stockholders held during the preceding twelve months.

<PAGE> 2
SECTION 4. NOTICE. Not less than ten nor more than 90
days before each meeting of stockholders, the secretary shall give to each
stockholder entitled to vote at such meeting and to each stockholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by presenting it to such stockholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the Corporation, with postage thereon prepaid.

SECTION 5. SCOPE OF NOTICE. Any business of the
Corporation may be transacted at an annual meeting of stockholders without
being specifically designated in the notice, except such business as is
required by any statute to be stated in such notice. No business shall be
transacted at a special meeting of stockholders except as specifically
designated in the notice.

SECTION 6. QUORUM. At any meeting of stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum;
but this section shall not affect any requirement under any statute or the
Charter of the Corporation for the vote necessary for the adoption of any
measure. If, however, such quorum shall not be present at any meeting of the
stockholders, the stockholders entitled to vote at such meeting, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time to a date not more than 120 days after the original record date without
notice other than announcement at the meeting. At such adjourned meeting at
which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally notified.

SECTION 7. VOTING. A plurality of all the votes cast at
a meeting of stockholders duly called and at which a quorum is present shall be
sufficient to elect a director. Each share may be voted for as many
individuals as there are directors to be elected and for whose election the
share is entitled to be voted. A majority of the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before the meeting, unless
more than a majority of the votes cast is required by statute or by the Charter
of the Corporation. Unless otherwise provided in the Charter, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders.

SECTION 8. PROXIES. A stockholder may vote the stock
owned of record by him, either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.

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<PAGE> 3
SECTION 9. VOTING OF STOCK BY CERTAIN HOLDERS.

Stock registered in the name of a
corporation, partnership, trust or other entity, if entitled to be voted, may
be voted by the president or a vice president, a general partner or trustee
thereof, as the case may be, or a proxy appointed by any of the foregoing
individuals, unless some other person who has been appointed to vote such stock
pursuant to a bylaw or a resolution of the board of directors of such
corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any director or other fiduciary may vote
stock registered in his name as such fiduciary, either in person or by proxy.

Shares of stock of the Corporation directly
or indirectly owned by it shall not be voted at any meeting and shall not be
counted in determining the total number of outstanding shares entitled to be
voted at any given time, unless they are held by it in a fiduciary capacity, in
which case they may be voted and shall be counted in determining the total
number of outstanding shares at any given time.

The Board of Directors may adopt by
resolution a procedure by which a stockholder may certify in writing to the
Corporation that any shares of stock registered in the name of the stockholder
are held for the account of a specified person other than the stockholder. The
resolution shall set forth the class of stockholders who may make the
certification, the purpose for which the certification may be made, the form of
certification and the information to be contained in it; if the certification
is with respect to a record date or closing of the stock transfer books, the
time after the record date or closing of the stock transfer books within which
the certification must be received by the Corporation; and any other provisions
with respect to the procedure which the Board of Directors considers necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the stockholder of record of the specified stock in place of the
stockholder who makes the certification.

SECTION 10. INSPECTORS. At any meeting of stockholders,
the chairman of the meeting may, or upon the request of any stockholder shall,
appoint one or more persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented at the meeting
based upon their determination of the validity and effect of proxies, count all
votes, report the results and perform such other acts as are proper to conduct
the election and voting with impartiality and fairness to all the stockholders.

Each report of an inspector shall be in
writing and signed by him or by a majority of them if there is more than one
inspector acting at such meeting. If there is more than one inspector, the
report of a majority shall be the report of the inspectors. The report of the
inspector or inspectors on the number of shares represented at the meeting and
the results of the voting shall be prima facie evidence thereof.

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<PAGE> 4
SECTION 11. VOTING BY BALLOT. Voting on any question or
in any election may be viva voce unless the presiding officer shall order or
any stockholder shall demand that voting be by ballot.

ARTICLE III

DIRECTORS

SECTION 1. GENERAL POWERS; QUALIFICATIONS. The business
and affairs of the Corporation shall be managed under the direction of its
Board of Directors.

SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. At any
regular meeting or at any special meeting called for that purpose, a majority
of the entire Board of Directors may establish, increase or decrease the number
of directors, provided that the number thereof shall never be less than three
nor more than 15, and further provided that the tenure of office of a director
shall not be affected by any decrease in the number of directors. Each
director shall hold office for the term for which he is elected and until his
successor is elected and qualified.

SECTION 3. NOTIFICATION OF NOMINATIONS. Nominations for
the election of directors may be made by the Board of Directors or by any
shareholder entitled to vote for the election of directors, but in the case of
a nomination by a shareholder, only if such shareholder gives timely notice
thereof in proper written form to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal offices of the Corporation not less than 30 days nor more than 60
days prior to the meeting; provided, however, that in the event that less than
40 days' notice or prior public disclosure of the date of the meeting is given
or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, such shareholder's notice
shall set forth in writing (a) as to each person whom the shareholder proposes
to nominate for election or reelection as a director, all information relating
to such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required under the Securities Exchange
Act of 1934, as amended, including, without limitation, such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; and (b) as to the shareholder giving the notice (i) the
name and address, as they appear on the Corporation's books, of such
shareholder and (ii) the class and number of shares of stock of the Corporation
which are beneficially owned by such shareholder. At the request of the Board
of Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation the information
required to be set forth in the shareholder's notice of nomination which
pertains to the nominee. In the event that a shareholder seeks to nominate one
or more directors, the Secretary shall appoint two inspectors, who shall not be
affiliated with the Corporation, to determine whether a shareholder has
complied with this Section 3. If the

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<PAGE> 5
inspectors shall determine that a shareholder has not complied with this
Section 3, the inspectors shall direct the chairman of the meeting to declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws of the Corporation, and the chairman shall so declare
to the meeting and the defective nomination shall be disregarded.

SECTION 4. ANNUAL AND REGULAR MEETINGS. An annual
meeting of the Board of Directors shall be held immediately after and at the
same place as the annual meeting of stockholders, no notice other than this
Bylaw being necessary. The Board of Directors may provide, by resolution, the
time and place, either within or without the state of Maryland, for the holding
of regular meetings of the Board of Directors without other notice than such
resolution.

SECTION 5. SPECIAL MEETINGS. Special meetings of the
Board of Directors may be called by or at the request of the chairman of the
board (or any co-chairman of the board if more than one), president or by a
majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either
within or without the State of Maryland, as the place for holding any special
meeting of the Board of Directors called by them.

SECTION 6. NOTICE. Notice of any special meeting of the
Board of Directors shall be given by written notice delivered personally,
telegraphed or mailed to each Director at his business or residence address or
by telephone. Personally delivered or telegraphed notices shall be given at
least two days prior to the meeting. Notice by mail shall be given at least
five days prior to the meeting. Telephone notice shall be given at least 24
hours prior to the meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. If given by telegram, such notice shall be deemed to be given
when the telegram is delivered to the telegraph company. Telephone notice
shall be deemed given when the Director is personally given such notice in a
telephone call to which he is a party. Neither the business to be transacted
at, nor the purpose of, any annual, regular or special meeting of the Board of
Directors need be stated in the notice, unless specifically required by statute
or these Bylaws.

SECTION 7. QUORUM. A majority of the directors shall
constitute a quorum for transaction of business at any meeting of the Board of
Directors, provided that, if less than a majority of such directors are present
at said meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice, and provided further that if,
pursuant to the Charter of the Corporation or these Bylaws, the vote of a
majority of a particular group of directors is required for action, a quorum
must also include a majority of such group.

The Board of Directors present at a meeting which has been
duly called and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.

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<PAGE> 6
SECTION 8. VOTING. The action of the majority of the
directors present at a meeting at which a quorum is present shall be the action
of the Board of Directors, unless the concurrence of a greater proportion is
required for such action by applicable statute.

SECTION 9. TELEPHONE MEETINGS. Directors may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.

SECTION 10. INFORMAL ACTION BY DIRECTORS. Any action
required or permitted to be taken at any meeting of the Board of Directors may
be taken without a meeting, if a consent in writing to such action is signed by
each director and such written consent is filed with the minutes of proceedings
of the Board of Directors.

SECTION 11. VACANCIES. If for any reason any or all the
directors cease to be directors, such event shall not terminate the Corporation
or affect these Bylaws or the powers of the remaining directors hereunder (even
if fewer than three directors remain). Any vacancy on the Board of Directors
for any cause other than an increase in the number of directors shall be filled
by a majority of the remaining directors, although such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office for the
unexpired term of the director he is replacing, or, if elected as a result of
an increase in the number of directors, for the term for which he is elected
and until his successor is elected and qualifies.

SECTION 12. COMPENSATION. Directors shall not receive
any stated salary for their services as directors but, by resolution of the
Board of Directors, may receive fixed sums per year and/or per meeting.
Expenses and/or per visit of real property owned or to be acquired by the
Corporation and for any service or activity they performed or engaged in as
Directors. Directors may be reimbursed for expenses of attendance, if any, at
each annual, regular or special meeting of the Board of Directors or of any
committee thereof and for their expenses, if any, in connection with each
property visit and any other service or activity performed or engaged in as
Directors; but nothing herein contained shall be construed to preclude any
directors from serving the Corporation in any other capacity and receiving
compensation therefor.

SECTION 13. REMOVAL OF DIRECTORS. Unless the Charter of
the Corporation provides otherwise, the stockholders may, at any time, remove
any director, with or without cause, by the affirmative vote of a majority of
all the votes entitled to be cast on the matter and may elect a successor to
fill any resulting vacancy for the balance of the term of the removed director.

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<PAGE> 7
SECTION 14. INTERESTED DIRECTOR TRANSACTIONS. Unless the
Charter of the Corporation provides otherwise and except as otherwise required
by law, any transactions between the Company and any of its directors,
officers, or affiliates, or between the Company an any other corporation, firm,
or other entity in which any of its directors is a director or has a material
financial interest shall be approved by a majority of the disinterested
directors, even if the disinterested directors constitute less than a quorum.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or a committee of the Board of
Directors, as the case may be, at which the contract or transaction is
authorized, approved, or ratified. For purposes of this Section 14, the term
"disinterested director" shall mean any member of the Board of Directors who is
not affiliated with any seller of properties to the Company. For this purpose,
an "affiliate" of the Company shall mean a person who is an officer, director,
or employee of a seller or who beneficially owns five percent or more of any
class of equity securities of the seller or of any entity that controls, is
controlled by, or is under common control with, a seller, or a member of whose
immediate family has one of the foregoing relationships with a seller.

SECTION 15. LOSS OF DEPOSITS. No director shall be
liable for any loss which may occur by reason of the failure of the bank, trust
company, savings and loan association, or other institution with whom moneys or
stock have been deposited.

SECTION 16. SURETY BONDS. Unless required by law, no
director shall be obligated to give any bond or surety or other security for
the performance of any of his duties.

SECTION 17. RELIANCE. Each director, officer, employee
and agent of the Corporation shall, in the performance of his duties with
respect to the Corporation, be fully justified and protected with regard to any
act or failure to act in reliance in good faith upon the books of account or
other records of the Corporation, upon an opinion of counsel or upon reports
made to the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board
of Directors or officers of the Corporation, regardless of whether such counsel
or expert may also be a director.

SECTION 18. CERTAIN RIGHTS OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS. The directors shall have no responsibility to devote
their full time to the affairs of the Corporation. Any director or officer,
employee or agent of the Corporation, in his personal capacity or in a capacity
as an affiliate, employee, or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in addition
to those of or relating to the Corporation.

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<PAGE> 8
ARTICLE IV

COMMITTEES

SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The Board
of Directors may appoint from among its members an Executive Committee, an
Audit Committee and other committees, composed of two or more directors, to
serve at the pleasure of the Board of Directors.

SECTION 2. POWERS. The Board of Directors may delegate
to committees appointed under section 1 of this Article any of the powers of
the Board of Directors, except as prohibited by law.

SECTION 3. MEETINGS. In the absence of any member of
any such committee, the members thereof present at any meeting, whether or not
they constitute a quorum, may appoint another director to act in the place of
such absent member.

SECTION 4. TELEPHONE MEETINGS. Members of a committee
of the Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting
by these means shall constitute presence in person at the meeting.

SECTION 5. INFORMAL ACTION BY COMMITTEES. Any action
required or permitted to be taken at any meeting of a committee of the Board of
Directors may be taken without a meeting, if a consent in writing to such
action is signed by each member of the committee and such written consent is
filed with the minutes of proceedings of such committee.

ARTICLE V

OFFICERS

SECTION 1. GENERAL PROVISIONS. The officers of the
Corporation shall include a chief executive officer, a president, a secretary
and a treasurer and may include a chairman of the board (or one or more
co-chairmen of the board), a vice chairman of the board, one or more vice
presidents, a chief operating officer, a chief financial officer, a treasurer,
one or more assistant secretaries and one or more assistant treasurers. In
addition, the Board of Directors may from time to time appoint such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of stockholders, except that the chief executive officer may appoint
one or more vice presidents, assistant secretaries and assistant treasurers.
If the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as may be convenient. Each

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<PAGE> 9
officer shall hold office until his successor is elected and qualifies or until
his death, resignation or removal in the manner hereinafter provided. Any two
or more offices except president and vice president may be held by the same
person. In its discretion, the Board of Directors may leave unfilled any
office except that of president, treasurer and secretary. Election of an
officer or agent shall not of itself create contract rights between the
Corporation and such officer or agent.

SECTION 2. REMOVAL AND RESIGNATION. Any officer or
agent of the Corporation may be removed by the Board of Directors if in its
judgment the best interests of the Corporation would be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Board of Directors, the
chairman of the board (or any co-chairman of the board if more than one), the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The
acceptance of a resignation shall not be necessary to make it effective unless
otherwise stated in the resignation. Such resignation shall be without
prejudice to the contract rights, if any, of the Corporation.

SECTION 3. VACANCIES. A vacancy in any office may be
filled by the Board of Directors for the balance of the term.

SECTION 4. CHIEF EXECUTIVE OFFICER. The Board of
Directors may designate a chief executive officer. In the absence of such
designation, the chairman of the board (or, if more than one, the co-chairmen
of the board in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election) shall be the
chief executive officer of the Corporation. The chief executive officer shall
have general responsibility for implementation of the policies of the
Corporation, as determined by the Board of Directors, and for the management of
the business and affairs of the Corporation.

SECTION 5. CHIEF OPERATING OFFICER. The Board of
Directors may designate a chief operating officer. The chief operating officer
shall have the responsibilities and duties as set forth by the Board of
Directors or the chief executive officer.

SECTION 6. CHIEF FINANCIAL OFFICER. The Board of
Directors may designate a chief financial officer. The chief financial officer
shall have the responsibilities and duties as set forth by the Board of
Directors or the chief executive officer.

SECTION 7. CHAIRMAN OF THE BOARD. The Board of
Directors shall designate a chairman of the board (or one or more co-chairmen
of the board). The chairman of the board shall preside over the meetings of
the Board of Directors and of the stockholders at which he shall be present.
If there be more than one, the co-chairmen designated by the Board of Directors
will perform such duties. The chairman of the board shall perform such other
duties as may be assigned to him or them by the Board of Directors.

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<PAGE> 10
SECTION 8. PRESIDENT. The president or chief executive
officer, as the case may be, shall in general supervise and control all of the
business and affairs of the Corporation. In the absence of a designation of a
chief operating officer by the Board of Directors, the president shall be the
chief operating officer. He may execute any deed, mortgage, bond, contract or
other instrument, except in cases where the execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation or shall be required by law to be otherwise
executed; and in general shall perform all duties incident to the office of
president and such other duties as may be prescribed by the Board of Directors
from time to time.

SECTION 9. VICE PRESIDENTS. In the absence of the
president or in the event of a vacancy in such office, the vice president (or
in the event there be more than one vice president, the vice presidents in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall perform the duties of
the president and when so acting shall have all the powers of and be subject to
all the restrictions upon the president; and shall perform such other duties as
from time to time may be assigned to him by the president or by the Board of
Directors. The Board of Directors may designate one or more vice presidents as
executive vice president or as vice president for particular areas of
responsibility.

SECTION 10. SECRETARY. The secretary shall (a) keep the
minutes of the proceedings of the stockholders, the Board of Directors and
committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the trust
records and of the seal of the Corporation; (d) keep a register of the post
office address of each stockholder which shall be furnished to the secretary by
such stockholder; (e) have general charge of the share transfer books of the
Corporation; and (f) in general perform such other duties as from time to time
may be assigned to him by the chief executive officer, the president or by the
Board of Directors.

SECTION 11. TREASURER. The treasurer shall have the
custody of the funds and securities of the Corporation and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. In the absence of a designation of a chief
financial officer by the Board of Directors, the treasurer shall be the chief
financial officer of the Corporation.

The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.

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<PAGE> 11
If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books,
papers, vouchers, moneys and other property of whatever kind in his possession
or under his control belonging to the Corporation.

SECTION 12. ASSISTANT SECRETARIES AND ASSISTANT
TREASURERS. The assistant secretaries and assistant treasurers, in general,
shall perform such duties as shall be assigned to them by the secretary or
treasurer, respectively, or by the president or the Board of Directors. The
assistant treasurers shall, if required by the Board of Directors, give bonds
for the faithful performance of their duties in such sums and with such surety
or sureties as shall be satisfactory to the Board of Directors.

SECTION 13. SALARIES. The salaries of the officers shall
be fixed from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director.

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 1. CONTRACTS. The Board of Directors may
authorize any officer or agent to enter into any contract or to execute and
deliver any instrument in the name of and on behalf of the Corporation and such
authority may be general or confined to specific instances. Any agreement,
deed, mortgage, lease or other document executed by one or more of the
directors or by an authorized person shall be valid and binding upon the Board
of Directors and upon the Corporation when authorized or ratified by action of
the Board of Directors.

SECTION 2. CHECKS AND DRAFTS. All checks, drafts or
other orders for the payment of money, notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation in such manner as shall from time
to time be determined by the Board of Directors.

SECTION 3. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
of Directors may designate.

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<PAGE> 12
ARTICLE VII

STOCK

SECTION 1. CERTIFICATES. Each stockholder shall be
entitled to a certificate or certificates which shall represent and certify the
number of shares of each class of stock held by him in the Corporation. Each
certificate shall be signed by the chief executive officer, the president or a
vice president and countersigned by the secretary or an assistant secretary or
the treasurer or an assistant treasurer and may be sealed with the seal, if
any, of the Corporation. The signatures may be either manual or facsimile.
Certificates shall be consecutively numbered; and if the Corporation shall,
from time to time, issue several classes of stock, each class may have its own
number series. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued. Each certificate
representing shares which are restricted as to their transferability or voting
powers, which are preferred or limited as to their dividends or as to their
allocable portion of the assets upon liquidation or which are redeemable at the
option of the Corporation, shall have a statement of such restriction,
limitation, preference or redemption provision, or a summary thereof, plainly
stated on the certificate. If the Corporation has authority to issue stock of
more than one class, the certificate shall contain on the face or back a full
statement or summary of the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications and terms and conditions of redemption of
each class of stock and, if the Corporation is authorized to issue any
preferred or special class in series, the differences in the relative rights
and preferences between the shares of each series to the extent they have been
set and the authority of the Board of Directors to set the relative rights and
preferences of subsequent series. In lieu of such statement or summary, the
certificate may state that the Corporation will furnish a full statement of
such information to any stockholder upon request and without charge. If any
class of stock is restricted by the Corporation as to transferability, the
certificate shall contain a full statement of the restriction or state that the
Corporation will furnish information about the restrictions to the stockholder
on request and without charge.

SECTION 2. TRANSFERS. Upon surrender to the Corporation
or the transfer agent of the Corporation of a stock certificate for stock duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.

The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Maryland.

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<PAGE> 13
Notwithstanding the foregoing, transfers of shares of
any class of stock will be subject in all respects to the Charter of the
Corporation and all of the terms and conditions contained therein.

SECTION 3. REPLACEMENT CERTIFICATE. Any officer
designated by the Board of Directors may direct a new certificate to be issued
in place of any certificate previously issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that
fact by the person claiming the certificate to be lost, stolen or destroyed.
When authorizing the issuance of a new certificate, the officer designated by
the Board of Directors may, in his discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or the owner's legal representative to advertise the same in such
manner as he shall require and/or to give bond, with sufficient surety, to the
Corporation to indemnify it against any loss or claim which may arise as a
result of the issuance of a new certificate.

SECTION 4. CLOSING OF TRANSFER BOOKS OR FIXING OF
RECORD. The Board of Directors may set, in advance, a record date for the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or determining stockholders entitled to receive payment
of any dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders is to be held or
taken.

In lieu of fixing a record date, the Board of
Directors may provide that the stock transfer books shall be closed for a
stated period but not longer than 20 days. If the stock transfer books are
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least ten
days before the date of such meeting.

If no record date is fixed and the stock transfer
books are not closed for the determination of stockholders, (a) the record date
for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day on which
the notice of meeting is mailed or the 30th day before the meeting, whichever
is the closer date to the meeting; and (b) the record date for the
determination of stockholders entitled to receive payment of a dividend or an
allotment of any other rights shall be the close of business on the day on
which the resolution of the directors, declaring the dividend or allotment of
rights, is adopted.

When a determination of stockholders entitled to vote
at any meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except where the
determination has been made through the closing of the transfer books and the
stated period of closing has expired.

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<PAGE> 14
SECTION 5. STOCK LEDGER. The Corporation shall maintain
at its principal office or at the office of its counsel, accountants or
transfer agent, an original or duplicate share ledger containing the name and
address of each stockholder and the number of shares of each class held by such
stockholder.

SECTION 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The
Board of Directors may issue fractional stock or provide for the issuance of
scrip, all on such terms and under such conditions as they may determine.
Notwithstanding any other provision of the Charter or these Bylaws, the Board
of Directors may issue units consisting of different securities of the
Corporation. Any security issued in a unit shall have the same characteristics
as any identical securities issued by the Corporation, except that the Board of
Directors may provide that for a specified period securities of the Corporation
issued in such unit may be transferred on the books of the Corporation only in
such unit.

ARTICLE VIII

ACCOUNTING YEAR

The Board of Directors shall have the power, from time to
time, to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE IX

DIVIDENDS AND OTHER DISTRIBUTIONS

SECTION 1. AUTHORIZATION. Dividends and other
distributions upon the stock of the Corporation may be authorized and declared
by the Board of Directors, subject to the provisions of law and the Charter of
the Corporation. Dividends and other distributions may be paid in cash,
property or stock of the Corporation, subject to the provisions of law and the
Charter.

SECTION 2. CONTINGENCIES. Before payment of any
dividends or other distributions, there may be set aside out of any assets of
the Corporation available for dividends or other distributions such sum or sums
as the Board of Directors may from time to time, in its absolute discretion,
think proper as a reserve fund for contingencies, for equalizing dividends or
other distributions, for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors shall determine
to be in the best interest of the Corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.

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<PAGE> 15

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the Charter of the Corporation,
the Board of Directors may from time to time adopt, amend, revise or terminate
any policy or policies with respect to investments by the Corporation as it
shall deem appropriate in its sole discretion.

ARTICLE XI

SEAL

SECTION 1. SEAL. The Board of Directors may authorize
the adoption of a seal by the Corporation. The seal shall contain the name of
the Corporation and the year of its organization and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.

SECTION 2. AFFIXING SEAL. Whenever the Corporation is
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the
word "(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.

ARTICLE XII

INDEMNIFICATION AND ADVANCES FOR EXPENSES

To the maximum extent permitted by Maryland law in effect from
time to time, the Corporation, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (i) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (ii) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity. The Corporation may, with the approval of its Board of
Directors, provide such indemnification and advancement of expenses to a person
who served as a predecessor of the Corporation in any of the capacities
described in (i) or (ii) above and to any employee or agent of the Corporation
or a predecessor of the Corporation.

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<PAGE> 16
Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or Charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the
Charter of the Corporation or these Bylaws or pursuant to applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

The Board of Directors shall have the exclusive power to
adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

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<PAGE> 1

CRESCENT CAPITAL TRUST, INC.

1994 STOCK INCENTIVE PLAN

1. PURPOSE OF THE PLAN.

The purpose of the 1994 Stock Incentive Plan of Crescent Capital
Trust, Inc. (the "Company") is to:

(a) promote the interests of the Company and its stockholders by
strengthening the Company's ability to attract, motivate and retain employees
and members of the Board of Directors of training, experience and ability; and

(b) furnish incentives to individuals chosen to receive options
because they are considered capable of responding by improving operations and
increasing profits;

(c) provide a means to encourage stock ownership and proprietary
interest in the Company to valued employees and members of the Board of
Directors of the Company upon whose judgment, initiative, and efforts the
continued financial success and growth of the business of the Company largely
depend.

2. DEFINITIONS.

(a) "Board" means the Board of Directors of the Company.

(b) "Code" means the Internal Revenue Code of 1986, as amended.

(c) "Committee" means the Compensation Committee of the Board as
shall be appointed by the Board from time to time. The Committee shall consist
of three or more members of the Board, at least two of whom shall not be
Employees of the Company.

(d) "Common Stock" means the $.001 par value Common Stock of the
Company.

(e) "Company" means Crescent Capital Trust, Inc.

(f) "Eligible Person" means any full-time employee or Outside
Director of the Company or of any of its present or future parent or subsidiary
corporations.

(g) "Fair Market Value" means the closing price of a share of
Common Stock on the New York Stock Exchange Composite Tape or, if the Common
Stock is not then listed on the New York Stock Exchange, on any stock exchange
on which the Common Stock is then listed on the date as of which fair market
value is to be determined or, if the Common Stock is not then listed on any
stock exchange a price on which the Committee and Participant can agree upon.

(h) "Incentive Award" means an Option, Incentive Stock Award, or
cash bonus award granted under the Plan.

<PAGE> 2
(i) "Incentive Stock Award" means a right to the grant or
purchase, at a price determined by the Committee, of Common Stock of the
Company which is nontransferable and subject to substantial risk or forfeiture
until specific conditions are met. Conditions may be based on continuing
employment or achievement of preestablished financial objectives or both.

(j) "Option" means any nonqualified or nonstatutory stock option
and any incentive stock option granted pursuant to Section 422 of the Code.

(k) "Outside Director" means a member of the Board who is not a
full-time employee.

(l) "Participant" means any Eligible Person selected to
participate in an Incentive Award pursuant to Section 5.

(m) "Plan" means the 1994 Stock Incentive Plan as set forth
herein, which may be further amended from time to time.

3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.

(a) Subject to the provisions of Section 3.(c) and Section 12 of
the Plan, the aggregate number of shares of Common Stock that may be issued or
transferred or exercised pursuant to Incentive Awards under the Plan will not
exceed the greater of: (i) seven percent (7%) of the Company's outstanding
Common Stock, or (ii) four hundred eighteen thousand six hundred (418,600)
shares of Common Stock.

(b) The shares of Common Stock to be delivered under the Plan will
be made available, at the discretion of the Board or the Committee, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including shares purchased on the
open market.

(c) If any Incentive Award is not issued or transferred and ceases
to be issuable or transferable for any reason, such Incentive Award will no
longer be charged against the limitations provided for in Section 3.(a) and may
again be made subject to Incentive Awards.

4. ADMINISTRATION OF THE PLAN.

The Committee has and may exercise such powers and authority of the
Board as may be necessary or appropriate for the Committee to carry out its
functions as described in the Plan. The Committee has authority in its
discretion to determine the Eligible Persons to whom, and the time or times at
which, Incentive Awards may be granted and the number of shares subject to each
Incentive Award. The Committee also has authority to interpret the Plan, and
to determine the terms and provisions of the respective Incentive Awards
agreements and to make all other determinations necessary or advisable for Plan
administration. The Committee has authority to prescribe, amend, and rescind
rules and regulations relating to the Plan. All interpretations,
determinations, and actions by the Committee will be final, conclusive, and
binding upon all parties. No member of the Board or the Committee will be
liable for any action or determination made in good faith by the Board or the
Committee with respect to the Plan or any Incentive Award under it.

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<PAGE> 3
5. ELIGIBILITY.

All full-time salaried employees of the Company who have been
determined by the Committee to be key employees and all Outside Directors are
eligible to receive Incentive Awards under the Plan. The Committee has
authority, in its sole discretion, to determine and designate from time to time
those Eligible Persons who are to be granted Incentive Awards, and the type and
amount of Incentive Award to be granted. Each Incentive Award will be
evidenced by a written instrument and may include any other terms and
conditions consistent with the Plan, as the Committee may determine.

6. WRITTEN AGREEMENT; EFFECT.

Each Option shall be evidenced by a written agreement (the "Option
Agreement"), in form satisfactory to the Committee, executed by the Company and
by the person to whom such Option is granted. The Option Agreement shall
specify whether each Option it evidences is a nonqualified stock option ("NQO")
or an incentive stock option ("ISO"). Failure of the grantee to execute an
Option Agreement shall not void or invalidate the grant of an Option; but the
Option may not be exercised, however, until the Option Agreement is executed.

7. ANNUAL $100,000 LIMITATION IN ISOS.

To the extent required by Section 422(d) of the Code, the aggregate
fair market value of shares of the Common Stock with respect to which ISOs are
exercisable for the first time by any individual during any calendar year shall
not exceed $100,000. For this purpose, fair market value shall be the fair
market value of the shares covered by the ISOs when the ISOs were granted. If
by their terms, such ISOs taken together would first become exercisable at a
faster rate, this $100,000 limitation shall be applied by deferring the
exercisability of those ISOs or portions of ISOs which have the highest per
share exercise prices. The ISOs or portions of ISOs, the exercisability of
which are so deferred, shall become exercisable on the first day of the first
subsequent calendar year during which they may be exercised, as determined by
applying these same principles of this Section and all other provisions of this
Section and all other provisions of this Plan, including those relating to the
expiration and termination of ISOs.

8. ADVANCE APPROVALS.

The Board may approve the grant of Options to persons who are expected
to become employees or Outside Directors of the Company, but are not employees
or Outside Directors at the date of approval. In such cases, the Option shall
be deemed granted, without further approval, on the date the grantee becomes an
employee, and must satisfy all requirements of this Plan for Options granted on
that date.

9. TERMS AND CONDITIONS OF STOCK OPTIONS.

(a) Each Option shall be designated as an ISO or a NQO and shall
be subject to the terms and conditions set forth in this Section 9. ISOs shall
also be subject to the terms and conditions set forth in Section 10.

(b) Each Option Agreement shall specify the date as of which it
shall be effective, which date shall be the Grant Date (determined pursuant to
Section 8 in the case of advance approvals).

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<PAGE> 4
(c) Except as provided in Section 10 hereof, the purchase price of
Common Stock under each Option will be determined by the Committee, and may not
be less than fifty percent (50%) of the Fair Market Value of the Common Stock
on the date of the grant. The purchase price of Common Stock under each Option
granted to Outside Directors will be the Fair Market Value of the Common Stock
on the Date of Grant.

(d) Options granted to employees of the Company may be exercised
as determined by the Committee. Options granted to Outside Directors may not
be exercised for a period of one (1) year after the Date of Grant. After such
period, such Options may be exercised with respect to all shares of Common
Stock covered thereby during its term as provided hereunder. Notwithstanding
any other provision to the contrary contained in the Plan, each Option granted
under this Plan will expire not later than ten (10) years from the Date of
Grant.

(e) Except as set forth below, upon the exercise of an Option, the
purchase price will be payable in full in cash, or, in the discretion of the
Committee, by the assignment and delivery to the Company of shares of Common
Stock owned by the optionee; or in the discretion of the Committee, by a
promissory note secured by shares of Common Stock bearing interest at a rate
determined by the Committee but not less than the minimum rate permitted by the
Internal Revenue Service; or by a combination of any of the above. Any shares
so assigned and delivered to the Company in payment or partial payment of the
purchase price will be valued at their Fair Market Value on the exercise date.
The Committee may, in its discretion and upon the request of the optionee,
issue shares of Common Stock upon the exercise of an Option directly to a
brokerage firm or firms to be selected by the Committee, without payment of the
purchase price by the optionee but upon delivery of an irrevocable guarantee by
such brokerage firm or firms of the payment of such purchase price. No payment
by an assignment of shares, by a promissory note or by any combination thereof,
or by the guarantee of a brokerage firm or firms as described above, will be
allowed unless such payments are allowed under applicable requirements of
Federal and state tax, securities and other laws, rules and regulations and by
any regulatory authority having jurisdiction.

(f) No fractional shares will be issued pursuant to the exercise
of an Option nor will any cash payment be made in lieu of fractional shares.

(g) Each Option Agreement may contain such other terms,
provisions, and conditions not inconsistent with this Plan, including rights of
repurchase, as may be determined by the Committee, and each ISO granted under
this Plan shall include such provisions and conditions as are necessary to
qualify such option as an "incentive stock option" within the meaning of
Section 422 of the Code.

(h) If requested by the Company, at the time of exercise of an
Option, the optionee shall remit to the Company in cash all applicable federal
and state withholding and employment taxes. If and to the extent authorized
and approved by the Committee in its sole discretion, an optionee may elect, by
means of a form of election to be prescribed by the Committee, to have shares
which are acquired upon exercise of an Option withheld by the Company or tender
other shares of Common Stock or other securities of the Company owned by the
optionee to the Company at the time the amount of such taxes is determined in
order to pay the amount of such tax obligations, subject to the following
limitations:

(i) such election shall be irrevocable;

(ii) such election shall be subject to the disapproval
of the Committee at any time;

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<PAGE> 5
(iii) such election may not be made within six months of
the Grant Date of the Option the exercise of which resulted in the tax
withholding obligation (the "Related Option") (except that this limitation
shall not apply in the event death or disability of the optionee occurs before
the expiration of the six-month period); and

(iv) such election must be made either (i) six months
before the date that the amount of tax to be withheld upon exercise of the
Related Option is determined or (ii) in any ten-day period before such tax
determination date beginning on the third business day following the date of
release by the Company for publication of quarterly or annual summary
statements of sales or earnings of the Company.

Any Common Stock or other securities so withheld or tendered will be valued by
the Company as of the date they are withheld or tendered. Unless the Committee
otherwise determines, the optionee shall pay to the Company in cash, promptly
when the amount of such obligations become determinable, all applicable federal
and state withholding taxes resulting from the lapse of restrictions imposed on
exercise of an Option, from a transfer or other disposition of shares acquired
upon exercise of an Option or otherwise related to the Option or the shares
acquired upon exercise of the Option.

(i) At the time a Participant exercises an Option, the Committee
may grant a cash bonus award in such amount as the Committee may determine.
The Committee may make such a determination at the time of grant or exercise.
The cash bonus award may be subject to any condition imposed by the Committee,
including a reservation of the right to revoke a cash bonus award at any time
before it is paid.

10. TERMS AND CONDITIONS TO WHICH ONLY ISOS ARE SUBJECT.

Options granted under this Plan which are designated as ISOs shall be
subject to the following terms and conditions:

(a) Exercise Price. The exercise price of an ISO shall be
determined in accordance with the applicable provisions of the Code and shall
in no event be less than the fair market value of the stock covered by the ISO
at the Grant Date; provided, however, that the exercise price of an ISO granted
to any person who owns, directly or indirectly (or is treated as owning by
reason of attribution rules, currently set forth in Code Section 424), stock of
the Company constituting more than ten percent of the total combined voting
power of all classes of outstanding stock of the Company or of any Affiliate of
the Company, shall in no event be less than 110 percent of such fair market
value.

(b) Option Term. Unless an earlier expiration date is specified
by the Committee at the Grant Date in the Option Agreement, each ISO shall
expire ten (10) years from its Grant Date; except that an ISO granted to any
person who owns, directly or indirectly (or is treated as owning by reason of
applicable attribution rules currently set forth in Section 424 of the Code)
stock of the Company constituting more than ten percent of the total combined
voting power of the Company's outstanding stock, or the stock of any Affiliate
of the Company, shall expire five years from its Grant Date.

(c) Disqualifying Dispositions. If Common Stock acquired by
exercise of an ISO is disposed of within two years from the Grant Date or
within one year after the transfer of the Common Stock to the optionee, the
holder of the Common Stock immediately prior to the disposition shall promptly
notify the Company in writing of the date and terms of the disposition and
shall provide such other information

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<PAGE> 6
regarding the disposition as the Company may reasonably require. Such holder
shall pay to the Company any withholding and employment taxes which the Company
in its sole discretion deems applicable. The Company may instruct its stock
transfer agent by appropriate means, including placement of legends on stock
certificates, not to transfer stock acquired by exercise of an ISO unless it
has been advised by the Company that the requirements of this Section have been
satisfied.

11. TERMS AND CONDITIONS OF INCENTIVE STOCK AWARDS.

(a) All shares of Incentive Stock Awards granted or sold pursuant
to the Plan will be subject to the following conditions:

(i) The shares may not be sold, transferred or otherwise
alienated or hypothecated until the restrictions are removed or expire.

(ii) The Committee may required the Participant to enter
into an agreement providing that the certificates representing Incentive Stock
Awards granted or sold pursuant to the Plan will remain in the physical custody
of the Company until all restrictions are removed or expire.

(iii) Each Certificate representing Incentive Stock Awards
granted pursuant to the Plan will bear a legend making appropriate reference to
the restrictions imposed.

(iv) The Committee may impose other conditions on any
shares granted or sold pursuant to the Plan as it may deem advisable,
including, without limitations, restrictions under the Securities Act of 1933,
as amended, under the requirements of any stock exchange upon which such shares
or shares of the same class are then listed and under any blue sky or other
securities laws applicable to such shares.

(b) The restrictions imposed under subparagraph (a) above upon
Incentive Stock Awards will lapse in accordance with a schedule or other
conditions as determined by the Committee, subject to the provisions of Section
14.(e) hereof.

(c) Subject to the provisions of subparagraph (a) above and
Section 11(c) hereof, the holder will have all rights of a stockholder with
respect to the Incentive Stock Awards granted or sold, including the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.

(d) Except as set forth below, the purchase price (if any) for
shares of Incentive Stock Awards will be payable in full in cash; or by the
assignment and delivery to the Company of shares of Common Stock owned by the
holder of the Incentive Stock Awards; or by a promissory note secured by shares
of Common Stock bearing interest at a rate equal to the minimum rate permitted
by the Internal Revenue Service; or by a combination of any of the above. Any
shares so assigned and delivered to the Company in payment or partial payment
of the purchase price will be valued at their Fair Market Value on the purchase
date. The Committee may, in its discretion and upon request of the holder,
issue shares of the Incentive Stock Awards directly to a brokerage firm or
firms to be selected by the Committee, without payment of the purchase price by
the holder but upon delivery of an irrevocable guarantee by such brokerage firm
or firms of the payment of such purchase price. No payment by an assignment of
shares, by a promissory note or by any combination thereof, or by the guarantee
of a brokerage firm or firms as described above, will be allowed unless such
payments are allowed under applicable requirements

6
<PAGE> 7
of Federal and state tax, securities and other laws, rules and regulations and
by any regulatory authority having jurisdiction.

12. ADJUSTMENT PROVISIONS.

(a) Subject to Section 12.(b) hereof, if the outstanding shares of
Common Stock of the Company are increased, decreased, or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed with respect to
such shares of Common Stock or other securities, through merger, consolidation,
sale of all or substantially all of the property of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other distribution with respect to such shares of
Common Stock, or other securities an appropriate and proportionate adjustment
may be made in (i) the maximum number and kind of shares provided in Section 3,
(ii) the number and kind of shares or other securities subject to the then
outstanding Incentive Awards, and (iii) the price for each share or other unit
of any other securities subject to then outstanding Incentive Awards without
change in the aggregate purchase price or value as to which such Incentive
Awards remain exercisable or subject to restrictions.

(b) Despite the provisions of Section 12.(a), upon dissolution or
liquidation of the Company or upon a reorganization, merger, or consolidation
of the Company with one or more corporations as a result of which the Company
is not the surviving Corporation, or upon the sale of all or substantially all
of the property of the Company, all Incentive Awards then outstanding under the
Plan will be fully vested and exercisable and all restrictions will immediately
cease, unless provisions are made in connection with such transaction for the
continuance of the Plan and assumption or the substitution for such Incentive
Awards of new incentive awards covering the stock of a successor employer
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices.

(c) Adjustments under Sections 12.(a) and 12.(b) will be made by
the Committee, whose determination as to what adjustments will be made and the
extent thereof will be final, binding, and conclusive. No fractional interest
will be issued under the Plan on account of any such adjustments.

(d) In the event of pending or threatened takeover bid or tender
offer and pursuant to which 10% or more of the outstanding securities of the
Company is acquired, whether or not deemed a tender offer under applicable
state or Federal laws, or in the event that any person makes any filing under
section 13(d) or 14(d) of the Securities Exchange Act of 1934 with respect to
the Company, the Committee may in its sole discretion, without obtaining
stockholder approval, at the time of any one or more of the following actions
to the extent permitted in Section 14 with respect to all Eligible Persons and
Participants:

(i) Accelerate the exercise dates of any outstanding
Option, or make all outstanding Options fully vested and exercisable;

(ii) Determine all or any portion of conditions associated
with an Incentive Stock Award have been met;

(iii) Grant a cash bonus award to any of the holders of
outstanding Options;

(iv) Pay cash to any or all Option holders in exchange for
the cancellation of their outstanding Options;

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<PAGE> 8
(v) Make any other adjustments or amendments to the plan
and outstanding Incentive Awards and substitute new Incentive Awards.

13. GENERAL PROVISIONS.

(a) Nothing in the Plan or in any instrument executed pursuant to
the Plan will confer upon any Participant any right to continue as an employee
or member of the Board of the Company or any of its subsidiaries or affect the
right of the Company to terminate the employment or membership on the Board of
any Participant at any time with or without cause.

(b) No shares of Common Stock will be issued or transferred
pursuant to an Incentive Award unless and until all then-applicable
requirements imposed by Federal and state securities and their laws, rules and
regulations and by any regulatory agencies having jurisdiction, and by any
stock exchanges upon which the Common Stock may be listed have been fully met.
As a condition precedent to the issuance of shares pursuant to the grant or
exercise of an Incentive Award, the Company may require the Participant to make
any reasonable action to meet such requirements.

(c) No Participant and no beneficiary or other person claiming
under or through such Participant will have any right, title or interest in or
to any shares of Common Stock allocated or reserved under the Plan or subject
to any Incentive Award except as to such shares of Common Stock, if any, that
have been issued or transferred to such Participant.

(d) The Company may make such provisions as it deems appropriate
to withhold any taxes the Company determines it is required to withhold in
connection with any Incentive Award.

(e) No Incentive Award and no right under the Plan, contingent or
otherwise, will be assignable or subject to any encumbrance, pledge or charge
of any nature except that, under such rules and regulations as the Company may
establish pursuant to the terms of the Plan, a beneficiary may be designated
with respect to an Incentive Award in the event of death of a Participant. If
such beneficiary is the executor or administrator of the estate of the
Participant, any rights with respect to such Incentive Award may be transferred
to the person or persons or entity (including a trust) entitled thereto under
the will of the holder of such Incentive Award.

(f) The Company may make a loan to a Participant who is a
full-time employee in connection with (i) the exercise of an Option in an
amount not to exceed the aggregate exercise price of the Option being exercised
and the grossed up amount of any Federal and state taxes payable in connection
with such exercise for the purpose of assisting such optionee to exercise such
Option, and (ii) the vesting of an Incentive Stock Award in an amount equal to
the grossed up amount of any Federal and state taxes payable as a result of
such vesting. Any such loan may be secured by shares of Common Stock or other
collateral deemed adequate by the Committee and will comply in all respects
with all applicable laws and regulations. The Committee may adopt policies
regarding eligibility for such loans, the maximum amounts thereof and any terms
and conditions not specified in the Plan upon which such loans will be made.
In no event will the interest rate be less than the minimum rate established by
the Internal Revenue Service for the purpose of the purchase and sale of
property.

(g) The Committee may cancel, with the consent of the Participant,
all or a portion of any Option granted under the Plan to be conditioned upon
the granting to the Participant a new Option for the same or a different number
of shares as the Option surrendered, or may require such voluntary

8
<PAGE> 9
surrender as a condition to a grant of a new Option to such Participant. Such
Option shall be exercisable at the price, during the period, and in accordance
with any other terms or conditions specified by the Committee at the time the
new Option is granted, all determined in accordance with the provisions of the
Plan without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.

(h) The forms of Options granted under the Plan may contain such
other provisions as the Committee may deem advisable. Without limiting the
foregoing and if so authorized by the Committee, the Company may, with the
consent of the Participant, and at any time or from time to time, cancel all or
a portion of any Option granted under the Plan then subject to exercise and
discharge its obligation in respect of the Option either by payment to the
Participant of an amount of cash equal to the excess, if any, of the Fair
Market Value, at such time, of the shares subject to the portion of the Option
so canceled over the aggregate purchase price specified in the Option covering
such shares, or by issuance or transfer to the Participant of shares of Common
Stock with a Fair Market Value, at such time, equal to any such excess, or by a
combination of cash and shares. Upon any such payment of cash or issuance of
shares, (i) there shall be charged against the aggregate limitations set forth
in Section 3(a) a number of shares equal to the number of shares so issued plus
the number of shares purchasable with the amount of any cash paid to the
Participant on the basis of the Fair Market Value as of the date of payment,
and (ii) the number of shares subject to the portion of the Option so canceled,
less the number of shares so charged against such limitations, shall thereafter
be available for other grants.

14. AMENDMENT AND TERMINATION.

(a) The Committee will have the power, in its discretion, to
amend, suspend or terminate the Plan at any time. No such amendment will,
without approval of the stockholders of the Company, except as provided in
Section 12 of the Plan:

(i) Change the class of persons eligible to receive
Incentive Awards under the Plan;

(ii) Materially increase the benefits accruing to Eligible
Persons under the Plan;

(iii) Increase the number of shares of Common Stock
subject to the Plan; or

(iv) Transfer the administration of the Plan to any person
who is not a Disinterested Person under the Securities Exchange Act of 1934.

(b) The Committee may, with the consent of a Participant, make
such modifications in the terms and conditions of an Incentive Award agreement
as it deems advisable.

(c) No amendment, suspension or termination of the Plan will,
without the consent of the Participant, alter, terminate impair or adversely
affect any right or obligation under any Incentive Award previously granted
under the Plan.

(d) An Option held by a person who was an Eligible Person at the
time such Option was granted will expire immediately if and when the
Participant ceases to be an Eligible Person, except as follows:

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<PAGE> 10
(i) If the employment of a Participant or the service of
an Outside Director is terminated by the Company or any subsidiary thereof
other than for cause, for which the Company will be the sole judge, then the
Options will expire eight months thereafter unless by their terms they expire
sooner. During said period, the Options may be exercised in accordance with
their terms, but only to the extent exercisable on the date of termination of
employment.

(ii) If a Participant retires at normal retirement age or
retires with the consent of the Company or any subsidiary thereof at an earlier
date, the Options of the Participant will expire, subject to the provisions of
Section 9.(d) hereof, three years thereafter unless by their terms they expire
sooner. During said period, the Options may be exercised in accordance with
their terms, but only to the extent exercisable on the date of retirement.

(iii) If the Participant dies or becomes permanently and
totally disabled while employed by the Company, the Options of the Participant
will expire, subject to the provision of Section 9.(d) hereof, three years
after the date of death or permanent and total disability unless by their terms
they expire sooner. If the Participant dies or becomes permanently and totally
disabled within the eight months referred to in paragraph (i) above, the
Options will expire, subject to the provision of Section 9.(d) hereof, one year
after the date of death or permanent and total disability, unless by their
terms they expire sooner. If the Participant dies or becomes permanently and
totally disabled within the three-year period referred to in subparagraph (ii)
above, the Options will expire, subject to the provisions of Section 9.(d)
hereof, upon the later of three years after retirement or one year after the
date of death or permanent and total disability, unless by their terms they
expire sooner.

(e) The Committee may in its sole discretion determine, (i) with
respect to an Incentive Award, that any Participant who is on leave of absence
for any reason will be considered as still in the employ of the Company,
provided that rights to such Incentive Award during a leave of absence will be
limited to the extent to which such right was earned or vested at the
commencement of such leave of absence, or (ii) with respect to any Options of
any Participant who is retiring at normal retirement age or with the consent of
the Company or any subsidiary thereof at an earlier age, that the Options of
such Participant will accelerate and become fully exercisable on a date
specified by the Committee which is not later than the effective date of such
retirement.

15. EFFECTIVE DATE OF PLAN AND DURATION OF PLAN.

This Plan will become effective upon adoption by the Board and the
holders of a majority of the outstanding shares at a meeting of stockholders of
the Company. Unless previously terminated, the Plan will terminate on March
31, 2004.

<PAGE> 1

BIRMINGHAM REALTY COMPANY
STATE OF ALABAMA) 2118 First Avenue North
Birmingham, Alabama 35203
JEFFERSON COUNTY) Telephone: (205) 322-7789

LEASE AGREEMENT

PERIMETER PARK SOUTH

THIS AGREEMENT, made and entered into on the 25th day of May,
1993, between BIRMINGHAM REALTY COMPANY (hereinafter called "Landlord") and
CRESCENT CAPITAL TRUST (hereinafter called "Tenant"), is to witness that:
Landlord does this day lease unto Tenant and Tenant does lease from Landlord
the following described space (herein called Premises) being approximately 1500
square feet located on the Third Floor South in the building known as ONE
PERIMETER PARK SOUTH, at the address of ONE PERIMETER PARK SOUTH, SUITE 335
SOUTH, BIRMINGHAM, ALABAMA 35243, in Jefferson County, Alabama. Premises are
more particularly shown and outlined on the plan attached hereto as Exhibit "A"
and as the Premises shall be finished or remodeled as specified in Work Letter
Agreement attached hereto as Exhibit "B", both made a part hereof.
1. TERM:
(a) The Term of this lease shall commence on the 1st day of
June, 1993, and end at 6:00 p.m. on the 31st day of May, 1994. The Tenant
agrees to pay each month as Base Rent for the Premises to Birmingham Realty
Company at 2118 First Avenue North, Birmingham, Alabama 35203, the sum of Six
Hundred Forty Six and 25/100------------------ Dollars ($646.25), being at the
rate of Seven Thousand Seven Hundred Fifty Five and No/100---------------
Dollars ($7,755.00) per annum, which sum shall be payable in advance on the
first day of each month during the rental period of this Lease, or sooner if
accelerated under the subsequent provisions hereof. The first month's base
rent shall be paid contemporaneously with the execution of this Lease by
Tenant. Lessee agrees that a Service and Bookkeeping Charge of 5% shall become
due and payable each and every month that the Rent has not been received in the
office of Birmingham Realty Company by the tenth (10th) of the month.
(b) It is understood that the Base Rent specified in
Paragraph (a) does not anticipate any increase in the amount of taxes on the
Property or in the cost of operations and maintenance thereof. Therefore, in
order that the rental payable throughout the term of the Lease shall reflect
any such increase, the parties agree as hereinafter in this Section set forth.
The Annual Base Rent payable pursuant to Paragraph (a) as increased pursuant to
Paragraphs (b) and (c) of this Section is hereinafter called the "Rent", which
Tenant agrees to pay.
Certain terms are defined as follows:
Base Year: The Base Year for Taxes and Operating
Expenses shall be the full calendar year of 1993.
Tenant's Share: For each calendar year commencing with the
calendar year immediately following the Base Year, the Tenant's pro rata share
of the increase in Taxes and Operating Expenses over the Base Year. The
Tenant's Share is agreed to be 1.05% of such increase.

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<PAGE> 2

Taxes: (i) all real estate taxes, including state equalization
factor, if any, payable (adjusted after protest or litigation, if any) for any
part of the term of this Lease, exclusive of penalties or discounts, on the
Property, (ii) any taxes which shall be levied in lieu of any such taxes, such
as taxes on the gross rentals of the Property, (iii) any special assessments
against the Property which shall be required to be paid during the calendar
year in respect to which taxes are being determined, and (iv) the expense of
contesting with Tenant's prior approval, the amount or validity of any such
taxes, charges, or assessments; such expense to be applicable to the period of
the item contested. The landlord reserves the right to recompute the
additional rent due hereunder in the event of a change of Taxes for the Base
Year and the Tenant agrees to pay such additional rent when billed.
Operating Expenses: Those expenses incurred or paid on
behalf of the Landlord in respect of the operation and maintenance of the
Property which, in accordance with accepted principles of sound accounting
practice used by the Landlord, as applied to the operation, management and
maintenance of first class office buildings, are properly chargeable to the
operation and maintenance of the Property, and the cost, as reasonably
amortized by the Landlord, with interest at the Prime Rate on the unamortized
amount of any capital improvement made after the Base Year which reduces other
Operating Expenses, but in an amount not to exceed such reduction for the
relevant year. Operating Expenses shall not include depreciation, debt
service, franchise or income taxes imposed on the landlord, except to the
extent hereinbefore provided, and the cost to the Landlord of any work or
service performed in any instance for any tenant (including the Tenant) at the
cost of such Tenant. If Landlord shall make any capital improvement after the
Operating Expense Base Year during the term of this Lease in compliance with
the requirements of any federal, state, or local law or governmental regulation,
then the reasonable annual amortization of the cost of such improvement, with
interest at the Prime Rate from the time of completion of such improvement,
shall be deemed an Operating Expense in each of the calendar years during which
such amortization is charged. The "Prime Rate" shall be computed and adjusted
on a daily basis for each installment based on the prime rate in force from
time to time during the period with respect to which such installment is being
calculated. The term "Prime Rate" shall mean the rate announced as such by
Chase Manhattan Bank or its successors at its principal office, but shall in no
event exceed the maximum rate provided by applicable law.
In determining the amount of Operating Expenses for the
purpose of this Section, for the Base Year or for any subsequent calendar year,
(i) if less than 95% of the Building shall have been occupied by tenants and
fully used by them, at any time during the year. Operating Expenses shall be
increased to an amount equal to the like operating expense which would normally
be expected to be incurred, had such occupancy been 95% and had such full
utilization been made during the entire period, or (ii) if the Landlord is not
furnishing any particular work or service (the cost of which if performed by
the Landlord would constitute an Operating Expense) to a tenant who has
undertaken to perform such work or service in lieu of the performance thereof
by the Landlord, Operating Expenses shall be deemed for the purposes of this
Section

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<PAGE> 3
to be increased by an amount equal to the additional operating expense which
would reasonably have been incurred during such period by the Landlord if it
had at its own expense furnished such work or service to such tenant. The
Operating Expenses for the Base Year are estimated by the Landlord to be $5.17
per square foot of the Premises.
(c) In order to provide for current payments on account of any
increase in the Taxes and Operating Expenses over the Base Year, the Tenant
agrees, at Landlord's request, to pay as additional rent Tenant's Share due for
the ensuing twelve (12) months, as estimated by Landlord from time to time, in
twelve (12) monthly installments, each in an amount equal to 1/12th of Tenant's
Share so estimated by Landlord commencing on the first day of the month
following the month in which Landlord notifies Tenant of the amount of such
estimated Tenant's Share. If, as finally determined, Tenant's share shall be
greater than or to be less than the aggregate of all installments so paid on
account to the Landlord for such twelve (12) month period, then Tenant shall
pay to the Landlord the amount of such underpayment when billed, or the
Landlord shall credit Tenant for the amount of such overpayment as the case
may be. It is the intention hereunder to estimate the amount of Taxes and
Operating Expenses for each year and then to adjust such estimate in the
following year based on actual Taxes and Operating Expenses incurred and/or
paid by Landlord for the period Tenant occupies Premises. The obligation of
the Tenant with respect to the payment of Rent shall survive the termination of
this Lease. Any payment, refund, or credit made pursuant to this Paragraph (c)
shall be made without prejudice to any right of the Tenant to dispute or of
the Landlord to correct any item(s) as billed pursuant to the provisions
hereof.
(d) Upon receipt of the Landlord's statement, Tenant does
hereby covenant and agree promptly to pay the increases in Rent pursuant to
Paragraphs (b) and (c) of this Section as and when the same shall become due
and payable, without further demand therefor, and without any setoff or
deduction whatsoever. Failure to give such statement shall not constitute a
waiver by Landlord of its right to require an increase in Rent nor shall such
failure deprive Tenant of a decrease in Rent, as the case may be.
(e) Within thirty (30) days after receipt of such statement,
Tenant or its authorized employee shall have the right to inspect the books of
Landlord during the business hours of Landlord at Landlord's office in the
Building or, at Landlord's option, at such other location that Landlord may
specify for the purpose of verifying information in such statement. Unless
Tenant asserts specific error(s) within thirty (30) days after delivery of such
statement, the statement shall be deemed to be correct.
(f) No decrease in Taxes, Interest and/or Operating Expenses
shall reduce Tenant's Rent below the annual Base set forth in Paragraph (a) of
this Section.
(g) All costs and expenses which Tenant assumes or agrees to
pay to Landlord pursuant to this Lease shall be deemed additional rent and, in
the event of nonpayment thereof, Landlord shall have all the rights and
remedies herein provided for in case of nonpayment of Rent.

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<PAGE> 4
2. SERVICES:
The Landlord shall provide at Landlord's expense,
except as otherwise provided, the following services:
(a) Heating and air conditioning service (8:00 a.m.
to 6:00 p.m. Mondays through Fridays; and 8:00 a.m. to 12:00 p.m. on Saturdays;
Sundays and legal holidays excepted).
(b) Continuous passenger elevator service.
(c) General cleaning and janitor services, but not
including cleaning of drapes and furniture, except for normal vacuuming and
dusting.
(d) Electric current for lighting and operation of
fluorescent tubes and incandescent bulbs in Building Standard lighting
fixtures and electrical current for operating small business machinery only
using 110 volt, 20 amp circuits.
(e) Cold drinking water in the corridor on each floor
in the Building.
(f) Men's and women's restrooms on each floor and
toilet supplies therefor.
Tenant shall be responsible for (1) the cost of
electricity or additional air conditioning required for special equipment that
may be installed by Tenant or because of unusually large number of personnel
in the premises; (2) the cost of any extraordinary or excessive consumption of
electricity, water, or other utilities by Tenant; (3) paying a reasonable
amount, not to exceed $5.00 per hour for the use of electricity beyond the time
electricity is provided by Landlord pursuant to subparagraph (a) above; and (4)
paying a reasonable amount, not to exceed $10.00 per hour for use of heating
and air conditioning service beyond time same is provided by Landlord pursuant
to subparagraph (a) above. The hourly rates above specified shall be adjusted
to the percentage of increase granted by the Alabama Public Service Commission.
Should Tenant require any additional work or service,
including but not limited to the additional work or service described above,
including service furnished outside the stipulated hours, Landlord may, on
terms to be agreed upon in reasonable advance notice by Tenant, furnish such
additional service and Tenant agrees to pay the Landlord such charges as may be
agreed on, but in no event at a charge less than Landlord's actual cost plus
overhead for the additional services provided, it being agreed that the cost to
the Landlord of such additional services shall be excluded from Operating
Expense.
It is understood that Landlord does not warrant that
any of the services referred to above or any other services which Landlord may
supply will be free from interruption; Tenant acknowledging that any one or
more such services may be suspended by reason of accident or of repairs,
alterations, or improvements necessary to be made, or by strikes or lockouts,
or by reason of operation of law, or causes beyond the reasonable control of
Landlord. Any such interruption of discontinuance of service shall never be
deemed an eviction or disturbance of Tenant's use and possession of the
Premises, or any part thereof, or render Landlord liable to Tenant for damages
by abatement of rent or otherwise, or relieve Tenant from performance of
Tenant's obligations under this Lease. Landlord agrees to use its best
efforts to promptly restore services.

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<PAGE> 5

3. QUIET ENJOYMENT
So long as the Tenant shall observe and perform the
covenants and agreements binding on it hereunder, the Tenant shall at all
times during the term herein granted peacefully and quietly have and enjoy
possession of the Premises without any encumbrance or hindrance by, from, or
through the Landlord.
4. CERTAIN RIGHTS RESERVED TO THE LANDLORD
The Landlord reserves all rights not herein specified
granted including without limitation the following:
(a) To name the Building and to change the name or
street address of the Building.
(b) To install and maintain a sign or signs on the
exterior or interior of the Building.
(c) To designate all sources furnishing sign
painting and lettering, ice, drinking water, toilet supplies, vending machines,
mobile vending service, catering, and like services used on the Premises or in
the Building.
(d) During the last ninety (90) days of the term,
if during or prior to that time the Tenant vacates the Premises, to decorate,
remodel, repair, alter or otherwise prepare the Premises for reoccupancy,
without affecting Tenant's obligation to pay rental for the Premises, providing
same does not interfere with Tenant's use of said Premises.
(e) To constantly have pass keys to the Premises.
(f) On reasonable prior notice to the Tenant, to
exhibit the Premises to prospective tenants during the last six (6) months of
the term, and to any prospective purchaser, mortgagee, or assignee of any
mortgage on the Property and to others having a legitimate interest at any
time during the term.
(g) At any time, in the event of any emergency and
otherwise at reasonable times, to take any and all measures, including
inspections, repairs, alterations, additions, and improvements to the Premises
or to the Building as may be necessary or desirable for the safety, protection
or preservation of the Premises or the Building or the Landlord's interests,
or as may be necessary or desirable in the operation or improvement of the
Building or in order to comply with all laws, orders, and requirements of
governmental or other authority.
(h) To install vending machines of all kinds in the
Premises and to provide mobile vending service therefor, and to receive all of
the revenue derived therefrom; provided, however, that no vending machines
shall be installed by Landlord in the Premises nor shall any mobile vending
service be provided therefor unless Tenant so requests.
5. ESTOPPEL CERTIFICATE BY TENANT
The Tenant agrees that from time to time, upon not less
than ten (10) days prior request by the Landlord, the Tenant will deliver to
the Landlord a statement in writing certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been modifications
that the same is in full force and effect as modified and identifying the
modifications), (b) the dates to which the Rent and other charges have been
paid, and (c) that, so far as the person making the certificate knows, the
Landlord is not in default under any

5
<PAGE> 6

provision of this Lease and, if the Landlord is in default, specifying each
such default of which the person making the certificate may have knowledge, it
being understood that any such statement so delivered may be relied upon by any
landlord under any ground or underlying lease, or any prospective purchaser,
mortgagee, or any assignee of any mortgage on the Property.
6. WAIVER OF CERTAIN CLAIMS
The Tenant, to the extent permitted by law, waives all claims
it may have against the Landlord and against the Landlord's agents and
employees for damage to person or property sustained by the Tenant or by any
occupant of the Premises, or by any other person, resulting from any part of
the Property or any equipment or appurtenances becoming out of repair, or
resulting from any accident in or about the Property or resulting directly or
indirectly from any act or neglect of any tenant or occupant of any part of the
Property or of any other person, unless such damage is a result of the
negligence or contributory negligence of Landlord, or Landlord's agents or
employees. If any damage results from any act or neglect of the Tenant, the
Landlord may, at the Landlord's option, repair such damage and the Tenant shall
thereupon pay to the Landlord the total cost of such repair. All personal
property belonging to the Tenant or any occupant of the Premises that is in or
on any part of the Property shall be there at the risk of the Tenant or of such
other person only and the Landlord, its agents, and employees shall not be
liable for any damage thereto or for the theft or misappropriation thereof
unless such damage, theft, or misappropriation is a result of the negligence or
contributory negligence of Landlord or Landlord's agents or employees. The
Tenant agrees to hold the Landlord harmless and indemnified against claims and
liability for injuries to all persons and for damage to or loss of property
occurring in or about the Property due to any act of negligence or default
under this Lease by the Tenant, its contractors, agents, or employees.
To the extent that the Tenant carries hazard insurance on any
of its property in the Premises and to the extent that the Landlord carries
hazard insurance on the Property, each policy of insurance shall contain, if
obtainable from the insurer selected by the Tenant or the Landlord, as the case
may be, without additional expense, a provision waiving subrogation against the
other party to this Lease. If such provision can be obtained only at
additional expense, the obligation to obtain such provision shall continue if
the other party on notice shall pay the amount of such additional expense.
Each of the parties hereto releases the other with respect to any liability
which the other may have for any damage by fire or other casualty with respect
to which the party against whom such release is claimed shall be insured under
a policy or policies of insurance containing such provision waiving
subrogation.
7. LIABILITY INSURANCE
Tenant shall, at its expense, maintain during the term
comprehensive public liability insurance, contractual liability insurance, and
property damage insurance under policies issued by insurers of recognized
responsibility with limits of not less than $500,000 for personal injury,
bodily injury, death, or for damage or injury to or destruction of property
(including the loss of use thereof) for any one person and in an amount of not
less than

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<PAGE> 7

$1,000,000 with respect to any one occurrence. Tenant's policies shall name
Landlord, its agents, servants, and employees as additional insureds. At the
option of the Landlord, the copies of all policies of insurance shall be held
by Landlord.

8. HOLDING OVER
If the Tenant retains possession of the Premises or any
part thereof after the termination of the term, the Tenant shall pay the
Landlord rent at double the monthly rate specified in Section 1 for the time
the Tenant thus remains in possession and, in addition thereto, shall pay the
Landlord for all damages, consequential as well as direct, sustained by reason
of the Tenant's retention of possession. If the Tenant remains in possession
of the Premises, or any part thereof, after the termination of the term, such
holding over shall, at the election of the Landlord expressed in a written
notice to the Tenant and not otherwise, constitute a renewal of this Lease for
one year under the same terms and conditions as this Lease. The provisions of
this Section do not exclude the Landlord's rights of re-entry or any other
right hereunder.

9. ASSIGNMENT AND SUBLETTING
(a) The Tenant shall not, without the Landlord's prior
written consent, (i) assign, convey, mortgage, pledge, encumber or otherwise
transfer (whether voluntarily or otherwise) this Lease or any interest under
it; (ii) allow any transfer thereof or any line upon the Tenant's interest by
operation of law; (iii) sublet the Premises or any part thereof; or (iv)
permit the use or occupancy of the Premises or any part thereof by any one
other than the Tenant.

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<PAGE> 8
(c) Any sale or transfer after the date hereof, whether to
one or more persons or entities and whether at one or more different times, of
a total of more than fifty percent (50%) of the shares of capital stock of any
corporation, or more than fifty percent (50%) of the interest in any
partnership, which is then the legal Tenant under this Lease shall be deemed an
assignment of this Lease within the meaning of this Section.
(d) Tenant agrees to pay to Landlord, on demand, reasonable
costs incurred by Landlord in connection with any request by Tenant for
Landlord to consent to any assignment or subletting by Tenant.
(e) If, with the consent of the Landlord, this Lease be
assigned or if the Premises or any part thereof be sublet or occupied by
anybody other than Tenant, Landlord may, after default by Tenant, collect rent
from the assignee, subtenant or occupant, and apply the net amount collected
to the Rent and Additional Rent herein reserved; but no such assignment,
subletting, occupancy, or collection shall be deemed a waiver of any of
Tenant's covenants contained in this Lease or the acceptance of the assignee,
subtenant, or occupant as tenant, or a release of Tenant from further
performance by Tenant of covenants on the part of Tenant herein contained.
10. CONDITION OF PREMISES
Tenant's taking possession of the Premises shall be conclusive
evidence as against the Tenant that the Premises were in good order and
satisfactory condition when the Tenant took possession, except as to latent
defects. No promise of the Landlord to alter, remodel, repair or improve the
Premises or the Building and no representation respecting the condition of the
Premises or the Building have been made by Landlord to Tenant, other than as
may be contained herein or in a separate Work Letter Agreement signed by
Landlord and Tenant and attached hereto as Exhibit "B". At the termination of
this Lease, the Tenant shall return the Premises broom-clean and in as good
condition as when the Tenant took possession, ordinary wear and loss by fire or
other casualty excepted, failing which the Landlord may restore the Premises to
such condition and the Tenant shall pay the cost hereof on demand.
11. USE OF PREMISES
The Tenant agrees to comply with the following rules and
regulations and with such reasonable modifications thereof and additions
thereto as the Landlord may hereafter from time to time make for the Building.
The

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<PAGE> 9

Landlord shall not be responsible for the non-observance by any other tenant of
any of said rules and regulations:
(a) The Tenant shall not exhibit, sell or offer for
sale on the Premises or in the Building any article or thing except those
articles and things essentially connected with the stated use of the Premises
by the Tenant without the advance consent of the Landlord.
(b) The Tenant will not make or permit to be made
any use of the Premises or any part thereof which would violate any of the
convenants, agreements, terms, provisions, and conditions of this Lease or
which directly or indirectly is forbidden by public law, ordinance, or
governmental regulation, or which may be dangerous to life, limb, or property,
or which may invalidate or increase the premium cost of any policy of insurance
carried on the Building or covering its operation, or which will suffer or
permit the Premises or any part thereof to be used in any manner, or anything
to be brought into or kept therein which, in the judgment of Landlord, shall in
any way impair or tend to impair the character, reputation, or appearance of
the Property as a high quality office building, or which will impair or
interfere with, or tend to impair or interfere with, any of the services
performed by Landlord for the Property.
(c) The Tenant shall not display, inscribe, print,
paint, maintain or affix on any place in or about the Building any sign,
notice, legend, direction, figure or advertisement, except on the doors of the
Premises and on the Directory Board, and then only such name(s) and matter, and
in such color, size, style, place and materials, as shall first have been
approved by the Landlord. The listing of any name other than that of Tenant,
whether on the doors of the Premises, on the Building directory, or otherwise,
shall not operate to vest any right or interest in this Lease or in the
Premises or be deemed to be the written consent of Landlord mentioned in
Section 9; it being expressly understood that any such listing is a privilege
extended by Landlord revocable at will by written notice to Tenant.
(d) The Tenant shall not advertise the business,
profession, or activities of the Tenant conducted in the Building in any manner
which violates the letter or spirit of any code of ethics adopted by any
recognized association or organization pertaining to such business, profession,
or activities, and shall not use the name of the Building for any purposes
other than that of the business address of the Tenant, and shall never use any
picture of likeness of the Building in any circulars, notices, advertisements,
or correspondence without the Landlord's consent.
(e) No additional locks or similar devices shall
be attached to any door or window without Landlord's prior written consent. No
keys for any door other than those provided by the Landlord shall be made. If
more than two (2) keys for one lock are desired, the Landlord will provide the
same upon payment by the Tenant. All keys must be returned to the Landlord at
the expiration or termination of this Lease.
(f) The Tenant shall not make any alterations,
improvement, or additions to the Premises, including but not limited to, wall
coverings, floor coverings, and special lighting installations, without the
Landlord's advance written consent in each and every instance. In the event
Tenant desires to make

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<PAGE> 10

any alternations, improvement, or additions, Tenant shall first submit to
Landlord plans and specifications therefor and obtain Landlord's written
approval thereof prior to commencing any such work. All alternations,
improvements or additions, whether temporary or permanent in character, made by
Landlord or Tenant in or upon the Premises shall become Landlord's property and
shall remain upon the Premises at the termination of this Lease with
compensation to Tenant (excepting only Tenant's movable office furniture, trade
fixtures, office and professional equipment).
(g) All persons entering or leaving the Building after hours
on Monday through Friday, or at any time on Saturdays, Sundays, or Holidays,
may be required to do so under such regulations as the Landlord may impose.
The Landlord may exclude or expel any peddler.
(h) The Tenant shall not overload any floor. The landlord
may direct the time and manner of delivery, routing and removal, and the
location of safes and other heavy articles.
(i) Unless the Landlord gives advance written consent, the
Tenant shall not install or operate any steam or internal combustion engine,
boiler, machinery, refrigerating or heating device or air-conditioning
apparatus in or about the Premises, or carry on any mechanical business
therein, or use the Premises for housing accommodations or lodging or sleeping
purposes, or do any cooking therein, or use any illumination other than
electric light, or use or permit to be brought into the Building and
inflammable fluids, such as gasoline, kerosene, naphtha, and benzine, or any
explosives, radioactive materials or other articles deemed extra hazardous to
life, limb, or property, except in a manner which would not violate any
ordinance or regulation of the City. The Tenant shall not use the Premises for
any illegal or immoral purpose. *
(j) The Tenant shall cooperate fully with the Landlord to
assure the effective operation of the Building's air-conditioning system,
including the closing of venetian blinds and drapes and, if windows are
operable, to keep them closed when the air-conditioning system is in use.
(l) The sidewalks, halls, passages, exits, entrances,
elevators, and stairways, shall not be obstructed by the Tenant or used for any
purpose other than for ingress to egress from its Premises. The halls,
passages, exits, entrances, elevators, stairways, and roof are not for the use
of the general public and the Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence, in the
judgement of the Landlord, shall be prejudicial to the safety, character,
reputation, and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to persons
with whom the Tenant normally deals in the ordinary course of Tenant's business
unless such persons

* However, Tenant may be able to operate a coffee machine,
refrigerator and microwave

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<PAGE> 11
are engaged in illegal activities. No Tenant and no employees or invitees of
any Tenant shall go upon the roof or mechanical floors of the Building.
(m) Tenants shall not use, keep, or permit to be used or kept
any foul or noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or objectionable to the
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought in or kept in or about the
Premises or the Building.
(n) Tenant shall see that the doors and windows, if operable,
of the Premises are closed and securely locked before leaving the Building and
must observe strict care and caution that all water faucets or water apparatus
are entirely shut off before Tenant or Tenant's employees leave the Building,
and that all electricity shall likewise be carefully shut off so as to prevent
waste or damage, and for any default or carelessness, Tenant shall make good
all injuries or losses sustained by other tenants or occupants of the Building
of Landlord.
In addition to all other liabilities for breach of any
covenant of this Section, the Tenant shall pay to the Landlord an amount equal
to any increase in insurance premiums payable by the Landlord or any other
tenant in the Building caused by such breach.
12. REPAIRS
Tenant shall give to Landlord prompt written notice of any
damage to or defective condition in any part or appurtenance of the Building's
plumbing, electrical, heating, air-conditioning, or other systems serving,
located in, or passing through the Premises. Subject to the provisions of
Section 13, the Tenant shall, at the Tenant's own expense, keep the Premises in
good order, condition, and repair during the term, except that the Landlord, at
the Landlord's expense (unless caused by the fault or negligence of the Tenant,
its contractors, agents, or employees) shall keep in repair the elevators,
electrical lines, plumbing fixtures located in the Building (except those
installed by Tenant with Landlord's approval) heating and air-conditioning
equipment, outside walls, including windows, and roof. The Tenant, at the
Tenant's expense, shall comply with all laws and ordinances and all rules and
regulations of all governmental authorities and of all insurance bodies at any
time in force, applicable to the Premises or to the Tenant's use thereof,
except that the Tenant shall not hereby be under any obligation to comply with
any law, ordinance, rule, or regulation requiring any structural alteration of
or in connection with the Premises, unless such alteration is required by
reason of a condition which has been created by, or at the instance of, the
Tenant, or is required by reason of a breach of any of the Tenant's covenants
and agreements hereunder. Landlord shall not be required to repair any injury
or damage by fire or other cause, or to make any repairs orreplacements of any
panels, decoration, office fixtures, railing, ceiling, floor covering,
partitions, or any other property installed in the Premise by the Tenant,
except as such fire or other cause results from the negligence or contributory
negligence or willful acts of Landlord, Landlord's agents or employees.

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<PAGE> 12
13. UNTENABILITY
If the Premises are made untenable in whole or in part by fire
or other casualty, the Rent, until repairs shall be made or the Lease
terminated as hereinafter provided, shall be apportioned on a per diem basis
according to the part of the Premises which is usable by the Tenant; if, but
only if, such fire or other casualty be not caused by the fault or negligence
of the Tenant, its contractors, agents, or employees. If such damage shall be
so extensive that the Premises cannot be restored to Building Standard by the
Landlord within a period of four (4) months, either party shall have the right
to cancel this Lease by notice to the other given at any time within thirty
(30) days after the date of such damage; except that, if such fire or casualty
resulted from the Tenant's fault or negligence, the Tenant shall have no right
to cancel. If a portion of the Building other than the Premises shall be so
damaged that, in the opinion of the Landlord, the Building should be restored
in such a way as to alter the Premises materially, the Landlord may cancel this
Lease by notice to the Tenant given at any time within thirty (30) days after
the date of such damage. In the event of giving effective notice pursuant to
this Section, this Lease and the term and the estate hereby granted shall
expire on the date fifteen (15) days after the giving of such notice as fully
and completely as if such date were the date hereinbefore set for the
expiration of the term of this Lease. If this Lease is not so terminated, the
Landlord will promptly repair the damage at the Landlord's expense.
14. EMINENT DOMAIN
(a) In the event that title to the whole or any part of the
Property shall be lawfully condemned or taken in any manner for any public or
quasi-public use, and if such condemnation materially effects business, this
Lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title and the Landlord shall be entitled
to receive the entire award, the Tenant hereby assigning to the Landlord the
Tenant's interest therein, if any.
(b) In the event that title to a part of the Building other
than the Premises shall be so condemned or taken and, if in the opinion of the
Landlord, the Building should be restored in such a way as to alter the
Premises materially, the Landlord may terminate this Lease and the term and
estate hereby granted by notifying the Tenant of such termination within sixty
(60) days following the date of vesting of title, and this Lease and the term
and estate hereby granted shall expire on the date specified in the notice of
termination, not less than sixty (60) days after the giving of such notice, as
fully and completely as if such date were the date thereinbefore set for the
expiration of the term of this Lease, and the Rent hereunder shall be
apportioned as of such date.
15. LANDLORD'S REMEDIES
All rights and remedies of the Landlord herein enumerated
shall be cumulative, and none shall exclude any other right or remedy allowed
by law. In addition to the other remedies in this Lease provided, the Landlord
shall be entitled to the restraint by injunction of the violation or attempted
violation of the covenants, agreements, or conditions of this Lease.

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<PAGE> 13

(a) If the Tenant shall (i) apply for consent to the
appointment of a receiver, trustee, or liquidator of the Tenant or of all or a
substantial part of its assets, (ii) admit in writing its inability to pay its
debts as they come due, (iii) make a general assignment for the benefit of
creditors, (iv) file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law other
than the federal Bankruptcy Code, (v) file an answer admitting the material
allegations of a petition filed against the Tenant in any reorganization or
insolvency proceeding, other than a proceeding commenced pursuant to the
federal Bankruptcy Code, or if any order, judgment, or decree shall be entered
by any court of competent jurisdiction, except for a bankruptcy court or a
federal court sitting as a bankruptcy court, adjudicating the Tenant insolvent
or approving a petition seeking reorganization of the Tenant or appointing a
receiver, trustee, or liquidator of the Tenant or of all or a substantial part
of its assets, then, in any of such events, the Landlord may give to the
Tenant a notice of intention to end the term of this Lease specifying a day
not earlier than ten (10) days thereafter and, upon the giving of such notice,
the term of this Lease and all right, title, and interest of the Tenant
hereunder shall expire as fully and completely on the day so specified as if
that day were the date herein specifically fixed for the expiration of the
term.
(b) If the Tenant defaults in the payment of Rent and
such default continues for ten (10) days after notice, or defaults in the
prompt and full performance of any other provision of this Lease, and such
default continues for twenty (20) days after notice, or if the leasehold
interest of the Tenant be levied upon under execution or be attached by
process of law, or if the Tenant abandons the Premises, then and in any such
event, the Landlord may, at its election, either terminate the Lease and the
Tenant's right to possession of the Premises, or without terminating this
Lease, endeavor to relet the Premises. Nothing herein shall be construed so as
to relieve the Tenant of any obligation, including the payment of Rent, as
provided in this Lease.
(c) Upon any termination of this Lease, the Tenant
shall surrender possession and vacate the Premises immediately and deliver
possession thereof to the Landlord, and hereby grants to the Landlord full and
free license to enter into and upon the Premises, in such event with or
without process of law and to repossess the Landlord of the Premises as of
the Landlord's former estate and to expel or remove the Tenant and any others
who may be occupying or within the Premises and to remove any and all property
therefrom, using such force as may be necessary, without being deemed in any
manner guilty of trespass, eviction or forcible entry or detainer, and without
relinquishing the Landlord's right to Rent or any other right given to the
Landlord hereunder or by operation of law.
(d) If the Tenant abandons the Premises or the
Landlord otherwise becomes entitled so to elect, and the Landlord elects,
without terminating the Lease, to endeavor to relet the Premises, the Landlord
may, at the Landlord's option, enter into the Premises, remove the Tenant's
signs and other evidence of tenancy, and take and hold possession thereof as in
Paragraph (c) of this Section provided, without such entry and possession
terminating the

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<PAGE> 14

lease or releasing the Tenant, in whole or in part, from the Tenant's
obligation to pay the Rent hereunder for the full term as hereinafter provided.
Upon and after entry into possession without termination of the Lease, the
Landlord may relet the Premises or any part thereof for the account of the
Tenant to any person, firm, or corporation other than the Tenant for such rent,
for such time and upon such terms as the Landlord shall determine to be
reasonable. In any such case, the Landlord may make repairs, alterations, and
additions in or to the Premises, and redecorate the same to the extent deemed
by the Landlord necessary or desirable, and the Tenant shall, upon demand, pay
the cost thereof, together with the Landlord's expenses of the reletting,
including without limitation, any applicable leasing commissions. If the
consideration collected by the Landlord upon any such reletting for the
Tenant's account is not sufficient to pay monthly the full amount of the rent
reserved in this Lease, together with the cost of repairs, alterations,
additions, redecorating, and the Landlord's expenses, the Tenant shall pay to
the Landlord the amount of each monthly deficiency upon demand.
(e) If the Landlord elects to terminate this Lease in any of
the contingencies specified in this Section, it being understood that the
Landlord may elect to terminate the lease after the notwithstanding its prior
election to terminate the Tenant's right to possession as in Paragraph (b) of
this Section, provided the Landlord shall forthwith upon such termination be
entitled to recover as damages, and not as penalty, an amount equal to the then
present value of the Rent and Additional Rent provided in this Lease for the
residue of the stated term hereof, less the present value of the fair rental
value of the Premises for the residue of the stated term.
(f) Any and all property which may be removed from the
Premises by the Landlord pursuant to the authority of the Lease or of law to
which the Tenant is or may be entitled may be handled, removed, or stored by
the Landlord at the risk, cost, and expense of the Tenant and the Landlord
shall in no event be responsible for the value, preservation, or safekeeping
thereof. The Tenant shall pay to the Landlord upon demand any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in the Landlord's possession or under the
Landlord's control. Any such property of the Tenant not removed from the
Premises or retaken from storage by the Tenant within thirty (30) days after
the end of the term or of the Tenant's right to possession of the Premises,
however terminated, shall be conclusively deemed to have been forever abandoned
by the Tenant and either may be retained by Landlord as its property or may be
disposed of in such manner as Landlord may see fit.
(g) The Tenant agrees that, if it shall at any time fail to
make any payment or perform any other act on its part to be made or performed
under this Lease, the Landlord may, but shall not be obligated to, and after
reasonable notice or demand and without waiving or releasing the Tenant from
any obligation under this lease, make such payment or perform such other act to
the extent the Landlord may deem desirable and in connection therewith to pay
expenses and employ counsel.

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<PAGE> 15
All sums so paid by the Landlord and all expenses in connection therewith,
together with interest thereon at the Prime Rate form the date of payment,
shall be deemed additional rent hereunder and payable at the time of any
installment of Rent thereafter becoming due and the Landlord shall have the
same rights and remedies for the nonpayment thereof, or of any other additional
rent, as in the case of default in the payment of Rent.
16. SUBORDINATION OF LEASE
The rights of the Tenant under this Lease shall be and are
subject to subordinate at all times to all ground leases, and/or underlying
leases, if any, now or hereafter in force against the Property, and to the lien
of any mortgage or mortgages now or hereafter in force against such lease and/
or the Property, and to all advances made or hereafter to be made upon the
security thereof, and to all renewals, modifications, consolidations,
replacements, and extensions thereof. This Section is self-operative and no
further instrument of subordination shall be required. In confirmation of
such subordination, Tenant shall promptly execute such further instruments as
may be reasonably requested by the Landlord. Tenant, at the option of any
mortgagee, agree to attorn to such mortgage in the event of a foreclosure sale
or deed in lieu thereof.
17. COMMENCEMENT OF POSSESSION
If the Landlord shall be unable to give possession of the
Premises on the date of the commencement of the term hereof because the
Premises shall not be ready for occupancy, the Landlord shall not be subject to
any liability for the failure to give possession on said date. Under such
circumstances, unless the delay is the fault of the Tenant, the Rent shall not
commence until the Premises are available for occupancy by the Tenant, and no
such failure to give possession on the date of commencement of the term shall
in any wise affect the validity of this lease or the obligation of the Tenant
hereunder, nor shall same be construed in any wise to extend the term of this
Lease. If, at the Tenant's request, the Landlord shall make the Premises
available to the Tenant prior to the date of commencement of the term for the
purpose of decorating, furnishing, and equipping the Premises, the use of the
Premises for such work shall not create a landlord-tenant relationship between
the parties nor constitute occupancy of the Premises within the meaning of the
next sentence, but the provisions of Section 6 of this Lease shall apply. If,
with the consent of the Landlord, the Tenant shall enter into occupancy of the
Premises to do business therein prior to the date of commencement of the term,
provisions of this Lease shall apply and the Rent shall accrue and be payable
at the first rate specified in Paragraph (a) of Section 1 from the date of
occupancy.
18. NOTICES AND CONSENT
All notices, demands, requests, consents, or approvals which
may or are required to be given by either party to the other shall be in
writing and shall be deemed given when sent by United States Certified or
Registered

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<PAGE> 16
Mail, postage prepaid, (a) if for the Tenant, addressed to the Tenant at the
Building or at such other place as the Tenant may from time to time designate
by written notice to the Landlord, or (b) if for the Landlord, addressed to the
office of the Landlord given in the aforesaid manner at the address first
stated above for Landlord with a copy to Landlord addressed to 2118 First
Avenue North, Birmingham, Alabama 35203, or at such other place as the Landlord
may form time to time designate by written notice to the Tenant given in the
aforesaid manner. All consents and approvals provided for herein must be in
writing to be valid. If the term Tenant, as used in this Lease, refers to more
than one person, any notice, consent, approval, request , bill, demand, or
statement given as aforesaid to any one of such persons shall be deemed to have
been duly given to Tenant.*
19. SPRINKLERS
If there now is or shall be installed in the Building a
"sprinkler system", and such system or any of its appliances shall be damaged
or injured or not in proper working order by reason of any act or omission of
the Tenant, Tenant's agents, servants, employees, licensees or visitors, the
Tenant shall forthwith restore the same to good working conditions at its own
expense; and, if the Board of Fire Underwriters of Fire Insurance Exchange or
any bureau, department, or official of the state or city government require or
recommend that any changes, modifications, alterations, or additional sprinkler
heads or other equipment be made or supplied by reason of the Tenant's
business, or the location of partitions, trade fixtures, or other contents of
the Premises, or for any other reason, or if any such changes, modifications,
alterations, additional sprinkler heads or other equipment become necessary to
prevent the imposition of a penalty or charge against the full allowance for a
sprinkler system in the fire insurance rate as fixed by said Exchange, or by
any fire insurance company, Tenant shall, at the Tenant's expense, promptly
make and supply such changes, modifications, alterations, additional sprinkler
head or other equipment.
20. INVALIDITY OF PARTICULAR PROVISIONS
If any clause or provision of this Lease is or becomes
illegal, invalid, or unenforceable because of present of future laws, or any
rule or regulation of any governmental body or entity, effective during its
terms, the intention of the parties hereto is that the remaining parts of this
Lease shall not be affected thereby unless such invalidity is, in the
reasonable determination of Landlord, essential to the rights of both parties,
in which event Landlord has the right to terminate this Lease on written notice
to Tenant.
21. WAIVER OF BENEFITS
Tenant waives the benefits of all existing and future Rent
Control Legislation and Statutes and similar governmental rules and regulation,
whether in time of war or not, to the extent permitted by law.

* consent, approval or determination made by Landlord shall
not be unreasonably withheld.

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<PAGE> 17
22. WAIVER OF TRIAL BY JURY
It is mutually agreed by and between Landlord and Tenant that
the respective parties hereby shall, and they hereby do waive trial by jury in
any action, proceeding, of counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, and any emergency statutory or any other
statutory remedy.
23. MISCELLANEOUS TAXES
Tenant shall pay prior to delinquency all taxes assessed
against or levied upon its occupancy of the Premises, or upon the fixtures,
furnishings, equipment, and all other personal property of Tenant located in
the Premises, if nonpayment thereof shall rise to a lien on the real estate,
and when possible, Tenant shall cause said fixtures, furnishings, equipment,
and other personal property to be assessed and billed separately from the
property of Landlord. In the event any or all of Tenant's fixtures,
furnishings, equipment, and other personal property, or Tenant's occupancy of
the Premises, shall be assessed and taxed with the property of Landlord, Tenant
shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of statement in writing setting forth the amount
of such taxes applicable to Tenant's fixtures, furnishings, equipment, or
personal property.

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<PAGE> 18

26. BROKERAGE
(a) Tenant represents and warrants that it has
dealt with no broker, agent, or other person in connection with this
transaction and that no broker, agent, or other person brought about this
transaction, other than na and Tenant agrees to indemnify and
hold Landlord harmless from and against any claims by any other broker, agent,
or other person claiming a commission or other form of compensation by virtue
of having dealt with Tenant with regard to this leasing transaction. The
provisions of this Section shall survive the termination of this Lease.

27. SPECIAL STIPULATIONS
(a) No receipt of money by the Landlord from the
Tenant or Tenant or Landlord after the termination of this Lease, or after the
service of any notice, or after the commencement of any suit, or after final
judgment for possession of the Premises, shall reinstate, continue, or extend
the term of this Lease or affect any such notice, demand, or suit, or imply
consent for any action for which Landlord's consent is required.
(b) No waiver of any default of the Tenant or
Landlord hereunder shall be implied from any omission by the Landlord or
Tenant to take any action on account of such default, if such default persists
or be repeated, and no express waiver shall effect any default other than the
default specified in the express waiver and that only for the time and to the
extent therein stated.
(c) The term "Landlord" as used in this Lease, so
far as covenants or agreements on the part of the Landlord are concerned,
shall be limited to mean and include only the owner or owners of the
Landlord's interest in this Lease at the time in question and, in the event of
any transfer or transfers of such interest, the Landlord herein named (and in
case of any subsequent transfer, the then transferer) shall be automatically
freed and relieved from and after the date of such transfer of all personal
liabilty as respects the performances of any covenants or agreements on the
part of the Landlord contained in this Lease thereafter to be performed.

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<PAGE> 19

(d) It is understood that the Landlord may occupy portions
of the Building in the conduct of the Landlord's business. In such event, all
references herein to other tenants of the Building shall be deemed to include
the Landlord as an occupant.
(e) All of the covenants of the Tenant hereunder shall be
deemed and construed to be "conditions" as well as "covenants" as though the
words specifically expressing or imparting covenants and conditions were used
in each separate instance.
(f) The Tenant agrees that, upon receiving a written
request from the Landlord, the Tenant within ten (10) days deliver a copy of
this Lease or, if the Landlord so requests, a Memorandum of this Lease, in
recordable form to the Landlord. Tenant shall not record this Lease or a
Memorandum thereof without the prior written consent of the Landlord.
(g) Neither party has made any representation or promise,
except as contained herein, or in some further writings signed by the party
making such representation or promise.
(h) In event of variation or discrepancy, the Landlord's
original copy of the Lease shall control.
(i) Each provision hereof shall extend to and shall, as
the case may require, bind and inure to the benefit of the Landlord and the
Tenant and their respective heirs, legal representatives and successors, and
assigns in the event this Lease has been assigned with the express, written
consent of the Landlord.
(j) If, because of any act or omission of Tenant, its
employees, agents, contractors, or subcontractors, any mechanic's lien or
other lien, charge or order for the payment of money shall be filed against
Landlord, Premises are a part, Tenant shall, at its own cost and expense,
cause the same to be discharged or recorded within thirty (30) days after the
filing thereof and Tenant shall indemnify and save harmless Landlord against
and from all cost, liabilities, suits, penalties, claims, and demands,
including reasonable attorney's fees resulting therefrom.
(k) It is understood and agreed that this Lease shall not
be binding until and unless all parties have signed it.

Exhibits 2 and Riders 1, consisting of 3 pages are attached
hereto and become part of this Lease.

28. ADDITIONAL PROVISIONS
Additional provisions are set forth in Rider(s)
attached to this Lease and made a part hereof.

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<PAGE> 20

IN WITNESS WHEREOF, the parties herein have hereunto set their
hands and seals in quadruplicate the date and year first above written.

Signed Sealed and Delivered TENANT:
in the Presense of: CRESCENT CAPITAL TRUST

/s/ Joy C. Newman By: /s/ John W. McRoberts (Seal)
- ----------------- ---------------------------
Witness (Authorized Signature)

Its: President
---------------------------

By: (Seal)
- ----------------- ---------------------------
Witness

Signed, Sealed, and Delivered LANDLORD
in the Presense of:
BIRMINGHAM REALTY COMPANY

/s/ Joy C. Newman By: /s/ J. Keith Hazelrig (Seal)
- ----------------- ---------------------------
Witness J. Keith Hazelrig, CCIM

Its: Vice President

20
<PAGE> 21

EXHIBIT "B"

Tenant leases space in "as is" condition as is referenced in Exhibit "A".

<PAGE> 22
EXHIBIT A

Floorplan Drawing

<PAGE> 23

Rider To Lease

Between

BIRMINGHAM REALTY COMPANY

And

CRESCENT CAPITAL CORPORATION

May 25, 1939

========================================

1) As a condition of this Lease, Tenant will receive the first three (3)
months of Rent free of any rental obligation.

2) Should Tenant enter into a Lease Agreement with Landlord for office
space in another facility owned by Landlord during the term of this
Lease, this Lease shall become null and void upon Tenant moving into new
space.

3) Should Tenant choose to relocate its offices at the end of the Lease,
out of a Birmingham Realty Company owned facility and not into a
company owned or affiliated company owned facility, then Tenant will
exclusively use Birmingham Realty Company as their representative in
procuring its new offices.

<PAGE> 1

ACCOUNTANTS' CONSENT

The Board of Directors
Crescent Capital Trust, Inc.:

We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

KPMG PEAT MARWICK

Birmingham, Alabama
April 8, 1994

<PAGE> 1

CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 17, 1993, in the Registration Statement
(Form S-11 No. 33- ) and related Prospectus of Crescent Capital Trust, Inc.
for the registration of 6,670,000 shares of Common Stock of Crescent Capital
Trust, Inc.

ERNST & YOUNG

April 14, 1994