<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                  FORM 10-K/A
   
                                AMENDMENT NO. 3
    
                            ------------------------
 
(MARK ONE)
 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                       OR
 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
 
            FOR THE TRANSITION PERIOD FROM __________ TO __________
 
                         COMMISSION FILE NUMBER 0-27374
 
                         UNISON HEALTHCARE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                            <C>
                   DELAWARE                                      86-0684011
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
</TABLE>
 
                   8800 NORTH GAINEY CENTER DRIVE, SUITE 245
                              SCOTTSDALE, AZ 85258
                                 (602) 423-1954
                                FORMER ADDRESS:
                     7272 E. INDIAN SCHOOL ROAD, SUITE 214
                              SCOTTSDALE, AZ 85251
         (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
            AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
 
                              TITLE OF EACH CLASS
                    Common Stock, Par Value $0.001 per share
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [ ]  No [X]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
 
     As of March 31, 1997, there were 6,422,096 shares of Common Stock, par
value $0.001 per share, outstanding. The aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant on March 28, 1997, was
approximately $9,539,685. For purposes of the foregoing calculation only, all
directors and executive officers of the registrant have been deemed affiliates.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
                                      None
 
================================================================================
<PAGE>   2
 
                               TABLE OF CONTENTS
 
                        1996 ANNUAL REPORT ON FORM 10-K
 
                         UNISON HEALTHCARE CORPORATION
 
<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>        <C>                                                                            <C>
                                            PART I
Item 1.    Business.....................................................................    1
Item 2.    Properties...................................................................   14
Item 3.    Legal Proceedings............................................................   16
Item 4.    Submission of Matters to a Vote of Security Holders..........................   18
 
                                           PART II
Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters........   19
Item 6.    Selected Financial Data......................................................   19
Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations........................................................   21
Item 8.    Financial Statements and Supplementary Data..................................   35
Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure.........................................................   35
 
                                           PART III
Item 10.   Directors and Executive Officers of the Registrant...........................   36
Item 11.   Executive Compensation.......................................................   38
Item 12.   Security Ownership of Certain Beneficial Owners and Management...............   44
Item 13.   Certain Relationships and Related Transactions...............................   46
 
                                           PART IV
Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K..............   48
</TABLE>
<PAGE>   3
 
                                     PART I
 
     Certain statements contained in this Annual Report, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects" and words of similar import, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). While the Company believes that the assumptions
underlying these statements are reasonable, such assumptions (and thus the
statements based upon them) could prove to be inaccurate. Important factors
which could cause results to vary include limitations on the Company's access to
debt or equity financing in light of recent losses and cash flow shortfalls,
adverse uninsured determinations in existing or future litigation or regulatory
proceedings, health care statutory or regulatory changes which disfavor the
types of care delivered by the Company and a reversal of the current limitations
in the supply of long-term care facilities. Important factors which could cause
results to vary also include the factors discussed in "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as factors discussed elsewhere in this report or in any document
incorporated herein by reference.
 
ITEM 1.  BUSINESS
 
     As used herein, (i) the "Completed Acquisitions" means acquisitions
completed from January 1, 1995 through December 31, 1996 including (among
others) the acquisition of Signature Health Care Corporation and four affiliated
companies ("Signature") on October 31, 1996 (the "Signature Acquisition") and
the acquisition of American Professional Holding, Inc. and Memphis Clinical
Laboratory, Inc. (together, "Ampro") on October 31, 1996 (the "Ampro
Acquisition"); and (ii) the "Dispositions" means the disposition of four nursing
facilities that were subleased to an unrelated party on March 1, 1997 and the
planned disposition of four additional nursing facilities, one of which is not
currently in operation (the "Disposition Facilities"). See "-- Acquisitions."
 
INTRODUCTION
 
     Unison is a leading provider of comprehensive long-term and specialty
healthcare services. As of March 31, 1997, after giving effect to the
Dispositions, Unison ranks as one of the 25 largest long-term care operators in
the United States, operating facilities in 12 states clustered in the Midwest,
Southwest and Southeast. These facilities include 47 long-term and specialty
care facilities with 4,671 licensed beds and eight independent or assisted
living facilities with 315 units. Unison seeks to operate its businesses as an
interrelated network of services to provide a full continuum of cost-effective
long-term and specialty healthcare.
 
     Unison's healthcare services include both traditional long-term care
services and higher margin specialized healthcare, such as rehabilitation,
infusion and respiratory therapy. Unison also has recently expanded its role as
a medical supplier, both to its facilities and to non-affiliated facilities, of
pharmaceutical services, rehabilitation and therapy services, medical supplies
and laboratory testing.
 
     The Company was incorporated in Delaware as SunQuest HealthCare Corporation
in July 1992 and changed its name to Unison HealthCare Corporation on November
14, 1995.
 
INDUSTRY OVERVIEW
 
     Unison believes there will continue to be significant business
opportunities to provide healthcare services to long-term care residents in
non-hospital settings, including both long-term care facilities and assisted or
independent living facilities. Certain factors that contribute to this growth
potential are described below.
 
     Industry Consolidation.  The long-term care industry is highly fragmented.
There are approximately 16,000 long-term care facilities in the United States
which contain a total of approximately 1.6 million licensed beds. The 35 largest
long-term care providers operate approximately 4,000 facilities comprising
approximately 450,000 licensed beds, or 28% of the industry total. Recently, the
long-term care industry has been subject to competitive pressures and
uncertainty with regard to future changes in governmental regulations, which
have resulted in a trend toward consolidation, especially of smaller, local
operators into
 
                                        1
<PAGE>   4
 
larger, more established regional or national providers. The increasing
complexity of medical services provided, growing regulatory and compliance
requirements and increasingly complicated and potentially volatile reimbursement
systems have resulted in the consolidation of operators who lack sophisticated
management information systems, operating efficiencies and financial resources
to compete effectively. Unison believes that this trend toward consolidation
will continue. See "-- Business Strategy."
 
     Aging Population.  The overwhelming majority of the patients in long-term
care facilities and residents in assisted or independent living facilities are
over the age of 65. According to the United States Bureau of the Census, the
number of people over the age of 65 in the United States has grown from
approximately 25.6 million in 1980, or 11.3% of the population, to approximately
31.1 million in 1990, or 12.5% of the population, and is projected to increase
to approximately 62.2 million, or 18% of the population, by 2025. The United
States Bureau of the Census also reported that approximately 6% of the United
States population between the ages of 75 and 84 and 22% of those over 84 used
some form of healthcare services in a long-term care facility. As the United
States population ages, the demand for the types of service Unison provides is
expected to increase. According to published reports, one in three Americans
currently 65 years old can be expected to enter a nursing home, for an average
of two to three years.
 
     Cost Containment Pressures.  Governmental and private pay sources have
adopted cost containment measures which encourage reduced lengths of stay in
acute care hospitals. Many of the patients being discharged, in particular
elderly patients, require additional skilled nursing care and specialty
healthcare services, such as those provided by Unison. Any subsequently adopted
healthcare reform proposals are expected to continue to emphasize the cost
containment efforts included in healthcare reform legislation. See
"-- Government Regulation."
 
     Advances in Medical Technology.  Sophisticated new forms of medical
equipment and treatment have lengthened life expectancies, increasing the number
of individuals requiring specialized care and supervision. In the past, the
level of care required by many of these individuals was not generally available
outside acute care hospitals. However, long-term care providers such as Unison
have become a more attractive alternative to acute care hospitals in certain
instances due to technological advances that have enabled long-term care
providers to offer services less expensively than are provided by acute care
hospitals.
 
     Limitations in the Supply of Long-Term Care Facilities.  In many areas the
number of available long-term care beds has not grown as quickly as the demand
for them in recent years. Many states (but not all of the states in which Unison
operates) have enacted certificate of need or similar legislation which
generally limit the construction of long-term care facilities and the addition
of beds or services in existing facilities. Furthermore, high construction
costs, limitations on government reimbursement for the full costs of
construction, and start-up expenses also act to constrain growth in the numbers
of facilities. As a result, the Company believes that the supply of long-term
care facilities may not grow as quickly as the demand for such facilities. See
"-- Government Regulation -- Certificates of Need."
 
BUSINESS STRATEGY
 
     Unison's business strategy is to become a preferred provider of long-term
and specialty healthcare services in its markets by offering a full range of
high quality, cost competitive, long-term healthcare services. Unison seeks to
offer these services across the entire continuum of care from independent and
assisted living, to traditional long-term, specialty and subacute care.
 
     Provide a Continuum of Care.  Unison operates both skilled nursing and
assisted living facilities and provides a wide variety of medical,
rehabilitative and pharmaceutical treatments. This strategy provides an
opportunity for entry at each point in the continuum of care. As patients' needs
change, they may be served by different elements of the care continuum. The
primary benefit of offering a continuum of care is that it offers patients an
appropriate level of cost-effective care which the Company believes is
attractive to third party payors.
 
     Unison believes that independent and assisted living arrangements have
become an increasingly important component of the continuum of care required by
older Americans. Cost containment pressures from
 
                                        2
<PAGE>   5
 
government and private payors alike encourage discharge from long-term and
specialty care facilities before residents may be fully able to care entirely
for themselves. The change from the traditional family structure which was able
to care for the sick and elderly to dual income families has increased the need
for facilities that can assist such persons. Unison believes that offering
services at this important level of the continuum of care enables it to maintain
contacts with potential consumers of its long-term and specialty healthcare
services and thus to improve its occupancy levels and profitability.
 
     Improve Payor Quality, Occupancy Levels and Operating Margins.  Unison is
focused on improving its payor quality mix and occupancy levels. The
profitability of caring for private-pay and Medicare patients is generally
higher than that of Medicaid patients. Unison's marketing efforts are focused on
the hospital and medical community in each market to promote higher occupancy
levels and improved payor mix at its long-term care facilities and assisted or
independent living centers.
 
     Unison seeks to improve its profitability by attempting to obtain an
increasing proportion of its revenue from specialized healthcare services which
typically generate higher profit margins than basic long-term nursing care.
Specialty healthcare services are developed in cooperation with and in
accordance with the needs of the local medical community. Specialty programs are
developed by marketing professionals and facility administrators working
directly with local hospital discharge planners and physicians. Management
believes that this approach generally has been well received by local medical
communities, as demonstrated by the recent increases in Unison's quality mix.
 
     Increase Contribution from Ancillary Services.  Unison believes that
opportunities exist to capture ancillary service revenues and operating profits,
both from its own facilities and from non-affiliated facilities. Unison provides
ancillary services to facility residents in response to physician orders. The
major ancillary services include physical, speech, and occupational therapies;
pharmaceuticals; parenteral and enteral nutrition; infusion and respiratory
therapies; and laboratory services. Historically, Unison has provided most of
these services through contracts with third party providers, but it is
increasingly offering such services through its ancillary services companies. In
addition to providing services to its own long-term and specialty healthcare
facilities, each of these ancillary providers offers services to other,
unrelated long-term care providers, adding to Unison's revenue base. See
"-- Acquisitions."
 
     Concentrate Healthcare Facilities in Geographic "Clusters."  Although
Unison's acquisition program has been substantially curtailed for the indefinite
future, Unison has in the past sought to acquire facilities which fit within
existing geographic regions or "clusters," and to enter new markets through
clustered acquisitions. Clustering is intended to attempt to capture local
economies of scale by providing ancillary services, purchasing, marketing,
information systems, risk management, accounting, reimbursement and quality
control to geographically concentrated facilities. The cluster strategy is based
on the belief that clustering facilities will enable Unison to leverage
management across a larger base of client revenue and efficiently monitor
individual facilities, ensuring high quality patient care. Clustering facilities
should also enable Unison to leverage the addition of ancillary services over a
larger patient base. The Signature Acquisition, which included the acquisition
of five long-term care facilities in the Denver, Colorado area, is an example of
this strategy.
 
     Provide High Quality Care on an Economic Basis.  Unison seeks to position
each of its facilities as a high quality provider in its respective market, but
to do so on a cost-effective basis. Unison believes it provides quality patient
care and is generally successful in maintaining regulatory compliance. This is
illustrated by the reduction in the number of deficiencies cited in governmental
reviews from August 1995 through July 1996 of the 28 operating facilities Unison
acquired in the BritWill Acquisition. Under Unison management, these facilities
averaged a 43% reduction in the number of deficiencies cited after the first
review, a 75% reduction as of October 1, 1996, and a 93% reduction as of May 20,
1997 as compared with the number of deficiencies cited prior to the acquisition.
At the time of the Signature Acquisition all of Unison's facilities had
implemented Unison's quality improvement program.
 
                                        3
<PAGE>   6
 
     Contain Costs.  Unison believes that the increasing penetration of managed
care will intensify the focus on containing costs. Unison establishes detailed
operating budgets at its facilities and the administrator is responsible for
adherence to these budgets. Monitoring the performance of these budgets at the
facility level is necessary to enable Unison to control operating costs.
 
PATIENT SERVICES
 
     Unison's objective is to provide long-term care services across the
continuum of care from independent living services to subacute care services,
all of which are provided primarily to the elderly. Independent living
facilities that offer assistance with activities of daily living are appropriate
for those among the elderly requiring limited healthcare services. Assisted
living facilities are appropriate for residents in need of greater assistance,
but who do not need the services of a skilled nursing facility. The services of
an assisted living facility are appropriate where nutritional, housekeeping, and
only limited medical services are needed. For the elderly and other patients in
need of specialized support, rehabilitation, nutrition, respiratory therapies
and other treatments, skilled nursing care is often required. The innovation of
specialized subacute services within skilled nursing facilities also responds to
the needs of patients requiring intense and specialized treatment and
rehabilitation therapy services immediately after hospitalization.
 
     Assisted and Independent Living Services.  Services and facilities at
assisted and independent living centers include central dining facilities,
limited nursing services, recreational areas, social programs, housekeeping,
laundry and maintenance service, emergency call systems, special features for
handicapped persons and transportation to shopping and special events. These
facilities provide fewer nursing and medical services than are provided at
Unison's long-term care facilities. Unison believes that the availability of
healthcare services and assistance with the activities of daily living are
significant reasons that residents move to an assisted or independent living
center.
 
     Skilled Nursing Care Services.  Unison's skilled nursing facilities provide
basic healthcare services, including room and board, dietary services,
recreational therapy, social services, housekeeping, laundry and nursing
services. In addition, the long-term care facilities dispense medications and
otherwise follow care plans prescribed by the patient's physician. Unison's
long-term care facilities are licensed by state licensing agencies and are
extensively regulated at the federal, state, and local level. Unison also
provides for the delivery of specialty medical services at its facilities.
 
     Subacute and Other Specialty Care Services.  Unison's facilities currently
offer a wide variety of subacute and specialty healthcare services, which may
include (i) intensive rehabilitation services; (ii) wound management; (iii)
enteral and parenteral feeding programs; (iv) intravenous drug administration,
including chemotherapy; (v) respiratory therapy; (vi) orthopaedic rehabilitation
and (vii) other specialized subacute services. Subacute and other specialty care
is a major component of Unison's strategy. Unison provides care to certain types
of patients with specialized needs through designated units such as those for
the treatment of Alzheimer's disease, AIDS and other conditions. These units are
located in specially designed sections within selected facilities and are
staffed by specially trained personnel. As of March 31, 1997 Unison operated 246
licensed beds in Alzheimer's units, 36 beds in AIDS units and more than 200 beds
in other specialty units, including wound management, hospice care,
rehabilitation services and respiratory therapy. In addition to providing care
tailored to the unique needs of patients within these units, these services
include education and support to the patients' families. These units generally
receive higher levels of reimbursement. The daily cost to patients for Unison's
specialty services are generally significantly less than the cost charged for
similar services by acute care hospitals.
 
     Ancillary Services.  Unison provides ancillary services to the residents of
skilled nursing facilities in response to physician orders. The major ancillary
services include physical, speech and occupational therapies, pharmaceuticals,
parenteral and enteral nutrition, infusion and respiratory therapies and
laboratory services.
 
                                        4
<PAGE>   7
 
PAYOR MIX
 
     Medicare, Medicaid, and other payor sources each pay at different rates,
which are customarily expressed as rates per patient day. Changes in the mix of
a facility's patient population among Medicaid, Medicare, and private pay can
significantly affect the profitability of the facility's operations because of
the widely varying rates of payment between these various payors. As the
following table indicates, Unison has achieved growth in its quality mix of
payor sources throughout the periods presented.
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------    PRO FORMA
               SOURCE OF REVENUES                 1993     1994     1995     1996      1996(1)
               ------------------                 -----    -----    -----    -----    ---------
<S>                                               <C>      <C>      <C>      <C>      <C>
Medicare........................................    3.4%     9.1%    26.9%    29.5%      30.2%
Private and other...............................   13.8     32.4     17.2     17.0       18.1
                                                  -----    -----    -----    -----      -----
     Quality mix................................   17.2     41.5     44.1     46.5       48.3
Medicaid........................................   82.8     58.5     55.9     53.5       51.7
                                                  -----    -----    -----    -----      -----
       Total....................................  100.0%   100.0%   100.0%   100.0%     100.0%
                                                  =====    =====    =====    =====      =====
</TABLE>
 
---------------
(1) Adjusts for the Completed Acquisitions and the Dispositions as though such
    transactions occurred as of the first day of the period presented.
 
ACQUISITIONS
 
   
     On October 31, 1996, Unison acquired Signature. At the date of acquisition,
Signature operated 11 long-term care facilities with 1,043 licensed beds and two
assisted living facilities with 124 units and had current assets of $9.7
million, land, buildings and improvements with a net book value of $16.6
million, other assets with a net book value of $3.6 million, long-term debt of
$18.5 million and other liabilities of $9.4 million. Signature provides
rehabilitation services through its related company, RehabWest. Signature's
long-term care facilities generally offer the same types of services as are
provided by Unison's other facilities.
    
 
     At closing, the shareholders of Signature and RehabWest received (a) cash
equal to approximately $42.4 million (minus the amount paid by Unison to redeem
outstanding options for shares of Signature Health Care), (b) 1,509,434 shares
of Unison Common Stock, and (c) promissory notes of Unison in the aggregate
principal amount of $1.1 million bearing interest at the rate of 8% per annum
and maturing one to two years after the closing, which have been deposited into
escrow to secure Signature's representations and warranties. In accordance with
the adjustment provisions of the Signature merger agreements relating to their
stockholders' equity at closing, in March 1997 the former shareholders of
Signature received an additional $2.5 million in convertible promissory notes
and shares of Unison common stock.
 
     On October 31, 1996, Unison also acquired Ampro in a pooling of interests
transaction. The consideration paid for Ampro included: (a) cash of
approximately $237,000, (b) 540,000 shares of Unison Common Stock, and (c) a
promissory note in the amount of $250,000, bearing interest at the rate of 10%
per annum and due in installments through April 15, 1998, which has since been
prepaid. The cash and promissory note eliminated the interest of a single
shareholder and represented less than 10% of the transaction value. Ampro
operates a medical laboratory business with laboratories in Texas, Missouri and
Tennessee which, at March 31, 1997, provided testing services for approximately
275 nursing homes and other healthcare facilities.
 
     Unison's most significant acquisition prior to 1996 was the purchase of
BritWill on August 10, 1995. At the date of acquisition, BritWill operated 28
facilities in Indiana and Texas and had total assets and liabilities of
approximately $24.7 million and $23.0 million, respectively. The consideration
for the purchase included a debenture that was fully converted into 561,815
shares of Unison Common Stock and a combination of promissory notes and lump sum
contingent payment obligations totaling $25.0 million, as well as certain
monthly contingent payment obligations. Unison's only remaining obligation
related to the BritWill Acquisition is a $9.8 million contingent obligation (the
"Additional Payment Obligation"). The Additional Payment Obligation is payable
in monthly installments of $98,854 to $166,376 which includes interest at 12.0%
to 14.0% with a balloon payment of $8.1 million due August 9, 2000. Because
these payments are contingent
 
                                        5
<PAGE>   8
 
upon revenue targets that, in light of recent acquisitions are likely to be
achieved, the Additional Payment Obligation is recorded as long-term debt and an
increase in lease operating rights in the consolidated balance sheet. In the
event of a sale by Unison prior to August 9, 2000 of debt or equity securities
exceeding $10.0 million, the unamortized balance of the Additional Payment
Obligation will be due in full. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Executive Compensation -- Compensation Committee Interlocks and
Insider Participation in Compensation Decisions."
 
     The Company has also acquired and developed several other ancillary
businesses in recent years. In May 1995, Unison established Quest to develop an
institutional pharmacy business. Quest has acquired the pharmacy operations of
Med-Shop Pharmacy in Gilmer, Texas, Indiana Prescription Lab, an institutional
pharmacy in Bloomington, Indiana, and Pharmcare, an institutional pharmacy in
Longview, Texas. As of March 31, 1997, Quest provided institutional pharmacy
services to 84 long-term care facilities, including 31 Unison facilities and 53
facilities operated by others. Since March 1995 the Company has also operated a
Medicare Part B billing and supply company that specializes in wound management
and enteral and parenteral feeding services. On February 1, 1996, Unison
acquired Sunbelt to provide therapy services. At the date of acquisition,
Sunbelt had assets of approximately $1.2 million and liabilities of
approximately $1.0 million. Unison purchased 90% of the outstanding common stock
of Sunbelt for $3.6 million, including $800,000 of cash and convertible notes
and debentures in the aggregate amount of $2.8 million. In November 1996, Unison
purchased the remaining 10% of Sunbelt's stock for $1.4 million, comprised of
promissory notes totaling $1.2 million and 27,942 shares of Unison common stock,
plus a guaranteed payment of $709,000. Additional contingent payments of up to
$1.4 million will be due if specified income targets are achieved. As of March
31, 1997, Sunbelt (including RehabWest) provided therapy services to 94
facilities, including 35 Unison facilities and 59 facilities operated by others.
 
     The following table shows the growth in the number of long-term care
facilities and independent and assisted living facilities leased or managed by
Unison (excluding two closed facilities) as of the dates indicated together with
the related number of licensed beds or living units.
 
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                             ------------------------------------------------------------------------------------
                                                    1994                 1995                 1996           1996 AS ADJUSTED(1)
                                             ------------------   ------------------   ------------------   ---------------------
                  STATE                      FACILITIES   BEDS    FACILITIES   BEDS    FACILITIES   BEDS    FACILITIES      BEDS
                  -----                      ----------   -----   ----------   -----   ----------   -----   ----------      -----
<S>                                          <C>          <C>     <C>          <C>     <C>          <C>     <C>             <C>
Long-term care facilities:
  Florida.................................        2         210        1         150        1         150        1            150
  Indiana.................................        1         162       12       1,081       12       1,073        9            804
  Michigan................................        1          71        2         307        2         307        2            307
  Nevada..................................        1          99        1          99        1          99        1             99
  Pennsylvania............................        1          74        1          74        1          74        1             74
  Tennessee...............................        1          89        2         176        1          89        1             89
  Alabama.................................        3         337        2         189        2         189        2            189
  Arizona.................................        1         115        1         115        7         685        7            685
  Idaho...................................        2         183        2         183        2         183        2            183
  Kansas..................................        1          59        3         208        2         106        2            106
  Washington..............................        2         222        2         222        2         187        2            187
  Texas...................................       --          --       16       1,825       16       1,837       13          1,469
  Colorado................................       --          --       --          --        5         476        5            476
                                                 --       -----       --       -----       --       -----       --          -----
                                                 16       1,621       45       4,629       54       5,455       48          4,818
                                                 --       -----       --       -----       --       -----       --          -----
Assisted and independent living
  facilities:
  Pennsylvania............................        1          30        1          30        1          32        1             32
  Alabama.................................        3          74        3          82        3          82        3             82
  Tennessee...............................       --          --        1         117       --          --       --             --
  Idaho...................................       --          --       --          --        1          60        1             60
  Indiana.................................       --          --       --          --        1          22        1             22
  Arizona.................................       --          --       --          --        2         124        2            124
                                                 --       -----       --       -----       --       -----       --          -----
                                                  4         104        5         229        8         320        8            320
                                                 --       -----       --       -----       --       -----       --          -----
    Total.................................       20       1,725       50       4,858       62       5,775       56          5,138
                                                 ==       =====       ==       =====       ==       =====       ==          =====
</TABLE>
 
                                        6
<PAGE>   9
 
---------------
(1) Excludes three facilities in Indiana and three facilities in Texas which
    were held for disposition at December 31, 1996.
 
OPERATIONS
 
     Unison is responsible for the day-to-day operation of both operated (owned
or leased) and managed facilities. These responsibilities include recruiting,
hiring and training all nursing and other personnel, and directing the full
scope of patient care activities that are necessary to operate the facilities.
In general, these activities include direct patient care, nursing services, food
service, social services and resident activity programs, housekeeping and
maintenance, business office services including billing and accounts receivable
management, accounts payable, accounting and finance, quality assurance, and
regulatory compliance at each facility.
 
     Organization.  Unison believes that long-term and specialty care facilities
should be managed on a decentralized basis. This approach is intended to place
direct decision making as close to the bedside as possible so that facilities
will be able to respond to the specific needs of each medical community. In
order to accomplish this, Unison has created five regions, each of which is
supervised by a regional director. The regional director is supported by a
clinical operations specialist, a financial consultant, a regional director of
marketing, and assistant regional managers and clerical personnel, all of whom
are employed by Unison. Daily operations of each leased and managed facility are
supervised by an on-site licensed administrator. The administrator of each
facility is supported by other professional personnel, including a medical
director, who assists in the medical management of the facility, a director of
marketing who directs the sales and marketing efforts of the facility and a
director of nursing who supervises a staff of registered nurses, licensed
practical nurses and nurses aides. Other personnel include dietary staff,
activities and social service staff, housekeeping, laundry and maintenance staff
and a business office staff.
 
     Quality Management.  Unison maintains a quality improvement program that is
focused on important aspects of care and critical key indicators that measure
the quality of care provided to its patients. The program is an internal
facility process focused on involvement by direct care givers. Reporting is
monitored by Unison's eight registered nurses under the direction of the Senior
Vice President of Clinical Operations. Monthly reports are used to monitor
adherence to the standards of care established by Unison's quality improvement
program. On-site visits are conducted by specially trained healthcare
professionals. The quality improvement program is designed to provide patients
with better care, and thus a higher quality of life.
 
     In addition to its quality improvement program, Unison strives to provide
each of its facilities with resources to deliver the high quality of care Unison
expects. Policy and procedure manuals are maintained by Unison and provided to
each facility. The manuals are updated to include changes in regulatory
requirements and improvements in clinical practices.
 
     The facility administrator at each facility is primarily responsible for
adherence to Unison's standards of practice. Each facility administrator's
incentive compensation is based, in part, on the achievement of specified
quality objectives. Clinical Operations Specialists provide individualized
on-site training to direct care givers. Clinical Operations Specialists also
conduct mock state and federal surveys in advance of scheduled annual surveys.
 
     In recent years Unison entered into certain leases of facilities that have
had regulatory compliance or quality difficulties. Unison has generally achieved
improvements of such facilities. In August 1995, Unison acquired 28 operating
facilities in the BritWill Acquisition. Regulatory records contained 244 total
deficiencies cited at these facilities prior to acquisition. On the first
governmental review conducted after acquisition this number was reduced to 138
deficiencies, a 43% reduction in regulatory noncompliance. Based on subsequent
governmental review, as of October 1, 1996 the number of deficiencies at these
facilities was 61, reflecting a cumulative reduction of 75%. As of May 20, 1997,
the equivalent number of deficiencies is 17. Company-wide, Unison's facilities
had 129 surveys from government agencies during the period from January 1, 1997
through August 1, 1997. The average number of deficiencies cited during these
reviews was four, compared to a national average of 5.7 in the states in which
Unison operates. The Company has reduced substandard quality
 
                                        7
<PAGE>   10
 
of care deficiencies from 5.7% of total surveys in 1996 to 1.2% in 1997,
compared to a national average of 5.3% in 1997 in the states in which Unison
operates.
 
     Marketing.  Unison's marketing efforts are designed to promote higher
occupancy levels and improved payor quality mix. Quality mix has improved from
approximately 41.5% in 1994 to approximately 46.5% in 1996 and, after giving
effect to the Completed Acquisitions and the Dispositions, 48.3% in 1996. Over
the same period and on a same facility basis, average occupancy improved from
72.2% to 78.6%. On an overall basis, average occupancy was 77.0% for 1996, and
after giving effect to the Dispositions, average occupancy for 1996 was 78.9%.
Unison believes that the long-term healthcare and assisted and independent
living industries are driven by local market forces and that patients and
referral sources are generally located in the immediate geographic area of the
facility. Unison's marketing strategy emphasizes the role and performance of the
administrator and director of admissions in marketing and promoting the services
offered by Unison facilities to each local community.
 
     Unison's marketing program is focused on market analysis, competitive
services, sales training, and accountability and tracking systems. Quantitative
and systematic reporting and analysis is monitored by the regional directors of
marketing, under the supervision of the Vice President of Marketing. Market
specific information, along with weekly and monthly reporting, is used to
monitor adherence to the standards established by Unison.
 
     The hub of this strategy is the local facility administrator and director
of admissions and marketing. These individuals, under the direction of the
corporate and regional marketing staff, are responsible for establishing and
building relationships with various referral sources including general and
specialty physicians, hospital administration and discharge planners, insurance
case managers and other local community organizations. Unison seeks to use their
input in conjunction with demographic and medical data analysis to identify
specific market needs, and to introduce new services where appropriate. The
facilities also are involved in community affairs in order to maintain a public
awareness of their services.
 
DESCRIPTION OF MANAGEMENT SERVICES AND AGREEMENTS
 
     As of May 1, 1997, Unison manages two long-term care facilities pursuant to
agreements under which Unison's responsibilities include recruiting, hiring and
training all nursing and other personnel on behalf of the owner and providing
quality assurance, resident care, dietary care, marketing, accounting, and data
processing services. Services performed at the headquarters level include group
contract purchasing, employee training and development, quality assurance
oversight, human resource management, assistance with third-party reimbursement,
financial and accounting functions, cash management, system design and
development and marketing support.
 
     Unison receives a management fee for the management of long-term care
facilities based on a percentage of net revenues of each facility. Other than
certain corporate and regional overhead costs, the costs for services provided
at a facility are the facility owner's obligation. The facility owner also is
obligated to pay for all required capital expenditures. Unison is not required
to advance funds to the owners of the facilities it manages.
 
COMPETITION
 
     Unison's facilities compete on a local and regional basis with general
acute care hospitals, skilled nursing facilities, rehabilitation hospitals,
long-term care hospitals, assisted living facilities, home care providers and
other subacute and specialty care providers. Many of these companies have
greater financial and other resources than Unison and some are nonprofit or
charitable organizations. No assurance can be given that Unison will have the
resources to compete successfully with such companies. In addition, cost
containment efforts, which encourage more efficient utilization of general acute
care hospital services, have resulted in decreased hospital occupancy in recent
years. As a result, a significant number of general acute care hospitals have
converted portions of their facilities to other purposes, including various
types of long-term and subacute care. The Company believes that significant
competitive factors include the quality and spectrum of care and services
provided, the reputation of the medical personnel employed, the physical
appearance of the facilities
 
                                        8
<PAGE>   11
 
and, in the case of private-pay patients, the level of charges for services.
Because the Company's facilities compete primarily on a local and regional
basis, rather than on a national basis, the competitive position of the Company
varies from facility to facility. The Company seeks to meet competition in each
locality by improving the quality and types of services provided in and the
appearance of its facilities, by establishing a reputation within the local
medical communities for providing quality care, and by responding appropriately
to regional variations in demographics and preferences. There is no price
competition with respect to Medicare and Medicaid patients because revenues for
services administered to such patients are based on strictly controlled fixed
rates and cost reimbursement principles.
 
     Unison's pharmacy, rehabilitation therapy, laboratory and product supply
businesses compete with national, regional and local pharmacies, therapy
providers, medical reference laboratories and product supply companies, some of
which have significantly greater financial and other resources than Unison. No
assurance can be given that Unison will have the resources to compete
successfully with such companies. Unison believes that the primary factors in
competing for product supply business are the price and quality of the products
offered, that the primary factor in competing for pharmacy and laboratory
businesses is prompt service and the primary factors in competing for
rehabilitation therapy business are quality of service and availability of
competent therapists.
 
     The Company's strategy for its pharmacy services focuses on the expansion
of services beyond dispensing tablet, capsule and liquid medications to include
more intensive and higher margin IV therapy services, antibiotic and hydration
therapies, pain management and chemotherapy. The Company seeks to meet its
competition for pharmacy services by providing prompt, quality service.
 
     The Company competes for rehabilitation therapy business in the local
markets where it provides long-term care services and where its outpatient
clinics are located. Unison seeks to meet the competition in its local markets
by providing quality patient care service and being responsive to the needs of
its patients, healthcare facility customers, referral sources and payors.
 
INSURANCE
 
     Unison carries general liability, comprehensive property damage,
malpractice, workers' compensation directors and officers and other insurance
coverages that management considers adequate for the protection of its assets
and operations. The Company is partially self insured with respect to certain
healthcare benefits and workers' compensation benefits. There can be no
assurance, however, that the coverage limits of such policies will be adequate
or that insurance will continue to be available to Unison on commercially
reasonable terms in the future. A successful claim against Unison in excess of
its insurance coverage could have a material adverse effect on Unison and its
financial condition and results of operations. Claims against Unison, regardless
of their merit or outcome, may also have an adverse effect on Unison's
reputation and business.
 
GOVERNMENT REGULATION
 
     Introduction.  The federal government and all states in which Unison
operates regulate various aspects of Unison's business. All of Unison's skilled
nursing facilities are certified or approved as providers under one or more of
the Medicaid or Medicare programs. To participate in the Medicare or Medicaid
program, each facility must comply with federal participation requirements and
meet additional state licensure requirements. All of these programs are
currently the subject of numerous legislative and regulatory proposals at both
federal and state levels, some of which could adversely affect Unison. Further,
some state Medicaid programs require certification of all beds in a facility,
which may limit the ability of a facility in such states to establish distinct
Part A Medicare units for subacute care. Unison does not currently operate in
any of these states. Long-term care facilities include both skilled nursing
facilities for Medicare and nursing facilities for Medicaid. The Federal Social
Security Act (the "Act") authorizes the Secretary of the Department of Health
and Human Services to execute agreements with state survey agencies to determine
whether skilled nursing facilities meet the federal participation requirements
for Medicare. State survey agencies perform the same survey tasks for nursing
facilities participating or seeking to participate in the Medicaid program. The
results of Medicare and
 
                                        9
<PAGE>   12
 
Medicaid surveys are used by the Healthcare Financing Administration ("HCFA")
and Medicaid state agencies as the basis for decisions to execute, deny or
terminate provider agreements with facilities.
 
     Enforcement Proceedings and Sanctions; Certification Requirements.  Under
the Omnibus Reconciliation Act of 1987 ("OBRA"), HCFA has promulgated survey,
certification and enforcement rules governing skilled nursing facilities and
nursing facilities participating in the Medicare and Medicaid programs. Among
other things, the HCFA rules governing survey and certification of long-term
care facilities define a number of terms used in the survey and certification
process. The rules require states to enact state plans (required by federal law)
to incorporate the provisions of the rules, including the full range of remedies
for nursing facilities subject to the jurisdiction of the state Medicaid agency.
Additional remedies are available.
 
     Unannounced standard surveys must be conducted at least every 15 months
with a state-wide average of 12 months. In addition to the standard survey,
survey agencies have the authority to conduct surveys as frequently as necessary
to determine whether facilities comply with requirements of participation, to
determine whether facilities have achieved correction and to monitor care if
there is a change of ownership or management of a facility. Furthermore, the
state survey agency must review all complaint allegations and conduct a standard
or an abbreviated standard survey to investigate complaints of violations of
regulatory requirements by long-term care facilities if a review of the
complaint shows that a deficiency in one or more of the federal requirements may
have occurred and only a survey will determine whether a deficiency or
deficiencies exist. If a facility has been found to furnish substandard quality
of care, or to have deficiencies requiring "significant improvement," it is
subject to an extended survey. The extended survey is intended to identify
policies and procedures which may have caused a facility to furnish substandard
quality of care.
 
     HCFA's rules allow either HCFA or state agencies to impose one or more
remedies provided under the rules for any particular deficiency. Facilities must
provide a plan of correction for all deficiencies regardless of whether a remedy
is imposed. At a minimum, the following remedies are available: termination of
provider agreement; temporary management; denial of payment for new admissions;
civil money penalties; closure of the facility in emergencies or transfer of
residents or both; and state monitoring. States may also adopt optional
remedies. The rules divide remedies into three categories. Category 1 remedies
include directed plans of correction, state monitoring and directed in-service
training. Category 2 remedies include denial of payment for new admissions;
denial of payment for all individuals (imposed only by HCFA); and civil money
penalties of $50 to $3,000 per day. Category 3 remedies include temporary
management, immediate termination or civil money penalties of $3,050 to $10,000
per day. The rules define situations in which one or more of the penalties must
be imposed.
 
     The HCFA certification, survey and enforcement regulations impose
significant new burdens on long-term care facilities. The regulations may
require state survey agencies to take aggressive enforcement actions. The
breadth of the rules create uncertainty over how the rules will be implemented
and the standards of compliance.
 
   
     Unison believes that its facilities substantially comply with the various
state licensure and Federal certification requirements applicable to them.
However, in the ordinary course of its business, Unison sometimes receives
notices of alleged deficiencies for failure to comply with regulatory
requirements. Unison reviews such notices and attempts to take corrective
action. Unison's facilities sometimes receive notices from state agencies which
result in fines and/or the agencies taking steps to decertify the facilities
from participation in Medicare and Medicaid programs. In one instance, Unison
paid or agreed to pay monetary penalties totaling $134,225 (following reductions
due to waiver of appeal rights) for violations of Medicare regulations and
approximately $16,000 for violations of state regulations, and voluntarily
terminated the participation of that facility in the Medicare program and
transferred residents to other facilities. This instance involved Unison's
Hillside Care Center located in Bonner Springs, Kansas. Hillside is currently
closed and is one of the Disposition Facilities. Also in 1996 the Company
received notices of monetary penalties in the aggregate amount of approximately
$168,000 for violations of Medicare regulations at two of its Texas facilities.
These fines are currently being appealed. The Company received no significant
monetary penalties in 1997.
    
 
     Certificates of Need.  Many states (although not every state in which
Unison operates) have adopted certificate of need or similar health planning
laws which generally require prior state agency approval of
                                       10
<PAGE>   13
 
certain acquisitions, new bed additions or services or capital expenditures. To
the extent that such approvals are required for Unison to expand its operations
or enter new geographic markets, Unison could be adversely affected by its
inability to obtain the necessary approvals and could incur delays and expenses
associated with obtaining such approvals. Currently, the states with certificate
of need requirements in which the Company operates include Washington, Nevada,
Michigan, Pennsylvania and Alabama. In addition, Colorado and Texas have placed
moratoriums on bed additions.
 
     Patient Referral Regulations.  Unison is also subject to federal and state
laws that prohibit direct and indirect payments between healthcare providers
that are intended to induce or encourage the referral of patients to a
particular provider of items or services. Violation of these laws may result in
criminal fines, imprisonment and exclusion from the Medicare and Medicaid
programs. Federal regulations establish certain safe harbors from liability
under this statute. While failure to satisfy all of the criteria for a safe
harbor does not necessarily mean that an arrangement is unlawful, arrangements
that are of the same generic kind as those for which a safe harbor is available
may be subject to scrutiny if they fail to qualify for the appropriate safe
harbor. In addition, under separate statutes, submission of claims for payment
that are deemed to be false or fraudulent, or for items or services that are
"not provided as claimed," may lead to civil monetary penalties, criminal fines
and imprisonment, and/or exclusion from participation in Medicare, Medicaid and
other federally funded state healthcare programs.
 
     Under Medicare conditions of participation and some state licensure laws,
Unison, because of its method of service delivery, is required to contract with
healthcare providers, practitioners and suppliers, including hospitals,
facilities, physicians, pharmacies and medical equipment companies. Some of
these individuals or entities may refer, or be in a position to refer, patients
to Unison, and Unison may refer, or be in a position to refer, patients to
certain of these individuals or entities. The Health Insurance Portability and
Accountability Act ("HR 3103"), which was signed by President Clinton on August
21, 1996, has for the first time established a procedure requiring the Secretary
of the Department of Health and Human Services to issue advisory opinions
concerning some activity punishable under federal healthcare fraud statutes. See
"-- HR 3103". The section concerning advisory opinions did not take effect until
six months after the date of enactment of HR 3103, and will sunset four years
after the date of enactment. To the Company's knowledge, none of its patients
were referred under practices which are in violation of HR 3103. Although Unison
believes its practices are not in violation of these laws, there can be no
assurance that such laws will ultimately be interpreted in a manner consistent
with Unison's practices.
 
     Additional legislation that became effective in stages on January 1, 1992
and January 1, 1995 prohibits physician referrals for certain "designated health
services" rendered to Medicare and Medicaid patients by a provider in which the
referring physician has an ownership interest or other financial relationship.
Various exceptions are available for financial arrangements that would otherwise
prohibit physician self-referrals. Many states have also enacted physician
self-referral laws that apply whether or not Medicare or Medicaid payments are
involved. Similar penalties, including fines and loss of licensure or
eligibility to participate in government reimbursement programs, apply to
violations of these state self-referral laws. These self-referral laws could
require Unison to modify its contractual arrangements in order to satisfy an
available exception, or limit the ability of physicians with whom Unison has
compensation arrangements to refer patients to Unison.
 
     The nursing home industry has been a target of focus by government
regulators seeking to discover and prosecute claims of healthcare fraud and from
time to time Unison has received inquiries related to such claims. Medicare
intermediaries and carriers have been given new instructions from HCFA
concerning investigating and referring for prosecution suspected instances of
Medicare and Medicaid fraud and abuse. In May 1996, the federal government
announced the first year results of its "Operation Restore Trust" initiative.
This initiative is a combined federal and state effort designed to combat
healthcare fraud, waste and abuse and specifically targets the Medicare and
Medicaid programs in connection with services of home health agencies, nursing
homes and durable medical equipment suppliers. These entities are targeted
because they account for the fastest growing cost areas in the Medicare and
Medicaid programs. Operation Restore Trust originally focused on five states:
California, Florida, Illinois, New York and Texas. It is now extended to all
states and is concerned with detection of suspected nursing facility fraud and
abuse. This effort is focused on problems with
 
                                       11
<PAGE>   14
 
claims for services not rendered or not provided as claimed and claims falsified
to circumvent coverage limitations on medical supplies. The Company expects
efforts of this sort to continue.
 
     Payment For Services.  Unison derives a significant portion of its net
revenues, directly or indirectly, from the Medicare and Medicaid programs. These
programs are subject to statutory and regulatory changes, retroactive and
prospective rate adjustments, administrative rulings and funding restrictions,
all of which could limit or reduce reimbursement for Unison's services. Any
significant decrease in Medicare or Medicaid reimbursement amounts could have a
material adverse effect on Unison. Unison also obtains payment from private
insurers, including managed care organizations and private pay patients.
Unison's facilities also have contracts with private payors, including health
maintenance organizations and other managed care organizations, to provide
certain healthcare services to cover patients for a set per diem payment for
each patient. There can be no assurance that the rates paid to Unison by these
payors will remain at current levels or be adequate to reimburse Unison for the
cost of providing services to covered beneficiaries. In addition, cost increases
due to inflation without corresponding increases in reimbursement could
adversely affect Unison's business.
 
     The Medicare Program.  The Medicare Program is a federally funded and
administered health insurance program for individuals age 65 and over or who are
disabled as defined by the Social Security Administration. Medicare covers and
pays for rehabilitation therapy services furnished in facilities in various
ways. Medicare reimburses the skilled nursing facility based on a reasonable
cost standard. For rehabilitation services provided directly, specific
guidelines exist for evaluating the reasonable cost of physical therapy,
occupational therapy and speech language pathology services. Medicare applies
salary equivalency guidelines in determining the reasonable cost of physical
therapy and respiratory services, which is the cost that would be incurred if
the therapist were employed by a nursing facility, plus an amount designed to
compensate the provider for certain general and administrative overhead costs.
Medicare pays for occupational therapy and speech language pathology services on
a reasonable cost basis, subject to the so-called "prudent buyer" rule for
evaluating the reasonableness of the costs. Unison's gross margins for services
reimbursed under the salary equivalency guidelines are significantly less than
services reimbursed under the "prudent buyer" rule.
 
   
     HCFA recently promulgated rules applying salary equivalency guidelines to
certain speech and occupational therapy services, while updating physical and
respiratory therapy guidelines. The new rates for occupational therapy and
speech language pathology services are lower than the Medicare reimbursement
rates currently received by Unison for these services. The imposition of salary
equivalency guidelines on speech language pathology and occupational therapy
services could significantly impact Unison's margins.
    
 
     The Medicare program covers patients requiring daily skilled nursing and
other rehabilitation care following a minimum three-day stay in a general acute
care hospital, but does not cover patients requiring only intermediate or
custodial levels of care. With certain exceptions, payment for skilled nursing
facility services is made prospectively with each facility receiving an interim
payment during the year for its expected reimbursable costs. The interim payment
is later adjusted to reflect actual allowable direct and indirect costs of
services based on the submission of an annual cost report at year end. Each
facility is also subject to limits on reimbursement for routine costs.
Exceptions to these limits are available for, among other things, the provision
of atypical services. Due in part to the provision of subacute services,
Unison's costs for care delivered to Medicare patients in certain of its
long-term and specialty healthcare facilities have exceeded the routine cost
limits. Unison's failure to recover excess costs or to obtain such exceptions
could adversely affect Unison's results of operations.
 
     The Medicaid Program.  All of Unison's nursing facilities are certified to
participate in applicable state Medicaid programs. Medicaid is a joint
federal-state medical assistance program for individuals who meet certain income
and resource standards. Facilities participating in the Medicaid program are
required to meet state licensing requirements to be certified in accordance with
state and federal regulations and to enter into contracts with the state agency
to provide services at rates established by the state. Current federal law
requires Medicaid programs to pay rates that are reasonable and adequate to meet
the costs which must be incurred by a nursing facility in order to provide care
and services in compliance with applicable standards. There can be no assurance
that this provision will survive the current legislative efforts to revise
Medicaid.
 
                                       12
<PAGE>   15
 
Beyond this general mandate, however, states have considerable flexibility in
establishing their Medicaid reimbursement systems, and as a result, the payment
methodologies and rates vary significantly from state to state. All of the
states in which Unison operates Medicaid-certified facilities use a cost-based
reimbursement system under which reimbursement rates are determined by the state
from cost reports filed annually by each facility, on a prospective or
retrospective basis. Recently, several states, including Texas and Pennsylvania,
have adopted case-mix prospective payment systems, pursuant to which payment
levels increase based on a patient's acuity level and need for services.
Reimbursable costs normally include the costs of providing healthcare services
to patients, administrative and general costs, and the costs of property and
equipment. Not all costs incurred are reimbursed, however, because of cost
ceilings applicable to both operating and fixed costs. Some state Medicaid
programs include an incentive allowance for providers whose costs are less than
the ceilings and who meet other requirements. In addition, certain Medicaid
payments are subject to relatively long collection cycles and payment delays due
to budget shortfalls in state Medicaid programs.
 
     Medicaid reimbursement regulations for Indiana nursing facilities have been
revised three times since August 1, 1994. The first set of revised regulations
(known as "Rule 14") replaced the Rule 4.1 prospective payment system which had
existed since 1983. Under Rule 4.1, actual rate increases after the base period
were generally limited to approximately 3.0% annually and facility operators
were permitted to bill separately for certain ancillary therapy services and
non-routine medical supplies.
 
     With the adoption of Rule 14, the Indiana reimbursement system changed from
a true prospective payment system to a modified cost-based system. Base rates
are now determined by actual costs in the base period subject to various line
item limits. Rates for subsequent years are set at the lower of costs from the
prior year or rates from the prior year inflated by the HCFA Skilled Nursing
Facility Market Basket Index, subject to maximum allowable limits and various
line item limits. This system has, over the last decade, resulted in an increase
in annual reimbursement rates of approximately 6%. Rule 14 also precludes
facility operators from billing separately for certain ancillary therapy
services and non-routine medical supplies. The overall impact of Rule 14 reduced
total Medicaid nursing facility payments in the initial year of adoption by $10
million statewide out of total prior year expenses of $720 million. The
elimination of separate billing for supplies and therapies had a significant
effect on certain facility operators who had relied heavily on this mechanism to
underwrite operating losses from per diem rates. Rule 14.1, Rule 14.2 and
legislation effective July 1, 1995 have made minor amendments which have
generally increased certain line item limits. The implementation of Rule 14 has
not had a material adverse impact on Unison's results of operations.
 
     HR 3103.  On August 21, 1996, President Clinton signed HR 3103, which
contains a variety of significant healthcare fraud and abuse provisions,
including: creation of a coordinated federal healthcare fraud and abuse program;
establishment of a Medicare integrity program; expansion of current healthcare
fraud and abuse sanctions; creation of a healthcare fraud criminal sanction;
creation of a criminal penalty for fraudulent disposition of assets in order to
obtain Medicaid benefits; and expansion of the authority to impose, and
increasing the amount of, civil monetary penalties.
 
     Pharmacy.  Pharmacists and those providing pharmacy services in the United
States are regulated by state statutes and the rules and regulations of state
boards of pharmacy. Currently, Unison operates pharmacies only in Texas and
Indiana. As required by Texas and Indiana law, Unison and its pharmacists are
licensed as a retail pharmacy and as pharmacists, respectively. In addition,
both state and federal regulators prohibit the dispensing of certain drugs or
medicines other than pursuant to a prescription written by a licensed
practitioner. In order to implement these restrictions, regulations impose
strict recordkeeping requirements with respect to the handling and dispensing of
controlled substances, small quantities of which are maintained in Unison's
pharmacy for use in filling prescriptions. These requirements also impose
significant recordkeeping obligations upon Unison and its pharmacists. Unison is
subject to regular audits by governmental authorities to monitor compliance with
recordkeeping and other requirements imposed by law and regulation. Penalties
for failure to comply with applicable regulations can range from imposition of
fines to the suspension or revocation of the license of the pharmacy, one or
more pharmacists, or both. As of March 31, 1997 Unison provided pharmacy
services to 14 Company-affiliated, and 42 non-affiliated skilled nursing
facilities in East Texas, and nine Unison-affiliated and eleven non-affiliated
skilled nursing facilities in Indiana (including the Disposition
 
                                       13
<PAGE>   16
 
Facilities), and eight other Unison-affiliated skilled nursing facilities in
Arizona, Colorado, Washington and Idaho.
 
     Health Care Reform.  The Clinton administration and various members of
Congress have made a number of legislative proposals to reform the healthcare
system. Congress is also considering proposals to significantly reduce Medicare
and Medicaid spending, either as a part of efforts to reduce the budget or as a
separate initiative. In addition, some of the states in which Unison operates
are considering or implementing various healthcare reform proposals. These
proposals could limit the types of services or number of providers available to
Medicaid beneficiaries. Unison anticipates that Congress and state legislatures
will continue to review and assess healthcare reform and budget reduction. Talks
in Congress have reached a stalemate with regard to the type and extent of
legislative reform of Medicare and Medicaid programs. Due to uncertainties
regarding the ultimate features of reform or budget initiatives and their
enactment and implementation, Unison cannot predict which, if any, reform
proposals will be adopted, when they may be adopted or what impact they may have
on Unison. No assurance can be given that such measures will not have a material
adverse effect on Unison.
 
EMPLOYEES
 
     As of May 1, 1997, the Company employed approximately 4,600 full time
equivalent employees. Unison has collective bargaining agreements covering
approximately 500 of its full time equivalent employees. Unison believes that
its overall relations with its employees are good.
 
ITEM 2.  PROPERTIES
 
PROPERTIES
 
     The following table summarizes certain information regarding the long-term
care facilities and assisted and independent living centers operated by Unison
as of March 31, 1997. Except as indicated, all of the facilities are leased.
 
                                       14
<PAGE>   17
 
     The following table lists, by state, the nursing facilities operated by the
Company as of March 31, 1997.
 
<TABLE>
<CAPTION>
                                                         LICENSED                         MANAGED FOR
                                               NUMBER      BEDS      OWNED    LEASED    THIRD PARTIES(1)
                                               ------    --------    -----    ------    ----------------
<S>                                            <C>       <C>         <C>      <C>       <C>
Alabama......................................     2          189       --         2             --
Arizona......................................     7          685        3         4             --
Colorado.....................................     5          473        3         2             --
Idaho........................................     2          183       --         2             --
Indiana(2)...................................    12        1,074       --        12             --
Kansas.......................................     2          106       --         2             --
Michigan.....................................     2          307       --         1              1
Nevada.......................................     1           99       --         1             --
Pennsylvania.................................     1           74       --         1             --
Tennessee....................................     1           89       --        --              1
Texas(3).....................................    13        1,474       --        13             --
Washington...................................     2          187       --         2             --
                                                           -----      ---     -----            ---
                                                 --
Number of nursing facilities.................                           6        42              2
                                                 50
                                                                      ===     =====            ===
                                                 ==
Number of licensed beds......................              4,940      480     4,300            160
                                                           =====      ===     =====            ===
</TABLE>
 
---------------
(1) Excludes two facilities with an aggregate of 222 licensed beds for which
    Unison provides reduced-scope management services and receives management
    fees averaging 3.0% of revenues.
 
(2) Includes three facilities with an aggregate of 269 licensed beds which are
    held for disposition.
 
(3) On March 1, 1997, the company subleased three facilities in Texas with an
    aggregate of 368 licensed beds. The company also terminated the management
    contract for a facility in Florida with 150 licensed beds.
 
     The following table lists, by state, the independent living and assisted
living facilities operated by the Company as of March 31, 1997. All of the
facilities are leased.
 
<TABLE>
<CAPTION>
                                                                      NUMBER     UNITS
                                                                      ------     -----
        <S>                                                           <C>        <C>
        Alabama.....................................................     3         80
        Arizona.....................................................     2        124
        Idaho.......................................................     1         60
        Indiana.....................................................     1         19
        Pennsylvania................................................     1         32
                                                                                  ---
                                                                         -
                                                                                  315
                                                                         8
                                                                                  ===
                                                                         =
</TABLE>
 
     Unison leases approximately 23,000 square feet of office space in
Scottsdale, Arizona and Denver, Colorado. The Scottsdale office houses the
executive offices of Unison, and the lease for that space expires in the year
2004. Unison maintains regional offices in Lakewood, Colorado and Indianapolis,
Indiana. These regional offices are either in small office suites or in homes of
the regional executives. Quest Pharmacies, Inc. ("Quest") leases approximately
3,600 square feet of commercial office space in Longview, Texas for its pharmacy
operations and approximately 2,000 feet of office space in Bloomington, Indiana
for its Indiana pharmacy. Sunbelt, through the four therapy companies, leases an
aggregate of approximately 38,000 square feet of space for outpatient clinics
and fitness centers in Mississippi and Alabama. Ampro leases an aggregate of
approximately 7,700 square feet for office and laboratory space in Texas and
Tennessee and owns one building with approximately 4,000 square feet of space in
Missouri. Lease terms on most of the office, pharmacy, laboratory and therapy
space range from one to five years. Management believes that Unison's leased
properties are adequate for its present needs and that suitable additional or
replacement space will be available as required.
 
                                       15
<PAGE>   18
 
     Unison leases 50 long-term and specialty healthcare facilities and assisted
or independent living centers. Unison's leases typically are triple net
obligations, have initial terms of 5-10 years with renewal options for up to 15
to 20 years and are generally classified as operating leases within the meaning
of Statement of Financial Accounting Standards No. 13. Unison's leases typically
provide for automatic rent increases or repricing. Unison typically grants its
lessor a security interest in Unison's personal property at the leased facility.
Unison's leases are typically entered into by its subsidiaries and guaranteed by
Unison. Some of the leases require Unison to maintain a minimum net worth,
expend specified sums per bed for capital expenditures, maintain certain current
ratios and coverage ratios and prohibit Unison from operating any additional
facilities within a certain radius of the leased facility. In addition, Unison
is generally required to maintain comprehensive insurance covering the
facilities it leases as well as personal and real property damage insurance and
professional malpractice insurance. Failure to pay rent within a specified time
period constitutes a default under each lease agreement, which default, if
uncured, permits the facility's lessor to terminate the lease. In all cases,
Unison's interest in the premises is subordinated to that of the lessor's
mortgage lenders.
 
     Unison's most significant lessors are Omega Healthcare Investors, Inc.
("Omega") from which Unison leases 14 facilities, American Health Properties
from which Unison leases six facilities and BritWill Investments-Texas, Ltd.
("BritWill Texas") from which Unison leases six facilities. The leases typically
include cross default provisions. Covenants in the Omega leases require
maintenance of specified operating ratios, levels of working capital and net
worth. As of December 31, 1996, Unison was not in compliance with these
covenants. Omega has agreed to waive these requirements as of December 31, 1996.
Unison is in the process of renegotiating the Omega leases to provide for a
single lease of all Omega properties and to restructure the associated
covenants.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     Unison is, and may in the future be, party to litigation arising in the
ordinary course of its business. It is also routinely subject to surveys and
investigations by regulators and payors. There can be no assurance that Unison's
insurance coverage will be adequate to cover all liabilities occurring by reason
of such claims or investigations or that any such matters that are not covered
by insurance will not have an adverse effect on Unison's business.
 
     Unison and certain of its current and former directors and officers are
named as defendants in several purported class action complaints following
Unison's announcement in March 1997 that the Company expected to restate its
financial statements for the nine-month period ended September 30, 1996. To
date, the following actions have been filed in federal district court in
Phoenix, Arizona:
 
        Martin Grossman FBO Martin Grossman Profit Sharing Plan, and Alan S.
        Fellheimer v. Unison HealthCare Corporation, Jerry M. Walker, Craig R.
        Clark and Paul J. Contris, Case No. CIV 97-0583.
 
        Leonard Goldstein and Ronne Goldstein v. Unison HealthCare Corporation,
        Jerry M. Walker, Craig R. Clark and Paul J. Contris, Case No. CIV
        97-0584.
 
        Toni Kaasbell v. Unison HealthCare Corporation, Craig R. Clark and Paul
        J. Contras [sic], Case No. CIV 97-0602.
 
        Joseph Grimes v. Unison HealthCare Corporation, Jerry M. Walker, Craig
        R. Clark and Paul J. Contris, Case No. CIV 97-0603.
 
        Amothy Corp. v. Unison HealthCare Corporation, Bruce H. Whitehead,
        Phillip R. Rollins, Jerry M. Walker, Craig R. Clark and Paul J. Contris,
        Case No. CIV 97-0825.
 
        Karl E. Falkenstein v. Unison HealthCare Corporation, Bruce H.
        Whitehead, Phillip R. Rollins, Jerry M. Walker, Craig R. Clark and Paul
        J. Contris, Case No. CIV 97-1017.
 
        Dr. Stanley Levine as Trustee for Lakeside Urology Limited Employee
        Profit Sharing Trust and Lakeside Urology Limited Employee Pension Plan
        v. Unison HealthCare Corporation, Jerry M. Walker, Craig R. Clark and
        Paul J. Contris, Case. No. CIV 97-1412.
 
                                       16
<PAGE>   19
 
     The purported class periods asserted in these actions vary, with the
broadest such period beginning December 18, 1995 (when Unison commenced the
initial public offering of its stock (the "IPO")) and ending March 11, 1997
(when Unison announced the need for a restatement). The complaints in all these
actions allege violations of Sections 10 and 20 of the Exchange Act and Rule
10b-5 thereunder in that the defendants allegedly knew, or were reckless in not
knowing, that Unison's results for the first three quarters of 1996 were
materially overstated or misrepresented the capability of Unison's internal
accounting system to reliably record and reflect its financial condition.
Amended complaints in two of these actions (Grossman et al. v. Unison HealthCare
Corporation et al. and Goldstein et al. v. Unison HealthCare Corporation et al.)
also allege violations of Sections 11 and 15 of the Securities Act in that the
registration statement covering, and the prospectus used in connection with the
stock sold in, the IPO allegedly misleadingly touted Unison's "growth strategy"
and ability to control costs while failing to disclose inadequacies in its
accounting system. Two actions (Amothy Corp. v. Unison HealthCare Corporation et
al. and Falkenstein v. Unison HealthCare Corporation et al.) also allege that
the conduct allegedly giving rise to the alleged Exchange Act violations also
violated the defendants' state law fiduciary duties as directors and officers.
The individual defendants include Jerry M. Walker, Craig R. Clark and Paul J.
Contris, at the time of their resignations in April 1997, the President and
Chief Executive Officer, Executive Vice President and Chief Financial Officer
and Executive Vice President-Acquisitions and Development, respectively, of the
Company, and Bruce H. Whitehead and Phillip R. Rollins, currently Chairman of
the Board and Executive Vice President and Chief Operating Officer,
respectively, of the Company. The plaintiffs in these purported class actions
seek compensatory damages in unspecified amounts plus interest, attorneys' fees
and costs.
 
     In addition, an action styled Jeffrey D. VanDyke v. Cruttenden Roth, Inc.,
Wheat First Butcher Singer, Bruce H. Whitehead, Unison HealthCare Corp., John T.
Lynch, Jr., Trouver Capital Partners, L.P., Jerry M. Walker, Phillip R. Rollins,
Craig R. Clark and Paul J. Contris has been filed in the Superior Court of the
State of California (County of Orange). Defendant John T. Lynch, Jr. is a member
of the Board of Directors. Trouver Capital Partners, L.P. ("Trouver") is a
private investment banking firm of which Mr. Lynch is a general partner, and
Cruttenden Roth Inc. and Wheat First Butcher Singer are investment banking firms
that are named individually and as representatives of a purported defendant
underwriter class. The Orange County action is purportedly filed on behalf of
all persons who acquired Unison Common Stock in the Company's IPO; it
essentially alleges that in connection with the IPO, the defendants made
positive statements in the prospectus and registration statement concerning the
Company's prospects, for which there was no basis, that accounts receivable were
overstated, and that the Company's statement of financial position as of
September 30, 1995 was not fairly presented. The plaintiff seeks compensatory
damages in an unspecified amount as well as interest, attorneys' fees and costs
and extraordinary, equitable and injunctive relief as permitted by law or
equity.
 
   
     Unison's bylaws require the Company to indemnify current and former
officers and directors to the extent permitted by Delaware law against such
liabilities and related expenses. The Company is also obligated, subject to
certain conditions, to indemnify the underwriters against such liabilities and
expenses. The Company denies the material allegations in these complaints and
intends to defend the actions vigorously. While there can be no assurances in
such matters, Unison believes that, based on its analysis of the complaints and
of its insurance coverage and communications with its insurance carriers, that
the ultimate disposition of these actions will not adversely affect its
liquidity. An adverse determination in these proceedings, if not covered by
insurance, would have a material adverse impact on the Company's liquidity and
results of operations.
    
 
   
     Certain of the Company's subsidiaries were defendants in an action styled
Texas Star Therapy, Inc. v. Emory Care Center, Inc., et al. that was filed in
June 1996 in the District Court of Shelby County, Texas, and subsequently
transferred (as Cause No. 96-07767-B) to Dallas County. Plaintiff sought
$517,000 in unpaid fees for therapy services rendered as well as interest,
penalties, attorneys' fees and costs. Pursuant to the terms of a settlement
agreement entered into in May 1997, Unison is obligated to remit to the
plaintiff the sum of $875,000 in a series of payments that commenced in June and
culminated in November 1997.
    
 
     The Company also reached agreement, in July 1997, with the plaintiff in an
action styled Rehabworks, Inc. v. Unison HealthCare Corp., BritWill
Investments-II, Inc. and Sunbelt Therapy Management Services,
                                       17
<PAGE>   20
 
Inc., being Cause No. 366-1483-96 filed in the District Court of Collin County,
Texas, and served on the Company in October 1996. The complaint in this action
alleged that the Company was in arrears in the payment of fees for therapy
services rendered of $1,031,000 and that, in addition, Unison breached a non-
solicitation covenant in a contract with Rehabworks and tortiously interfered
with Rehabworks' employment relationship with several of its former employees.
The suit sought to recover such fees as well as damages of not less than
$2,375,000 and exemplary damages of not less than $2,250,000, plus interest and
attorneys' fees. Unison is obligated, under the terms of the agreement providing
for the settlement of this action, to pay the plaintiff the principal amount of
$1,029,000 plus interest at 11% per annum in 24 consecutive monthly installments
commencing October 1, 1997.
 
   
     Another Unison subsidiary is the defendant in an action entitled
Carillon/Alpha Limited v. BritWill HealthCare Company filed, and assigned Cause
No. 96-5742, in the District Court of Dallas County, Texas. Plaintiff in this
action seeks compensatory damages in the amount of $216,000, allegedly for
unpaid rent, for the three-month period during which premises leased to the
subsidiary were vacant and the cost of releasing same, plus interest and
attorneys' fees. Unison, which has asserted various defenses and intends
vigorously to defend this lawsuit, believes that an adverse outcome would not
have a material effect on its financial condition or results of operations.
    
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
     On October 28, 1996, a Special Meeting of Stockholders of Unison was held
in Scottsdale, Arizona. A summary of proposals considered and voted upon
follows:
 
          (1) Adoption and approval of an Agreement and Plan of Merger, dated as
     of August 2, 1996, between Unison and Signature, and approval of all
     transactions contemplated by such agreement: for -- 2,565,763 shares;
     against -- 6,175 shares; and abstain -- 585,613 shares.
 
          (2) Approval to amend Unison's Certificate of Incorporation to
     increase the number of authorized shares of Unison Common Stock from
     10,000,000 to 25,000,000: for -- 2,511,141 shares; against -- 640,325
     shares; and abstain -- 6,085 shares.
 
          (3) Approval to (i) amend Unison's 1995 Stock Option Plan to increase
     the number of shares of Unison Common Stock authorized thereunder from
     511,046 to 800,000; and (ii) increase formula grants to nonemployee
     directors from 6,246 shares on the first election to the Board of Directors
     and on each fifth anniversary thereafter to 15,000 shares (17,500 shares in
     the case of the Chairman of the Board) for 1996 and at each annual meeting
     thereafter: for -- 2,088,583 shares; against -- 477,470 shares; and
     abstain -- 591,498 shares.
 
                                       18
<PAGE>   21
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     At March 31, 1997, there were approximately 98 holders of record of
Unison's Common Stock. At the same date, the Company believes that approximately
1,300 additional stockholders held shares under beneficial ownership in nominee
name or within clearinghouse positions of brokerage firms and banks. The
Company's Common Stock has been traded on The Nasdaq Stock Market's National
Market System under the symbol "UNHC" from December 19, 1995 to August 21, 1997.
Effective August 22, 1997, pursuant to a waiver of the $3.00 per share initial
inclusion bid price requirement, Nasdaq moved Unison's securities to The Nasdaq
SmallCap Market because the Company does not currently satisfy the minimum
tangible net asset requirement for the listing of its stock on the Nasdaq
National Market System.
 
     The high and low sales prices as reported by Nasdaq are as follows:
 
<TABLE>
<CAPTION>
                                                   1995             1996             1997
                                               ------------     ------------     ------------
                                               HIGH     LOW     HIGH     LOW     HIGH     LOW
                                               ----     ---     ----     ---     ----     ---
        <S>                                    <C>      <C>     <C>      <C>     <C>      <C>
        First quarter........................   --       --      11 3/4    8 7/8  14 1/2   2 5/8
        Second quarter.......................   --       --      15 1/2   10 1/4   4 1/8   11 /16
        Third quarter........................   --       --      15 1/8   10 1/4  --      --
        Fourth quarter.......................    9 3/8    9      13 1/4    8      --      --
</TABLE>
 
     Unison has not paid a common dividend and does not anticipate declaring a
common dividend in the near future.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
                                     UNISON
           SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
                 (dollars in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                            ---------------------------------------------------------------------
                                                                     ACTUAL
                                            ---------------------------------------------------------   PRO FORMA
                                              1992        1993        1994       1995(1)      1996       1996(2)
                                            ---------   ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA(3):
Total revenues............................  $   4,523   $   7,011   $  18,406   $  68,488   $ 148,674   $182,382
Expenses:
  Wages and related.......................      2,201       3,689       9,593      35,047      85,789     99,833
  Other operating.........................      1,727       2,629       6,462      24,032      64,771     71,664
  Rent....................................        155         206       1,406       6,673      15,658     15,613
  Interest................................         14          44         147       1,176       5,824     15,638
  Depreciation and amortization...........         88         157         286       1,311       4,561      7,500
  Impairment losses.......................         --          --          --          --       3,865      3,865
                                            ---------   ---------   ---------   ---------   ---------   ---------
    Total expenses........................      4,185       6,725      17,894      68,239     180,468    214,113
                                            ---------   ---------   ---------   ---------   ---------   ---------
    Income (loss) before income taxes.....        338         286         512         249     (31,794)   (31,731) 
Income taxes (benefit)....................        100         177         172         132      (8,356)   (12,692) 
                                            ---------   ---------   ---------   ---------   ---------   ---------
    Net income (loss).....................  $     238   $     109   $     340   $     117   $ (23,438)  $(19,039) 
                                            =========   =========   =========   =========   =========   =========
Net income (loss) per share...............  $    0.13   $    0.06   $    0.19   $    0.05   $   (5.01)  $  (3.21) 
Shares used in per share calculation......  1,806,164   1,806,164   1,806,164   2,280,213   4,676,037   5,929,037
</TABLE>
 
                                       19
<PAGE>   22
 
<TABLE>
<CAPTION>
                                                                 AT DECEMBER 31,
                                            ---------------------------------------------------------
                                                                     ACTUAL
                                            ---------------------------------------------------------   PRO FORMA
                                              1992        1993        1994        1995        1996       1996(5)
                                            ---------   ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>
BALANCE SHEET DATA(3):
  Cash and cash equivalents...............  $     169   $     199   $     306   $   6,169   $  17,409   $  4,865
  Working capital (deficiency)............        272         298       1,691        (927)    (13,955)   (14,855) 
  Total assets............................        879       1,862       7,468      81,301     230,921    218,377
  Total debt..............................        163         259       2,623      26,737     157,138    143,794
  Stockholders' equity....................       (157)        (47)        736      20,903      11,689     12,489
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                            ---------------------------------------------------------------------
                                                                     ACTUAL
                                            ---------------------------------------------------------   PRO FORMA
                                              1992        1993        1994       1995(1)      1996       1996(2)
                                            ---------   ---------   ---------   ---------   ---------   ---------
<S>                                         <C>         <C>         <C>         <C>         <C>         <C>
OTHER DATA:
  Skilled nursing facilities:(4)
    Number of facilities..................          4           6          16          45          54         48
    Number of licensed beds...............        436         671       1,621       4,629       5,455      4,818
    Patient days..........................         --      12,705     112,727     581,410   1,203,655   1,732,584
 
  Assisted living facilities:(4)
    Number of facilities..................         --           1           4           5           8          8
    Number of units.......................         --          30         104         229         320        320
 
  Sources of patient revenues:
    Medicare..............................         --         3.4%        9.1%       26.9%       29.5%      30.2 %
    Private pay...........................         --        13.8        32.4        17.2        17.0       18.1
                                            ---------   ---------   ---------   ---------   ---------   ---------
      Quality mix.........................         --        17.2        41.5        44.1        46.5       48.3
    Medicaid..............................         --        82.8        58.5        55.9        53.5       51.7
                                            ---------   ---------   ---------   ---------   ---------   ---------
         Total............................         --       100.0%      100.0%      100.0%        100%       100% 
                                            =========   =========   =========   =========   =========   ==========
</TABLE>
 
       NOTES TO SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
 
(1) On August 10, 1995, Unison acquired BritWill. The actual results for the
    year ended December 31, 1995 include the results of operations for BritWill
    for the five months ended December 31, 1995.
 
(2) Gives effect to (i) the Dispositions, (ii) the Completed Acquisitions and
    (iii) the Private Offering of the Senior Notes and the application of the
    net proceeds therefrom, effective, in each case, at the beginning of the
    period presented.
 
(3) Historical financial results have been restated to include the accounts of
    Ampro for all periods presented.
 
(4) Number of facilities, beds and units expressed are at end of period.
 
(5) Gives effect to the application of the remaining proceeds of the Senior
    Notes effective as of December 31, 1996.
 
                               BRITWILL SEPARATE DATA
 
    HISTORICAL
 
     Rule 3-05 of Regulation S-X specifies that separate financial statements of
an acquired business need not be presented once the operating results of the
acquired business have been reflected in the audited financial statements of the
registrant for a complete fiscal year unless the acquired business is of such
significance to the registrant that omission of such financial statements would
materially impair an investor's ability to understand the historical financial
results of the registrant. At the date of acquisition, BritWill was of such
significance to Unison as to be considered a predecessor company. Accordingly,
BritWill's separate selected historical financial data is provided for the
periods from 1992 to the date of acquisition.
 
     The selected historical financial data set forth below for the years ended
December 31, 1992, 1993 and 1994 and the seven months ended July 31, 1995 are
derived from BritWill's audited financial statements. The
 
                                       20
<PAGE>   23
 
audited financial statements of BritWill for the one month ended July 31, 1995,
the six months ended June 30, 1995 and the year ended December 31, 1994,
together with the Notes thereto, are included elsewhere herein. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
applicable to BritWill's separate historical results and other financial
information included herein.
 
<TABLE>
<CAPTION>
                                          SEVEN MONTHS
                                              ENDED                      YEARS ENDED
                                            JULY 31,                    DECEMBER 31,
                                       -------------------     -------------------------------
                                        1994        1995        1992        1993        1994
                                       -------     -------     -------     -------     -------
                                           (UNAUDITED)                 (IN THOUSANDS)
    <S>                                <C>         <C>         <C>         <C>         <C>
    Revenues:
      Net patient....................  $29,098     $38,378     $27,107     $32,107     $53,801
      Other..........................      759         476          70         625         624
                                       -------     -------     -------     -------     -------
              Total revenues.........   29,857      38,854      27,177      32,732      54,425
    Expenses:
      Operating......................   22,666      28,333      15,162      23,483      40,037
      General and administrative.....    3,350       3,870       6,714       3,670       6,252
      Rent...........................    4,719       5,223       3,750       5,097       8,264
      Interest.......................      571         906       2,850         385         872
      Depreciation and
         amortization................      487         591         741         704         987
                                       -------     -------     -------     -------     -------
              Total expenses.........   31,793      38,923      29,217      33,339      56,412
                                       -------     -------     -------     -------     -------
    Income (loss) from operations....   (1,936)        (69)     (2,040)       (607)     (1,987)
    Other Income:
         Interest income.............       50         113         220          65          55
                                       -------     -------     -------     -------     -------
    Income (loss) before income
      taxes..........................   (1,886)         44      (1,820)       (542)     (1,932)
    Income taxes.....................       26          31          --          52          53
                                       -------     -------     -------     -------     -------
    Net income (loss)................  $(1,912)    $    13     $(1,820)    $  (594)    $(1,985)
                                       =======     =======     =======     =======     =======
</TABLE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     The following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act which are based on
assumptions set forth in this discussion that could prove to be inaccurate.
Important factors that could cause actual events to vary from the discussions
herein include the factors discussed in "Business", "-- Overview" and "-- Risks
and Uncertainties".
 
     The following material should be read in conjunction with Unison's
Consolidated Financial Statements and related notes thereto for the years ended
December 31, 1994, 1995 and 1996. All references in this Item to years are to
fiscal years ended December 31 of such year.
 
SIGNIFICANT EVENTS
 
- On September 30, 1996, Unison announced a plan to dispose of seven
  (subsequently increased to eight) underperforming nursing facilities and
  recorded a $3,865,000 nonrecurring charge for the 1996 third quarter. See
  "-- Acquisitions and Dispositions".
 
- On October 31, 1996, Unison completed the private placement of its
  $100,000,000 12 1/4% Senior Notes Due 2006 (the "Senior Notes").
 
- On October 31, 1996, Unison completed the Signature Acquisition and the Ampro
  Acquisition. See "-- Acquisitions and Dispositions".
 
- For the year ended December 31, 1996, Unison recorded a net loss of
  $23,438,000 compared to net income of $117,000 and $340,000 in 1995 and 1994,
  respectively. See "-- Results of Operations".
 
                                       21
<PAGE>   24
 
OVERVIEW
 
     From a financial performance standpoint, 1996 was a very disappointing year
for Unison. The Company pursued in late 1995 and in 1996 an aggressive expansion
program that, in time, overwhelmed the Company's financial reporting and
management information systems and personnel. As a result, the Company was
compelled to announce on March 11, 1997, that it would restate its financial
results for the nine months ended September 30, 1996 by an estimated $5,000,000
to $6,000,000. On May 12, 1997, after consultation with the Company's auditors,
Unison announced that the restatement would be significantly higher than the
previous estimate. Indeed, as finally reported, the restated pretax loss for the
period was approximately $15,000,000.
 
   
     Adjustments to the nine-month statement of operations as originally
reported resulted in (i) a decrease in revenues of $3,713,000; (ii) an increase
in operating expenses (other than fixed costs) in the aggregate amount of
$8,271,000; (iii) an increase in fixed costs (rent, interest, depreciation and
amortization) amounting to $1,476,000; and (iv) an increase in impairment losses
of $1,865,000. The decrease in revenues resulted primarily from adjustments to
third party settlement receivables. These adjustments were attributable to
corrections, based on a detailed review of source documents, to cost data which
impact the calculation of Medicare rates used to record revenues. The increase
in operating expenses resulted primarily from (i) additions to reserves for
doubtful accounts related to management fees receivable and patient accounts
receivable; (ii) reserves for potential liabilities for gross receipts taxes and
related penalties and interest; (iii) write-off of fully amortized prepaid
expenses; and (iv) previously unrecorded liabilities. The adjustments to
increase fixed costs by $1,476,000 were comprised primarily of (a) additional
rent expense related to escalating rent provisions in certain of the Company's
facility leases; (b) adjustments to increase amortization expense, due in part
to reductions to the amortization periods of goodwill related to certain
acquisitions based on an analysis of the future benefit of such assets; and (c)
the write-off of deferred financing charges related to debt which was
refinanced. The adjustment to increase impairment losses resulted from an
evaluation of the Company's long-lived assets in accordance with SFAS No. 121.
The total provision for impairment losses as revised includes (1) adjustments to
reduce the carrying value of certain long-lived assets to fair market value and
(2) a provision for estimated losses on the disposition of facilities. See
"-- Results of Operations." No attempt was made to determine the particular
fiscal quarter or quarters to which the adjustments causing the restatement
pertain, and all of the adjustments were confined to the third quarter of 1996.
Because of the considerable costs and difficulty involved and inasmuch as it
would take months of effort to do a precise allocation, if indeed such an
allocation is possible, Unison does not believe it is in the best interests of
its shareholders to expend the Company's limited resources on that effort and
has instead focused on improving its information systems.
    
 
   
     The Company has taken the following steps which it believes will remedy
these problems and prevent them from recurring. First, Unison curtailed its
acquisition program in 1997. Second, in April 1997, Unison accepted the
resignations of several of its principal officers, including its chief executive
officer and chief financial officer. Third, several managers in accounting and
finance were replaced in 1997. Fourth, the Company hired a new CEO in September
1997 and a new CFO in April 1998. Fifth, in the second quarter of 1997, the
Company completed the conversion to new accounts payable, accounting and
financial reporting computer systems.
    
 
   
     Unison believes that its core businesses remain fundamentally sound. Its
nursing home occupancy levels and quality mix have shown improvement. Unison's
quality of care as measured by levels of compliance in state health care surveys
is high. Unison's ancillary services subsidiaries (providing therapy, pharmacy,
Medicare Part B supply and laboratory services both to Unison facilities and
those of independent nursing home companies) are profitable, recording pretax
income in the aggregate amount of $1,893,000 in 1996. The Company has reduced
its corporate cost structure, and is implementing revenue enhancement programs
and expense controls in its nursing homes and ancillary services companies. The
Company is focusing its marketing efforts on increasing occupancy levels and
improving quality mix in order to increase revenues. See "BUSINESS --
Operations." Unison is attempting to increase its ancillary services revenues,
both in terms of acquiring contracts with nonaffiliated facilities and
increasing the level of services to its existing patients. The Company is at the
same time attempting to reduce costs without adversely impacting the quality of
care it provides. With the recent implementation of new management reporting
systems, the Company is better
    
                                       22
<PAGE>   25
 
equipped to monitor and control its labor costs and other operating expenses.
The Company also streamlined its corporate and regional office staff, laying off
26 employees. This, combined with attrition and the closure of the Signature
corporate office, resulted in a 35% reduction in corporate staff, from 142 on
December 31, 1996 to 92 on May 15, 1997. These initiatives are designed to
improve both the Company's result of operations and its cash flows.
 
RISKS AND UNCERTAINTIES
 
     Risks and uncertainties that may impact future operating results and cash
flows include those described below.
 
   
     High Leverage and Limited Capital Resources.  At December 31, 1996, Unison
had approximately $157,138,000 in total long-term indebtedness, which was
approximately 93.1% of its total capitalization. It also has significant
long-term operating lease obligations (approximately $15,492,000 for 1997 and
$164,743,000 in the aggregate). All of Unison's cash flow and availability under
its current line of credit, together with additional funds from sources yet to
be developed, will be needed for the next year and beyond in order to satisfy
its working capital, debt service and lease obligations. The Company anticipates
that it will need at least $10,000,000 of additional outside financing to meet
its cash flow requirements for the remainder of 1997. See "-- Liquidity and
Capital Resources." The Senior Notes and Unison's other indebtedness and lease
obligations include certain covenants that prohibit or limit asset sales,
acquisitions, incurrence of additional debt and liens, the making of restricted
payments, affiliate transactions, engaging in certain mergers and consolidations
and entering new lines of business. For example, the Senior Notes generally
limit Unison's debt incurrance to an amount equal to (1) the greater of $30
million of secured indebtedness or the sum of 60% of inventory plus 90% of
accounts receivable and (2) the greater of $10 million of other indebtedness or
10% of Unison's consolidated net worth (in addition to indebtedness outstanding
on October 31, 1996 after giving effect to the application of the proceeds from
the Senior Notes and refinancings of such indebtedness) except when its Fixed
Charge Coverage Ratio after incurring the indebtedness would be greater than 2
to 1 (2.25 after December 31, 1997). As of June 30, 1997, Unison had incurred
approximately $17,490,000 of such secured and other indebtedness. There can be
no assurance that the Company will obtain the necessary consents from its
lessors and debtors in the future if it attempts to engage in one of the
aforementioned types of transactions. See "-- Liquidity and Capital Resources".
    
 
     Unison is a holding company and has no material assets or operations other
than its investment in its subsidiaries. The Senior Notes are fully and
unconditionally guaranteed on a senior unsecured and joint and several basis by
all of Unison's present subsidiaries and will be similarly guaranteed by any
future subsidiaries. The guarantees rank senior to all subordinated indebtedness
and rank pari passu in right of payment to all other indebtedness. As of June
30, 1997, the aggregate outstanding principal amount of senior indebtedness of
Unison and its subsidiaries was approximately $154,957,000 (including the Senior
Notes), of which approximately $33,098,000 was secured indebtedness that
effectively ranked senior to the Senior Notes.
 
     Resignations of Executive Officers and Dependence on Skilled Personnel.
Three of Unison's executive officers, including its CEO and CFO, resigned in
April 1997. The Company hired a CEO in September 1997 and expects to name a CFO
before the end of 1997. Approximately 30 other personnel have also been laid off
in an attempt to control overhead costs. In addition, several facility
administrators have recently resigned. Although the resignations to date of
senior managers is not expected to have a material adverse impact on Unison's
results of operations, the loss of certain other key personnel could adversely
affect Unison's results of operations and its ability generally to rebuild its
financial health.
 
     Pending Securities Litigation.  Unison and certain of its current and
former directors and officers (among others) are named as defendants in several
purported class action lawsuits following Unison's announcement in March 1997
that the Company expected to restate its financial statements for the nine-
month period ended September 30, 1996. To date, seven such claims have been
filed in federal district court in Phoenix, Arizona. The purported class periods
vary, with the broadest such class period beginning December 18, 1995 (when
Unison commenced the IPO) and ending March 11, 1997 (when Unison announced the
need for a restatement). The complaints in these actions allege violations of
Sections 10 and 20 of the Exchange
 
                                       23
<PAGE>   26
 
Act and Rule 10b-5 thereunder in that the defendants knew, or were reckless in
not knowing, that Unison's results for the first three quarters of 1996 were
materially overstated, or misrepresented the capability of Unison's internal
accounting systems to reliably record and reflect its financial condition.
Amended complaints in two of these actions also allege violations of Sections 11
and 15 of the Securities Act in that the registration statement covering, and
the prospectus used in connection with, the stock sold in the IPO allegedly
misleadingly touted Unison's "growth strategy" and ability to control costs
while failing to disclose inadequacies in its accounting systems. The individual
defendants named in some or all of these actions are Jerry M. Walker (the
Company's former Chief Executive Officer), Craig R. Clark (the Company's former
Chief Financial Officer), Paul J. Contris (the Company's former Executive Vice
President of Acquisitions), Phillip R. Rollins (the Company's Chief Operating
Officer) and Bruce H. Whitehead (Chairman of the Board).
 
     In addition, an action has been filed in the Superior Court of the State of
California (County of Orange) against the Company and the aforesaid individuals,
as well as John T. Lynch, Jr. (a member of the Board of Directors), Trouver
Capital Partners, L.P. (a private investment banking firm of which Mr. Lynch is
a general partner), Cruttenden Roth Inc. and Wheat First Butcher Singer (the
latter two entities are investment banking firms that are named individually and
as representatives of a purported defendant underwriter class). The Orange
County action is purportedly filed on behalf of all persons who acquired Unison
stock in the IPO; it essentially alleges that, in connection with the IPO, the
defendants made positive statements about the Company's prospects for which
there was no basis, that accounts receivable were overstated, and that the
Company's statement of financial position as of September 30, 1995 was not
fairly presented.
 
   
     Unison's bylaws require the Company to indemnify current and former
officers and directors to the extent permitted by Delaware law against
liabilities represented by the above described actions and related expenses. The
Company is also obligated, subject to certain conditions, to indemnify the
underwriters against such liabilities and expenses. The Company denies the
material allegations in these complaints and intends to defend the actions
vigorously. While there can be no assurances in such matters, Unison believes
that, based on its analysis of the complaints and of its insurance coverage and
communications with its insurance carriers, the ultimate disposition of these
actions will not adversely affect its liquidity. An adverse determination in
these proceedings, if not covered by insurance, would have a material adverse
impact on the Company's liquidity and results of operations.
    
 
     Market Listing for Equity Securities and Access to Capital Markets.  Unison
does not currently satisfy the minimum tangible net asset requirement for the
listing of its common stock on The Nasdaq Stock Market's National Market System
where the stock had traded since the IPO. On August 20, 1997, the Company was
advised by Nasdaq of its decision to move the Company's securities to The Nasdaq
SmallCap Market, effective August 22, 1997, pursuant to a waiver to the $3 per
share initial inclusion bid price requirement. The Company is unable to
determine what effect, if any, the movement of its stock to the SmallCap Market
will have on its ability to raise additional capital.
 
     History of Losses and Accumulated Deficit.  Unison began operations in
1992. Since then, except for a small net profit in the fourth quarter of 1995
(and the pooling effect of the Ampro acquisition completed in October 1996), it
has reported net losses for every period, culminating in a loss of $23,438,000
for 1996. Unison's future profitability will depend upon many factors, including
its ability to reduce and control costs, its ability to integrate recently
acquired operations, occupancy levels, government regulation and reimbursement
policies, competition, its ability to attract and retain qualified personnel at
competitive rates, the outcome of pending litigation and general economic
conditions. While the Company has instituted revenue enhancement and cost
containment programs and continues to work at integrating recent acquisitions,
there can be no assurance that Unison will be profitable in the future.
 
   
     Difficulties in Integrating Acquired Facilities and Services; Increases in
Intangible Assets.  A key element of Unison's business strategy during 1995 and
1996 was to expand through the leasing of new or existing long-term and
specialty healthcare facilities and the acquisition or development of ancillary
health care businesses or services. The acquisitions of BritWill, Signature,
Sunbelt, RehabWest, and Ampro and the formation of Quest were in pursuance of
this strategy. Acquisitions are inherently risky due to the possibility of
unknown
    
 
                                       24
<PAGE>   27
 
and unforeseen contingencies affecting the new businesses and due to costs of
integrating acquired operations into the overall enterprise. These risks have
impacted and may continue to impact Unison's financial performance. For example,
difficulties in integrating acquired facilities within Unison's financial
reporting and management information systems were a substantial factor
contributing to the need to restate Unison's financial statements for the nine
months ended September 30, 1996. Those system difficulties then contributed to
the operating inefficiencies that led to the unexpected losses for that period
and subsequent periods. Although Unison has substantially curtailed its
acquisition strategy, its corporate overhead increased during the second half of
1996 in the expectation that the number and size of acquisitions would continue
to grow. This expansion has made it difficult to reduce costs in response to
liquidity challenges. Unison's acquisitions have also resulted in material
increases in its intangible assets. At December 31, 1996, the aggregate amount
of Unison's net intangible assets, including lease operating rights, goodwill,
deferred financing costs and other intangibles, was $142,212,000. This balance
represents 61.6% of Unison total assets at December 31, 1996 and approximately
12.2 times its stockholders' equity. Amortization expense related to intangible
assets is expected to amount to approximately $6,746,000 in 1997. In addition,
should events occur that result in impairment of the Company's long-lived
assets, such as unexpected increases in operating losses, the Company may in the
future need to record a write-down of its lease operating rights or goodwill.
 
     Rate Increases on Senior Notes.  Pursuant to the Senior Note Registration
Rights Agreement, the interest rate payable on Unison's outstanding Senior Notes
has temporarily increased from 12.25% to 13.50%, and it is subject to further
increases at 90 day intervals (to a maximum rate of 14.25%) until a registration
statement covering the Senior Notes (or Exchange Notes on the same terms) is
filed and becomes effective with the Securities and Exchange Commission (the
"Commission"). Unison delayed filing the required registration statement while
it completed work on its financial statements for 1996. Whereas the Company made
the filing on July 3, 1997, it has not yet become effective. Accordingly,
further delays in completing the required registration, with corresponding
additional interest expense on the Senior Notes, are likely.
 
   
     Loan and Lease Covenant Violations.  Unison is not in compliance with
certain covenants under mortgage loans with one lender for six health care
facilities acquired in connection with the acquisition of Signature Health Care
Corporation and affiliated companies and the lease agreements for 20 facilities
leased from Omega and BritWill Texas. A waiver from Omega for these financial
covenant violations expired April 12, 1997, and the Company and Omega are
negotiating the terms of revised covenants for the future. See "-- Liquidity and
Capital Resources." There can be no assurance, however, that such negotiations
will be successfully concluded. The Company has not obtained a separate waiver
of the covenant violations from BritWill Texas. An acceleration of Unison's
obligations under any of its financial instruments or an actionable default
under any of its facilities leases could have a material adverse impact on
Unison.
    
 
   
     Reliance on Reimbursement from Government Sources.  Unison is reimbursed
under the Medicare program for its actual allowable direct and indirect costs of
services based on the submission of an annual cost report. Each facility is also
subject to limits on reimbursement for routine costs. Exceptions to these limits
are available for, among other things, the provision of atypical services. Due
in part to the provision of subacute services, Unison's costs for care delivered
to Medicare patients in certain of its long-term and specialty health care
facilities have exceeded the routine costs limits in the aggregate amounts of
$1,800,000 and $2,260,000 in 1995 and 1996, respectively. The Company has filed
18 exception requests with HCFA with respect to 1995, requesting reimbursement
for the excess costs. Unison was granted interim (pending audit) routine cost
limit exceptions for 16 of the 18 facilities in the aggregate amount of
approximately $1,500,000. However, in the fourth quarter of 1997, the fiscal
intermediary audited the Company's 1995 Medicare cost reports and, as a result,
the Company recorded a provision for potential audit adjustments of
approximately $1,200,000. The Company will file exception requests related to
1996 when it receives final resolution with respect to 1995 allowable costs.
Unison's failure to recover excess costs or to obtain such exceptions could
adversely affect Unison's results of operations.
    
 
   
     HCFA recently promulgated rules applying salary equivalency guidelines to
certain speech and occupational therapy services. The rates for these services
are lower than the Medicare reimbursement rates currently received by Unison for
these services. For the year ended December 31, 1996, Unison's revenues and
contribution margin from speech and occupational therapy services amounted to
$14,917,000 and $5,725,000,
    
                                       25
<PAGE>   28
 
   
respectively. At the same time, HCFA updated its reimbursement rates for
physical therapy services, which accounted for more than 70% of Unison's total
therapy revenues in 1996. The Company believes that the increased rates for
physical therapy will mitigate any adverse economic impact of the changes in
speech and occupational therapy reimbursement. There can be no assurance that
future legislation, regulatory changes or interpretations of the regulations
will not have a material adverse effect on the operations of the Company.
    
 
     In 1994, the state of Indiana adopted Rule 14, which changed Indiana's
Medicaid reimbursement system from a true prospective payment system to a
modified cost-based system. The new system has resulted in an increase in annual
reimbursement rates of approximately 6%; however, Rule 14 also precludes
facility operators from billing separately for certain ancillary therapy
services and non-routine medical supplies. The Company understands that Rule 14
reduced total Medicaid nursing facility payments in the initial year of adoption
by $10 million statewide out of total prior year expenses of $720 million. The
implementation of Rule 14 has not had a material adverse impact on Unison's
results of operations. See "BUSINESS -- Government Regulation."
 
ACQUISITIONS AND DISPOSITIONS
 
     On October 31, 1996, Unison acquired by merger Signature Health Care
Corporation and four affiliated companies (collectively, the "Signature
Mergers") for an initial aggregate purchase price of approximately $50,653,000
comprised of 1,509,434 shares of Unison Common Stock with a market value at
October 31, 1996 of $12,453,000, approximately $37,054,000 in cash and
promissory notes totaling approximately $1,146,000. In addition, in accordance
with an adjustment provision of the Signature Merger Agreements relating to
stockholders' equity, in March 1997 the former shareholders of Signature
received additional consideration of $2,511,000, paid in convertible promissory
notes ($1,827,000) and 238,052 shares of Unison common stock ($684,000 valued as
of March 27, 1997). Signature operated 11 long-term care facilities and two
assisted living facilities in Arizona and metropolitan Denver, Colorado. Unison
also acquired RehabWest (a related rehabilitation company) for approximately
$5,350,000 in cash. The Signature Mergers and the acquisition of RehabWest,
referred to collectively as the "Signature Acquisition," were accounted for as a
purchase.
 
     On October 31, 1996, Unison also acquired American Professional Holding,
Inc. and Memphis Clinical Laboratory, Inc. (together, "Ampro")(the "Ampro
Acquisition") in a pooling of interests transaction. The consideration paid for
Ampro amounted to $4,942,000 which included: (a) cash of approximately $237,000;
(b) 540,000 shares of Unison Common Stock with a market value at October 31,
1996 of $4,455,000 and (c) a promissory note in the amount of $250,000 which has
since been prepaid. Ampro operates medical laboratories in Texas, Missouri and
Tennessee which, at March 31, 1997, provided testing services for 275 nursing
homes and other healthcare facilities. Summarized results of operations of Ampro
are as follows:
 
<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                         --------------------------------------
                                            1994          1995          1996
                                         ----------    ----------    ----------
<S>                                      <C>           <C>           <C>
Revenues.............................    $6,000,000    $7,203,000    $6,547,000
Net income (loss)....................       420,000       143,000      (565,000)
</TABLE>
 
     Other acquisitions that have closed within the past three years include
BritWill (1995), Sunbelt (1996) and several smaller facilities or enterprises.
See "Business -- Acquisitions."
 
     On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance (the
"Dispositions"). The plan includes the disposition of eight nursing facilities
(the "Disposition Facilities"), two of which are closed, which do not meet
Unison's operational or financial criteria due to inadequate Medicaid
reimbursement, low occupancy rates or adverse local market conditions. Unison
also recorded a nonrecurring charge of $3,865,000 for the quarter ended
September 30, 1996 to record impairment of long-lived assets and to establish
reserves for costs to dispose of the Disposition
 
                                       26
<PAGE>   29
 
Facilities. Four of these facilities were subleased to an unrelated party
effective March 1, 1997 and the other four are held for disposition. Results of
operations of the Disposition Facilities were as follows:
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED
                                                              DECEMBER 31,
                                                           ------------------
                                                            1995       1996
                                                           -------    -------
                                                             (IN THOUSANDS)
<S>                                                        <C>        <C>
Revenues.................................................  $16,269    $14,539
Net loss before taxes and impairment losses..............       90      2,320
</TABLE>
 
RESULTS OF OPERATIONS
 
UNISON HISTORICAL
 
     The following table summarizes selected operating statistics. Pro forma
data give effect to the Dispositions as if all of the Disposition Facilities had
been disposed of on December 31, 1996.
 
<TABLE>
<CAPTION>
                                                       AT DECEMBER 31,
                                                    ----------------------    PRO FORMA
                                                    1994    1995     1996       1996
                                                    ----    -----    -----    ---------
<S>                                                 <C>     <C>      <C>      <C>
Leased/Owned Facilities:
  Number of facilities..........................     11        42       59         53
  Number of licensed beds:
     Long-term care.............................    631     3,872    5,145      4,508
     Assisted and independent living............    104       112      320        320
Managed Facilities:
  Number of facilities..........................      9         8        3          3
  Number of licensed beds.......................    990       874      310        310
Institutional Pharmacies:
  Number of outlets.............................     --         1        2          2
  Nonaffiliated facilities served...............     --        17       42         42
Therapy Services:
  Nonaffiliated entities served.................     --        --       55         55
Laboratory Services:
  Nonaffiliated entities served.................    225       260      295        295
</TABLE>
 
     The following table identifies Unison's sources of revenues. Pro forma data
give effect to (i) the Dispositions and (ii) acquisitions completed after
January 1, 1996 as if such transactions had occurred on January 1, 1996.
 
<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                   --------------------------    PRO FORMA
                                                    1994      1995      1996       1996
                                                   ------    ------    ------    ---------
<S>                                                <C>       <C>       <C>       <C>
Percentage of total revenues:
  Long-term care.................................   67.4%     87.6%     81.0%       84.1%
  Therapy contracts..............................     --        --       8.9         7.5
  Pharmacies.....................................     --       1.0       4.6         3.8
  Medicare Part B billing and supply.............     --       0.9       1.1         1.0
  Laboratory services............................   32.6      10.5       4.4         3.6
                                                   -----     -----     -----       -----
     Total.......................................  100.0%    100.0%    100.0%      100.0%
                                                   =====     =====     =====       =====
</TABLE>
 
     Unison's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement systems and
rates among the payor categories, payor mix and the scope and utilization of
Unison's ancillary services. Medicare patients generate the highest revenue per
patient day, although profitability is not always increased due to the
additional costs associated with the higher level of care required by such
patients. In general, private pay sources are more profitable to Unison than
governmental reimbursement sources. Unison generally derives a higher profit
margin from ancillary services than from basic nursing services.
 
                                       27
<PAGE>   30
 
     Data for nursing center operations with respect to sources of net patient
revenues by payor type are set forth below (long-term care only). Pro forma data
give effect to (i) the Dispositions and (ii) acquisitions completed after
January 1, 1996, as if such transactions had occurred on January 1, 1996.
 
<TABLE>
<CAPTION>
                                                      YEARS ENDED DECEMBER 31,
                                                      ------------------------   PRO FORMA
                                                       1994     1995     1996      1996
                                                      ------   ------   ------   ---------
<S>                                                   <C>      <C>      <C>      <C>
Medicare...........................................     9.1%    26.9%    29.5%      30.2%
Private and other..................................    32.4     17.2     17.0       18.1
                                                      -----    -----    -----      -----
  Quality Mix......................................    41.5     44.1     46.5       48.3
Medicaid...........................................    58.5     55.9     53.5       51.7
                                                      -----    -----    -----      -----
  Total............................................   100.0%   100.0%   100.0%     100.0%
                                                      =====    =====    =====      =====
</TABLE>
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
     Unison recorded a net loss of $23,438,000 in 1996 and net income of
$117,000 in 1995. Loss before taxes amounted to $31,794,000 in 1996 compared to
pretax income in 1995 of $249,000. The pretax loss in 1996 is primarily
attributable to: (i) provisions for doubtful accounts related to management fees
and patient and other receivables in the aggregate amount of $2,713,000; (ii) a
provision for impairment of long-lived assets and the Dispositions amounting to
$3,865,000; (iii) gross receipt taxes, interest, and various penalties of
approximately $3,565,000; (iv) accrued accounting, legal and other professional
fees relating to 1996 matters of $1,300,000; (v) loan transaction costs and fees
for debt which has been paid off and acquisition costs of $1,762,000; (vi)
increased corporate salary costs from $2,838,000 in 1995 to $5,340,000 in 1996;
(vii) a litigation settlement amounting to $725,000; and (viii) losses from
nursing home operations of approximately $10,882,000, of which $3,215,000 were
from the Disposition Facilities. The majority of the charges to income which
resulted in the net loss were identified during the course of the 1996 audit
examination and were also included in the restated results of operations for the
nine months ended September 30, 1996. The losses from nursing home operations in
1996 were due primarily to an average occupancy rate of 77.0% and controllable
costs which exceeded budgets. In 1997, the Company implemented revenue
enhancement and expense control initiatives which are designed to improve the
operating results of its nursing homes. See "-- Overview".
 
     Revenues.  Revenues were $148,674,000 in 1996 compared to $68,488,000 in
1995. The $80,186,000 increase is due primarily to revenues from patient
services which increased from $64,947,000 in 1995 to $146,379,000 in 1996.
Patient days increased from 613,000 in 1995 to 1,235,000 in 1996. Of the
increase in net patient service revenues, (i) approximately $54,681,000 is
attributable to the increase in the number of facilities operated, including a
full year of operations of the 28 facilities acquired in the BritWill
Acquisition on August 10, 1995 and 13 facilities with the Signature Acquisition
on October 31, 1996; (ii) approximately $18,741,000 is due to the acquisitions
of institutional pharmacies and therapy companies, and progress in providing
ancillary products and services to patients of Unison facilities and unrelated
facilities; and (iii) the balance is due to increases in the Company quality mix
and census. Other operating revenues decreased to $2,295,000 in 1996 from
$3,541,000 in 1995 due primarily to the decrease in managed facilities from
eight at December 31, 1995 to three at December 31, 1996.
 
     Wages and Related.  Wages and related expense increased 144.8% from
$35,047,000 in 1995 to $85,789,000 in 1996 and as a percentage of revenues from
51.2% in 1995 to 57.7% in 1996. The dollar increase is due primarily to the
increase in the number of leased facilities operated and an increase in
corporate salaries due to Unison's acquisition program during 1996 and
accounting and information system conversions. The percentage increase is due
primarily to the acquisition of therapy companies which have an inherently
higher percentage of salaries to revenues than long-term care providers and an
increase in corporate and regional overhead.
 
     Other Operating.  Other operating expenses increased 169.5% from
$24,032,000 in 1995 to $64,771,000 in 1996, or 43.6% of revenues in 1996
compared to 35.1% in 1995. The dollar and percentage increases are due primarily
to (i) an increase in the number of facilities operated; (ii) an increase in the
provision for doubtful accounts related to management fees and other receivables
in the aggregate amount of $2,713,000; (iii) a
 
                                       28
<PAGE>   31
 
litigation settlement amounting to $725,000; (iv) gross receipt taxes, interest,
and various penalties of approximately $3,565,000; and (v) an increase in
corporate operating expenses in 1996, due in part to loan transaction costs and
fees for debt which has been paid off and professional fees associated with
litigation and the restatement of financial results for the nine months ended
September 30, 1996. The provision for doubtful accounts for 1996 relates to
patient accounts receivable, management fees receivable and other miscellaneous
receivables. The provision for doubtful patient accounts receivable was
determined by analyzing the aged accounts receivable detail by facility and
payor type and the collectability of each account based on the facts and
circumstances of each category of receivable. The provision for doubtful
accounts related to management fees and other receivables was determined by
analyzing individual account balances for collectability including a review of
subsequent collections. The majority of these receivables were outstanding in
excess of one year.
 
     Unison's Indiana and Washington facilities are subject to a gross receipts
tax based on a percentage of each facility's gross revenues. In late 1996, the
Company determined that gross receipts taxes had not been paid to the state of
Indiana related to facilities acquired from BritWill for fiscal years 1993
through 1995. Accordingly, the Company recorded a liability for these taxes
including estimated interest and penalties.
 
     Rent Expense.  Rent expense increased 134.6% from $6,673,000 in 1995 to
$15,658,000 in 1996. The increase is due primarily to the increase in the number
of leased facilities operated. Rent expense as a percentage of revenues
increased to 10.5% in 1996 from 9.7% in 1995.
 
     Interest Expense.  Interest expense amounted to $5,824,000 in 1996 compared
to $1,176,000 in 1995. The increase is primarily the result of debt incurred and
assumed in connection with acquisitions, including the $100,000,000 of Senior
Notes issued on October 31, 1996, as well as increases in borrowings for working
capital. See "-- Liquidity and Capital Resources." Interest expense as a
percentage of revenues increased to 3.9% in 1996 from 1.7% in 1995.
 
     Depreciation and Amortization.  Depreciation and amortization expense
increased from $1,311,000 in 1995 to $4,561,000 in 1996. The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions and an increase in fixed assets resulting from capital expenditures
and ownership interests in six facilities acquired in the Signature Acquisition.
Depreciation and amortization expense as a percentage of revenues was 3.1% in
1996 and 1.9% in 1995.
 
     Impairment Losses.  In 1996, Unison incurred operating losses and
shortfalls of cash from operations. The Company also announced the planned
disposition of the eight Disposition Facilities. Of these Disposition
Facilities, one was closed in June 1996 and three others, which had incurred
operating losses since the Company had acquired them in August 1995, were
disposed of in March 1997. These events, as well as a history of operating
losses at certain facilities, raised the possibility of continuing losses
associated with the Company's income producing assets. Consequently, Unison
evaluated its long-lived assets including property and equipment, goodwill,
lease operating rights and other intangible assets for impairment in accordance
with SFAS No. 121. Unison estimated the undiscounted net cash flows from all
business units and determined that the carrying value of certain of Unison's
long-lived assets exceeded such undiscounted cash flows. Accordingly, Unison
then compared the fair value of the assets based on the present value of the
estimated future cash flows for the facilities (which were estimated based on
the remaining weighted average useful lives of the assets, earnings history, and
a discount rate commensurate with the risks involved and market conditions and
assumptions reflecting internal operating plans and strategies) with the
carrying value. Unison determined that the fair value of certain assets was less
than the carrying value and, accordingly, recorded a provision for impairment
losses in the amount of $3,865,000. Included in this amount is the estimated
cost to sublease and exit from the Disposition Facilities.
 
   
     Income Tax Expense (Benefit).  Unison recorded an income tax credit for
1996 amounting to $8,356,000, or 26.3% of pretax loss of $31,794,000. The
effective tax rate is lower than the statutory federal income tax rate due
primarily to (i) amortization of intangible assets and other expenses which are
not deductible for tax; (ii) taxable income of certain subsidiaries which are
not consolidated for tax; and (iii) the valuation allowance established against
deferred tax assets. The Company recorded a valuation allowance at December 31,
1996 amounting to $1,528,000 against tax benefits arising from net operating
losses and depreciation of certain of the Company's subsidiaries. The net
operating losses of these particular subsidiaries
    
                                       29
<PAGE>   32
 
   
arose prior to the subsidiaries' acquisition by Unison, and must be offset by
taxable income of the same companies. The valuation allowance was established
due to the uncertainty of the ultimate realization of these tax benefits based
upon past performance and expiration dates. The Company will recognize these
benefits only as reassessment demonstrates that they are realizable.
    
 
   
     Unison recorded a tax provision in 1995 of $132,000, or 53.0% of pretax
income. The effective tax rate for 1995 is higher than the statutory federal tax
rate due primarily to amortization of intangible assets and other nondeductible
expenses.
    
 
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
 
     Revenues.  Revenues increased from $18,406,000 in 1994 to $68,488,000 in
1995. The increase is primarily attributable to revenues from patient services
which increased from $17,070,000 in 1994 to $64,947,000 in 1995. Patient days
increased from 140,000 in 1994 to 613,000 in 1995. Of this growth in patient
revenues and census, approximately 90% is attributable to acquisitions, with the
remainder attributable primarily to the increase in quality mix and an increase
in average census of facilities owned throughout the period. Unison operated 11
leased nursing and assisted living facilities at December 31, 1994 compared to
42 leased nursing and assisted living facilities at December 31, 1995. The
revenues related to the 28 facilities acquired from BritWill are included in
Unison's results of operations for periods subsequent to July 31, 1995.
Management fees and other revenue increased from $1,336,000 in 1994 to
$3,541,000 in 1995 as a result of an increase in the number of managed
facilities from nine facilities in 1994 to 12 facilities during 1995 (with eight
facilities under such management agreements at December 31, 1995).
 
     Wages and Related.  Wages and related expense increased from $9,593,000 in
1994 to $35,047,000 in 1995. The increase in wages and related expense is
primarily attributable to the increase in the number of leased facilities
operated. Wages and related expense as a percent of revenues decreased from
52.1% in 1994 to 51.2% in 1995 as a result of the higher proportion of revenues
from certain ancillary businesses whose operations are less labor-intensive than
those of the nursing facilities.
 
     Other Operating.  Other operating expenses increased from $6,462,000 in
1994 to $24,032,000 in 1995. The increase is attributable primarily to an
increase in the number of facilities operated. Other operating expenses as a
percent of revenues remained constant at 35.1% in 1994 and 1995.
 
     Rent Expense.  Rent expense increased from $1,406,000 in 1994 to $6,673,000
in 1995. The increase is primarily a result of the acquisition of 4 leased
facilities during the first seven months of 1995 and an additional 28 facilities
from the BritWill Acquisition for the last five months of the year. Rent expense
as a percent of patient revenues increased from 7.6% in 1994 to 9.7% in 1995.
 
     Interest Expense.  Interest expense increased from $147,000 in 1994 to
$1,176,000 in 1995. The increase is primarily attributable to the agreement
entered into in April 1995 to sell the Company's accounts receivable and
additional indebtedness assumed in connection with the BritWill Acquisition.
Interest expense as a percent of revenues increased from 0.8% in 1994 to 1.7% in
1995.
 
     Depreciation and Amortization Expense.  Depreciation and amortization
expense increased from $286,000 in 1994 to $1,311,000 in 1995. The increase is
due primarily to the amortization of goodwill and lease operating rights
attributable to the increase in leased facilities, related equipment purchases
and leasehold improvements. Depreciation and amortization expense as a percent
of revenues increased from 1.6% in 1994 to 1.9% in 1995.
 
BRITWILL HISTORICAL
 
     Separate financial statements of an acquired business ordinarily need not
be presented once the operating results of the acquired business have been
reflected in the audited financial statements of the acquiring company for a
complete fiscal year unless the acquired business is of such significance to the
registrant that omission of such financial statements would materially impair an
investor's ability to understand the historical financial results of the
acquiring company. At the date of acquisition (August 10, 1995), BritWill was of
such significance to Unison as to be considered a predecessor company.
Accordingly, the following discussion of
 
                                       30
<PAGE>   33
 
BritWill's historical results of operations is provided on a comparative basis
for the year ended December 31, 1994 and the seven months ended July 31, 1995.
 
Overview
 
     BritWill's long-term care facilities derived 28.6% of resident care revenue
from Medicare and ancillary services for the seven months ended July 31, 1995
compared to 18.8% in the comparable 1994 period. For the year ended December 31,
1994, 17.6% of resident care revenue was derived from Medicare and ancillary
services compared with 5.0% for the year ended December 31, 1993.
 
Seven Months Ended July 31, 1995 Compared to Seven Months Ended July 31, 1994
 
     Revenues.  Revenues increased from $29.9 million in 1994 to $38.9 million
in 1995, an increase of 30.1%. These increases are primarily attributable to the
expansion of Medicare services; there were 15 facilities in the Medicare program
in the first seven months of 1994 compared to 24 in 1995. Medicare and ancillary
revenue were 7.0% and 7.0%, respectively, of patient revenues in 1994 compared
to 23.0% and 6.0%, respectively, of patient revenues for 1995. Management fee
revenues decreased by $120,000 or 75% due to the conversion of 2 facilities from
management contracts to leases in November of 1994. However, this decrease was
offset by an additional $3.2 million in patient revenues.
 
     Wages and Related Expense.  Wages and related expense increased from $17.0
million in 1994 to $23.3 million in 1995, an increase of 37.1%. Salary and wages
increased 18.4%. New leases contributed to $1.7 million of the wage increase.
The remaining increase is attributable to increased staffing necessary to
support the Company's increased Medicare services.
 
     Lease Expense.  Lease expense increased from $4.7 million in 1994 to $5.2
million in 1995, an increase of 10.6% due to the addition of the 3 facilities in
the fourth quarter of 1994.
 
     General and Administrative.  General and administrative expenses increased
from $3.4 million in 1994 to $3.9 million in 1995, an increase of 14.7%. This
increase is primarily attributable to new leases. As a percentage of revenues,
general and administrative expenses declined from 11.2% of revenue in 1994 to
10.0% of revenue in 1995.
 
     Depreciation and Amortization.  Depreciation and amortization increased
from $487,000 in 1994 to $591,000 in 1995, an increase of 21.4%. This increase
is attributable to additional equipment and leasehold improvements at BritWill's
facilities.
 
     Interest Expense.  Interest expense increased from $571,000 in 1994 to
$906,000 in 1995, an increase of 58.7%. This increase was primarily due to
additional borrowings under the revolving credit facility.
 
     Income (Loss) before Income Taxes and Net Income.  Income before income
taxes increased from a loss of $1.9 million for the seven months ended July 31,
1994 to income of $43,880 for the seven months ended July 31, 1995. This was
primarily attributable to an increase in acuity of patients and an increase in
Medicare patients in 1995; thus, ancillary utilization increased resulting in
substantially improved performance. There was no tax benefit provided for the
1994 loss since a valuation reserve was established for such income tax
benefits. Net income increased from a net loss of $1.9 million for the seven
months ended July 31, 1994 to net income of $13,380 for the seven months ended
July 31, 1995.
 
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
 
     Revenues.  Revenues increased from $32.7 million in 1993 to $54.4 million
in 1994, an increase of 66.4%, primarily attributable to the acquisition of nine
facility leases in Texas, primarily in the fourth quarter of 1993. In addition,
in the latter half of 1994, there was a significant increase in Medicare patient
days as there were more Medicare certified facilities. Management fee revenues
decreased 28.1% due to the conversion of two facilities from management
contracts to leases in June 1994 and two additional facilities in November. The
increase in patient census was diluted by a modification in Rule 14 under the
Indiana Medicaid reimbursement program. The effect of this ruling decreased
revenues by $1.2 million.
 
     Operating Expenses.  Operating expenses increased from $23.5 million in
1993 to $40.0 million in 1994, an increase of 70.2%. Facility salaries and wages
increased 68.2%, attributable to new leases in Texas.
 
                                       31
<PAGE>   34
 
Ancillary expenses increased $1.7 million due to the increase in the number of
facilities participating in the Medicare program.
 
     Lease Expense.  Lease expense increased from $5.1 million in 1993 to $8.3
million in 1994, an increase of 62.7%, due to the new leases.
 
     General and Administrative.  General and administrative expenses increased
from $3.7 million in 1993 to $6.3 million in 1994, an increase of 70.3%. This
increase is primarily attributable to new leases and additional resources
dedicated to expanded Medicare operations in 1994.
 
     Depreciation and Amortization.  Depreciation and amortization increased
from $704,000 in 1993 to $987,000 in 1994, an increase of 40.2%. This is
primarily attributable to the amortization of leasehold rights recorded as part
of the acquisition of five of the Texas facilities in December of 1994.
 
     Interest Expense.  Interest expense increased from $385,000 in 1993 to
$872,000 in 1994, an increase of 126.5%, primarily due to the payment of
interest on subordinated long-term debt.
 
     Income/Loss before Income Taxes and Net Loss.  Loss before income taxes
increased from $542,155 for the year ended December 31, 1993 to $1.9 million for
the year ended December 31, 1994. This was primarily attributable to an increase
in supplies expense, principally ancillary costs, in 1994 which were not
billable to Medicaid. There was no tax benefit provided for the losses since a
valuation reserve was established for such income tax benefit. Net loss
increased from $593,905 in 1993 to $2.0 million in 1994.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     At December 31, 1996, Unison had $17,409,000 in cash and cash equivalents
compared to $6,169,000 at December 31, 1995. The Company had a working capital
deficit of $13,955,000 at December 31, 1996 compared to a working capital
deficit at December 31, 1995 amounting to $927,000. The working capital deficit
shown at December 31, 1996 is primarily the result of current maturities of
notes and debt amounting to $33,915,000. Of this amount, approximately
$12,545,000 was repaid in January 1997 with proceeds from the Senior Notes and
$19,622,000 is classified as a current liability because Unison is not in
compliance with certain financial covenants; however, although the financial
covenants have not yet been cured, management has no reason to believe that this
debt will be accelerated and paid off in 1997.
 
     Cash used in operations in the year ended December 31, 1996 amounted to
$23,658,000 compared to $932,000 in 1995 and $43,000 in 1994. The increase is
due primarily to losses from operations for the various reasons described above
in the comparison of 1996 to 1995 and a net increase in accounts receivable of
$5,310,000, partially offset by an increase in accounts payable and accrued
expenses of $2,454,000 and a decrease in prepaid expenses of $825,000.
 
     Net cash used in investing activities amounted to $48,723,000 in 1996
compared to $3,679,000 in 1995 and $1,630,000 in 1994. In 1996, capital
expenditures amounted to $3,587,000 compared to $1,333,000 in 1995 and $995,000
in 1994. Capital expenditures of approximately $2,144,000 are budgeted for 1997
for routine replacements and refurbishment of facilities, which is anticipated
to be funded from operating cash flows and borrowings under lines of credit.
Expenditures for acquisitions, net of cash acquired, amounted to $41,225,000 in
1996, $40,066,000 of which relates to the Signature Acquisition, compared to
$677,000 in 1995 for the BritWill Acquisition and $300,000 in 1994. Increases in
intangible and other assets amounted to $2,707,000 in 1996, $1,397,000 in 1995
and $155,000 in 1994.
 
     Net cash provided by financing activities amounted to $83,621,000 in 1996
compared to $10,474,000 in 1995 and $1,795,000 in 1994. At December 31, 1996,
Unison had $157,138,000 in total debt (93.1% of total capitalization) compared
to $26,737,000 (56.1% of total capitalization) at December 31, 1995.
 
     Net accounts receivable increased 56.1%, or $10,284,000, to $28,608,000 as
of December 31, 1996 from $18,324,000 at December 31, 1995. Of this increase,
$13,522,000 is primarily attributable to accounts receivable of operations
acquired subsequent to December 31, 1995 offset by the increase in the allowance
for doubtful accounts.
 
     The allowance for doubtful accounts increased as a percentage of
receivables from 4.1% at December 31, 1995 to 11.7% at December 31, 1996. This
increase is the result of the adjustments described in "-- Results of
                                       32
<PAGE>   35
 
Operations" as well as the higher proportion of bad debt reserves recorded by
acquired companies. The Company anticipates that its allowance for doubtful
accounts will fluctuate in the future and will depend, in large part, on the mix
of revenues as well as the timing of payments by private and third-party payors.
 
     Accrued expenses increased 132%, or $12,199,000, to $21,437,000 as of
December 31, 1996 from $9,238,000 at December 31, 1995 primarily as a result of
(i) accrued expenses of companies acquired in 1996 amounting to $6,776,000; (ii)
accrued gross receipts taxes, interest and various penalties amounting to
$3,565,000; (iii) accrued interest in the amount of $2,871,000, primarily
related to the Senior Notes; and (iv) a liability in the amount of $2,511,000
for additional purchase consideration paid in March 1997 to the former owners of
Signature in accordance with an equity adjustment provision of the Signature
merger agreements.
 
     On October 31, 1996, Unison completed the private placement of $100,000,000
of its Senior Notes. The net proceeds to Unison amounting to $94,550,000 were
used to complete the Signature Acquisition and the Ampro Acquisition and prepay
certain debt and contingent obligations as described below. Excess proceeds of
approximately $15,500,000 were used for acquisitions and working capital. The
stated interest rate of 12 1/4% per annum is subject to temporary increase if
the Senior Notes (or Exchange Notes with the same terms) are not registered with
the Commission within specified time periods. As of December 31, 1996, the
interest rate on the Senior Notes was 12.75% and as of September 12, 1997 the
interest rate is 13.50%. The interest rate is subject to further increases of
0.25% every 90 days thereafter (up to a maximum rate of 14 1/4%) until such
registration becomes effective.
 
     In January 1997, Unison repaid with proceeds from the Senior Notes the
$8,000,000 subordinated note payable to the former BritWill shareholders (the
"Subordinated Note") and $1,750,000 of the contingent obligation due to the
former BritWill shareholders (the "Additional Payment Obligation"). Thereafter,
Unison's remaining obligation associated with the BritWill Acquisition is the
balance of the Additional Payment Obligation amounting to $9,750,000. The
Additional Payment Obligation is payable in monthly installments of $99,000 to
$166,000, which includes interest at 12.0% to 14.0%, with a balloon payment of
$8,146,000 due August 9, 2000. Because these payments are contingent upon
revenue targets that, in light of recent acquisitions, are likely to be
achieved, the Additional Payment Obligation is recorded as long-term debt and an
increase in lease operating rights in the consolidated balance sheet at December
31, 1996. Although this does not change the amount of cash due to the former
BritWill shareholders, Unison will record an increase in amortization and
interest expense in 1997 in the aggregate amount of approximately $1,600,000. In
the event of a sale by Unison prior to August 9, 2000 of debt or equity
securities exceeding $10,000,000, the remaining balance of the Additional
Payment Obligation will be due in full.
 
   
     In connection with the Signature Acquisition, Unison assumed a 10.5%
mortgage loan (the "Mortgage Note") collateralized by property and equipment of
six of the Signature facilities. The Mortgage Note requires Unison to maintain a
consolidated net worth of at least $39,000,000 and a minimum current ratio
(current assets to current liabilities) consolidated for the six properties of
at least 1.45 to 1 during 1996 and a debt service coverage ratio (as defined)
for the four preceding quarters consolidated for the six properties of at least
1.5 to 1. While the minimum current ratio and debt service ratios consolidated
for the six properties were in compliance with the debt covenants, Unison's
consolidated net worth was $11,689,000 as of December 31, 1996 and, accordingly,
the Company was not in compliance with the net worth covenant. Unison did not
receive a waiver of this covenant violation and, accordingly, classified the
entire obligation of $18,640,000 as current. In addition, the Company has not
met the financial reporting requirements of the Mortgage Note. The Company is
current on its payments on the Mortgage Note and the lender has not indicated
any intention to declare the Company in default. In the event of a declaration
of default, Unison may be required to repay the Mortgage Note or the lender may
foreclose on the properties, which would adversely impact Unison's results of
operations. While the Company does not believe, based on discussions with the
lender, that a declaration of default will occur, it is considering a
refinancing of the Mortgage Note as discussed below.
    
 
     Effective February 1, 1996, in connection with the acquisition of Sunbelt
Therapy, Unison issued promissory notes and debentures in the aggregate amount
of $2,800,000 with interest payable quarterly at 10.0%. The notes and debentures
were convertible into shares of Unison Common Stock. In January 1997, Unison
repaid $2,000,000 of the notes and debentures with proceeds from the Senior
Notes, and the remaining
 
                                       33
<PAGE>   36
 
$800,000 principal amount was converted into 105,196 shares of Unison Common
Stock. The conversion price ($7.61) was equal to 85% of the average closing
price of Unison's Common Stock ($8.95) for the 20-day trading period preceding
notice of conversion on November 27, 1996. In November 1996, but effective
February 1, 1996, Unison repurchased the 10% minority interest in Sunbelt
Therapy. Consideration for the purchase was comprised of promissory notes and
guaranteed payments totalling $1,876,000, with interest payable quarterly at
9.0% per annum, and 27,942 shares of Unison Common Stock. Additional contingent
payments of up to $1,418,000 will be due if specified income targets are
achieved by Sunbelt Therapy.
 
     Unison also entered into a number of capital leases in 1996. At December
31, 1996, capital lease obligations for purchases of computer systems and other
fixed assets totalled $2,969,000, payable monthly over three to five years with
interest at 11.5% to 12.9%. The leases of two nursing facilities entered into in
August 1996 were recorded as capital leases; at December 31, 1996 the aggregate
lease obligation amounted to $4,122,000, payable monthly over the lease terms at
effective interest rates of 10.5% to 15.0%.
 
     Unison's minimum annual contractual commitments for leaseholds and
principal and interest on debt are expected to be as follows:
 
<TABLE>
<CAPTION>
                                                     LONG-TERM       OPERATING        TOTAL
                                                        DEBT          LEASES       OBLIGATIONS
                                                    ------------    -----------    ------------
<S>                                                 <C>             <C>            <C>
Year ending December 31,
  1997............................................  $ 43,857,000    $15,492,000    $ 59,349,000
  1998............................................    20,878,000     15,591,000      36,469,000
  1999............................................    19,268,000     15,362,000      34,630,000
  2000............................................    25,793,000     14,727,000      40,520,000
  2001............................................    16,499,000     13,975,000      30,474,000
  Thereafter......................................   177,071,000     89,596,000     266,667,000
</TABLE>
 
   
     Unison finances its working capital needs with cash provided by its
operations and draws under a $10,000,000 revolving credit facility. Borrowings
under this credit facility currently bear interest at the prime rate plus 4.0%
and are secured by certain of Unison's eligible accounts receivable. On October
31, 1996, Unison repaid the outstanding balance of $8,900,000 (plus $200,000 of
fees) with proceeds from the Senior Notes. There were no outstanding borrowings
under this credit facility at December 31, 1996. In March 1997, Unison paid a
management fee (in lieu of a termination fee) of $500,000. The lender agreed
that the existing facility would remain in place at Unison's option until
December 31, 1997 (subsequently extended to June 30, 1998). At July 31, 1997,
$8,333,000 (the maximum amount available based on current levels of collateral)
was outstanding under this line of credit with interest at 12.5% per annum.
    
 
   
     The Company believes that, absent additional financing, its cash flows from
operations and draws under its existing $10,000,000 line of credit will not be
sufficient to meet all of its debt service requirements in 1997 and beyond.
    
 
   
     The Company has been working since July 1997, on a plan designed to: (i)
reduce its costs of capital and operating expenses to improve operating results;
(ii) provide short-term and long-term liquidity; and (iii) restructure its
balance sheet and increase stockholders' equity. The key elements of the plan
include: (i) reductions in controllable costs as described in "-- Overview";
(ii) obtaining a new revolving line of credit secured by its eligible accounts
receivable; (iii) completing a refinancing of the Mortgage Note incurred in
connection with the Signature Acquisition; and then, (iv) depending on market
conditions, an equity infusion. The Company is currently seeking to replace the
Mortgage Note (and to refinance one of its leased facilities which is subject to
a purchase option) with new financing in the amount of up to $40.0 million. The
Mortgage Note had a balance at September 30, 1997 of $18.5 million. Proceeds
from these financing transactions would be used for debt service and working
capital. There is no assurance that the Company will be successful in effecting
any refinancing of the Mortgage Note.
    
 
   
     Even if the Company is successful in completing refinancing transactions of
the type it is currently seeking, it will still not have sufficient liquidity to
meet all of its short- and long-term debt service and capital
    
 
                                       34
<PAGE>   37
 
   
requirements, absent significant asset sales or a substantial restructuring of
its debt and lease obligations. Some of these obligations are already in
default, as described below. Market conditions permitting, Unison may seek to
raise additional equity through the private placement of stock, but there can be
no assurance that any such equity financing will be available.
    
 
   
     If the Company completes the recapitalization plan outlined above, it may
incur a charge to earnings of up to $2,500,000 from prepayment penalties and the
write-off of deferred financing costs related to the obligations which are
proposed to be paid off.
    
 
   
     On April 21, 1997, the Company obtained a $2,950,000 loan for general
working capital purposes from affiliates of two of its directors, Messrs.
Kremser and Whitehead. This loan matured on November 1, 1997. On September 25,
1997, Unison borrowed an additional $1.0 million from Messrs. Kremser and
Whitehead which was due on October 7, 1997. The loans bear interest at prime
plus 2.0% and are secured by a pledge of certain accounts receivable and the
stock of certain Unison subsidiaries. Unison is currently in default on its
obligations to repay these loans. In addition to the foregoing, the loan
documents state that the collateral pledged for the working capital loans also
collateralized all other obligations which may be due to these individuals
and/or entities which they control; and further that all such obligations are in
default due to cross default provisions in those loan and security documents.
All of these obligations total, in the aggregate, approximately $18.9 million as
of September 30, 1997. The Company has not obtained a waiver of the defaults on
its obligations in the loan and security documents described above. An
acceleration of Unison's obligations under these financial instruments could
have a material adverse effect on Unison.
    
 
   
     On December 1, 1997, Unison completed the private placement of $20.0
million of its 13% Senior Notes due 1999 (the "13% Notes"). The net proceeds to
the Company of $19.2 million were used for debt service, including the
semiannual payment of interest on the 12.25% Senior Notes amounting to $6.7
million, and for working capital. The Company has not made the interest payment
due March 1, 1998 on the 13% Notes in the amount of $650,000.
    
 
   
     The terms of certain of Unison's indebtedness and lease obligations require
the Company to meet certain financial covenants including cash flow to rent
ratios, cash flow to debt service ratios, current ratios and specified minimum
levels of cash and net worth. The Company is also subject to periodic financial
reporting requirements. At December 31, 1996, Unison was not in compliance with
many of these covenants. At December 31, 1996, Unison was obligated to Omega as
a tenant under three master lease agreements covering 14 facilities having an
aggregate minimum rent of approximately $34,900,000 (subject to increase) during
the remainder of their initial terms. The master leases require the Company to
maintain specified cash flow to rent ratios, cash flow to debt service ratios,
minimum cash, current ratios and tangible net worth ratios. Unison also leases
six facilities located in Texas from BritWill Texas (the "BritWill Texas
Leases") for an initial term that expires in December 2005. The lease agreement
with BritWill Texas requires the Company to pay to Omega monthly amounts equal
to (i) the amount of loan payments due to Omega from BritWill Texas pursuant to
a loan agreement between those parties, which provided the financing for
BritWill Texas' acquisition of the facilities and (ii) lease payments on the
facilities that are subleased to Unison. The BritWill Texas Leases contain cross
default provisions with the Omega leases by which if Unison is in default with
any Omega indebtedness or lease obligation, the Company is also in default under
the BritWill Texas Leases. Unison was not in compliance with these covenants at
December 31, 1996. Omega waived noncompliance by Unison, through April 12, 1997,
of the violations of the financial covenants related to both Unison's leases
with Omega and the BritWill Texas Leases. The Company is not in compliance with
these covenants after this date and, accordingly, is negotiating with Omega to
restructure the aforementioned covenants. There can be no assurance that such
restructuring will be accomplished, or if accomplished, that the restructuring
will result in more favorable terms to Unison and its stockholders. With the
exception of the aforementioned classification of the Mortgage Note as a current
liability, there was no financial statement impact as of and for the year ended
December 31, 1996 as a result of the Company's covenant defaults on its debt and
lease agreements. Unison was, at December 31, 1997, in arrears of its rent
obligations under these leases in the approximate amount of $1.3 million plus
late charges. On January 7, 1998, three of Unison's subsidiaries (BritWill
Investments -- I, Inc., BritWill Investments -- II, Inc., and BritWill Indiana
Partnership) filed for protection under Chapter 11 of the federal bankruptcy
laws. These subsidiaries operate a total of 26 facilities in Texas and Indiana
including the facilities leased from Omega and BritWill Texas. The filings were
necessitated by
    
                                       35
<PAGE>   38
 
   
actions taken by Omega to terminate or otherwise enforce contractual
arrangements under the leases. The subsidiary filings do not affect Unison's
operations outside of Texas and Indiana.
    
 
   
     Because the Company's cash flows from operations and its available capital
have been insufficient to meet its current operating expenses, lease obligations
and debt service requirements, the Company is currently in covenant and payment
default in the terms of material operating leases and indebtedness. In the
absence of obtaining additional capital through the refinancing of the Mortgage
Note, asset sales, securing an increased revolving credit facility, consensual
restructuring of debt and lease terms and/or similar measures, the Company will
be unable to remedy the existing defaults and will experience additional
defaults in the future. The Company's operating leases are subject to
termination in the event of default, and the Company's indebtedness may be
accelerated in the event of continuing default. Certain lenders could foreclose
on Company assets securing their indebtedness, which would include substantially
all of the Company's operating assets. Accordingly, the Company's financial
condition could require that the Company seek additional protection under
applicable reorganization laws in order to avoid or delay actions by its
creditors and lessors which could materially adversely affect or cause the
cessation of the Company's operations.
    
 
     Inflation.  The Company does not believe that inflation has adversely
affected the Company's business during the past three years, even though
Medicare and Medicaid reimbursement rates in some areas have not kept pace with
inflation. To the extent inflation occurs in the future, the Company may not be
able to pass on the increased costs associated with providing health care
services to patients if reimbursement from third party payors does not keep up
with such increases.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     Financial Statements are presented on pages F-1 through F-42 of the report
and are incorporated herein by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None.
 
                                       36
<PAGE>   39
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     As described more fully under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein, in March 1997 the Company
determined it to be necessary to restate its operating results for the nine
months ended September 30, 1996. Unison's independent directors thereupon took
steps to reorganize the financial and executive leadership of the Company. In
connection with these changes, Messrs. Walker, Clark and Contris resigned as
executive officers, directors and employees of the Company. David A. Kremser, a
Unison director who served as president and CEO of Signature until it was
acquired by Unison in October 1996, was appointed the Chairman of the Executive
Committee of the Board of Directors in March 1997, thereby serving as the
Company's chief executive officer and chief financial officer until September 8,
1997.
 
   
     The following table sets forth certain information with respect to the
current directors and executive officers of the Company at September 12, 1997.
    
 
<TABLE>
<CAPTION>
                 NAME                    AGE             POSITION WITH THE COMPANY
                 ----                    ---             -------------------------
<S>                                      <C>    <C>
Michael A. Jeffries....................   47    President and Chief Executive Officer
Phillip R. Rollins.....................   39    Executive Vice President-Operations,
                                                Chief Operating Officer, Director
James A. Rice..........................   50    Executive Vice President, General Counsel
                                                and   Secretary
L. Robert Oberfield....................   59    President, Quest Pharmacies, Inc.
Paul G. Henderson......................   41    President, Sunbelt Therapy Management
                                                Services, Inc.
Terry Troxell..........................   46    Senior Vice President - Clinical Operations
William G. Allen, Jr...................   46    Senior Vice President - Operations
Clayton Kloehr.........................   40    Senior Vice President and Treasurer
Bruce H. Whitehead(1)..................   44    Chairman of the Board, Director
David A. Kremser(1)(3)(4)..............   49    Director
John T. Casey(2)(3)....................   51    Director
Tyrrell L. Garth(2)....................   48    Director
John T. Lynch, Jr.(1)(3)...............   49    Director
Mark W. White(2)(3)....................   57    Director
</TABLE>
 
---------------
(1) Member of Executive Committee.
 
(2) Member of Compensation Committee.
 
(3) Member of Audit Committee.
 
(4) Mr. Kremser became a director of Unison upon the closing of the Signature
    Acquisition. Since March 1997, Mr. Kremser has served as Chairman of the
    Executive Committee of the Board of Directors.
 
     Michael A. Jeffries, 47, has served as President and Chief Executive
Officer of Unison since September 8, 1997. From 1989 to August 1997, Mr.
Jeffries was Senior Vice President and a Director of Horizon/ CMS Healthcare, a
publicly traded long-term care company. From 1983 to 1989, Mr. Jeffries was
employed by Beverly Enterprises, the nation's largest long-term care company,
most recently as Senior Vice President, Operations. Prior thereto Mr. Jeffries
was the Director of Operations and Chief Financial Officer of Mid-America
Nursing, a regional nursing home system in Kansas.
 
     Phillip R. Rollins, 39, has served as the Executive Vice President and
Chief Operating Officer of Unison since it commenced operations in July 1992,
when he co-founded Unison. From June 1989 until joining Unison, he was the
Director of Operations of Samaritan Senior Services, Inc. ("Samaritan"), a
regional operator of subacute and long-term care facilities based in Phoenix,
Arizona. Prior to joining Samaritan,
 
                                       37
<PAGE>   40
 
Mr. Rollins was the Director of Medicare and Ancillary Services for Life Care
Centers of America, a private operator of long-term care facilities
headquartered in Cleveland, Tennessee. Mr. Rollins is a member of the American
College of Health Care Administrators.
 
     James A. Rice, 50, has served as Executive Vice President, General Counsel
and Secretary of Unison since June 5, 1997. From 1995 to June 1997, when he
joined Unison, he was Special Counsel to Kaiser Foundation Health Plan, Inc., an
operator of prepaid health plans. From 1983 to 1995, Mr. Rice was an attorney in
private practice. From 1979 to 1983, Mr. Rice was Vice President, Associate
General Counsel and Assistant Secretary of American Medical International, Inc.,
a publicly traded hospital management company. Mr. Rice is a Certified
Administrator of Residential Care Facilities for the Elderly in California.
 
     L. Robert Oberfield, 59, has been President of Quest Pharmacies, Inc., a
subsidiary of Unison, since it was organized in March 1995. From December 1992
to March 1995, he was employed by Sunscript Pharmacy Corp., a subsidiary of Sun
Healthcare Company, most recently as President. From September 1990 to December
1992 he was employed by RDS Acquisition Corp. ("RDS"). RDS commenced bankruptcy
proceedings in December 1991. At the time the proceedings commenced, Mr.
Oberfield was the Senior Vice President of RDS, and he served as its President
thereafter until December 1992.
 
     Paul G. Henderson, 41, has served as President of Sunbelt Therapy
Management Services, Inc. since the acquisition of Sunbelt by Unison in March
1996. For the past six years, Mr. Henderson has been active in the founding and
management of physical therapy service providers (such as Sunbelt) and in
providing patient care.
 
     Terry Troxell, 46, has served as Director of Professional Services of
Unison since it commenced operations in July 1992. In November 1994, she became
Vice President of Unison and in September 1996 she became Senior Vice
President -- Clinical Operations. From July 1991 until July 1992, Ms. Troxell
served as Director of Professional Services of Samaritan. She was employed by
the Arizona Department of Health from 1985 until 1991, where she served as
Program Manager of Health Care Facility Licensure and Enforcement, overseeing
the licensing, certification and enforcement of all licensed healthcare
facilities in Arizona. Ms. Troxell is a licensed Registered Nurse and a
Certified Gerontologist Clinical Specialist. She sits on the American Health
Care Association's national facility standards committee and Long-Term Care
Nurse Council. She is a member of the American Gerontological Nurses Association
and the Association for Professionals in Infection Control and Epidemiology.
 
     William G. Allen, Jr., 46, has been Senior Vice President - Operations
since October 14, 1996. Prior thereto he was a Regional Vice President for
Unison (since November 1994), and before that he was Executive Director of
Plantation Manor Incorporated, a private operator of skilled nursing and
assisted living facilities.
 
     Clayton Kloehr has served as Senior Vice President and Treasurer of Unison
since July 1, 1997. From August 1995 through June 30, 1997, Mr. Kloehr provided
financial consulting services to Unison. From February 1995 until August 1995,
Mr. Kloehr was BritWill's Treasurer. During the 14 years prior thereto Mr.
Kloehr was employed by Placid Oil Company, a privately held oil exploration and
production company based in Dallas, Texas, most recently as a Manager of
Treasury Operations.
 
     Bruce H. Whitehead, 44, has served as the Chairman of the Board of Unison
since August 1995. He is also President and Chief Executive Officer of the
general partner of Whitehead Family Investments, Ltd. Prior to joining Unison,
Mr. Whitehead was Chairman of BritWill from its inception in 1992. From 1984
through 1992, Mr. Whitehead was President of The BritWill Company, which also
invested in and managed long-term care facilities.
 
     David A. Kremser, 49, founded Signature in July 1987 and served as its
Chairman, President, Chief Executive Officer and a Director until it was
acquired by Unison in October 1996. From January 1985 through 1987, Mr. Kremser
was a Director and Executive Vice President of Columbia Corporation, a long-term
care company, and the President of Columbia West Corporation, a subsidiary of
Columbia Corporation. Prior to joining Columbia Corporation, he was affiliated
with ARA Services, Inc. ("ARA"), most recently with responsibility for ARA's
operations in California, Colorado, Wyoming and Texas.
                                       38
<PAGE>   41
 
     John T. Casey, 51, has served as a Director of Unison since August 1995.
Mr. Casey is the Chief Executive Officer of InteCare LLC, a hospital management
firm in Irving, Texas. From October 1991 through August 1995, Mr. Casey was the
Chief Operating Officer of American Medical International, a publicly traded
hospital management company. Prior to October 1991, Mr. Casey was President of
Samaritan Health Services, a hospital and long-term care provider.
 
     Tyrrell L. Garth, 48, has served as a Director of Unison since August 1995.
Mr. Garth became President of Cheyenne Capital in Beaumont, Texas, a personal
investment firm, in 1996. Prior thereto he was a partner in the law firm of
Moore, Landry, Garth, Jones, Barmeister and Hulett, LLP, which served as general
counsel to BritWill prior to its acquisition by Unison in August 1995.
 
     John T. Lynch, Jr., 49, has been a director of Unison since June 1992. Mr.
Lynch was also a director of BritWill between 1992 and its acquisition by Unison
in 1995. In January 1990, he co-founded Trouver Capital Partners, L.P.
("Trouver"), a private investment banking firm and serves as one of its general
partners. Mr. Lynch was Managing Director and a member of the Health Care
Finance Group of Furman Selz Incorporated, and was Managing Director and head of
the Health Care Finance Group at Thomson McKinnon Securities, Inc. and Dean
Witter Reynolds Inc. for the period 1980 through 1990.
 
     Mark W. White, 57, has served as a Director of Unison since August 1995.
Mr. White has been an attorney in private practice since 1987. From 1983 to
1987, Mr. White served as Governor of the State of Texas.
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Commission. Specific due dates for these reports have been established, and the
Company is required to disclose any failure to file by these dates. The Company
believes that all of these filing requirements were satisfied during the year
ended December 31, 1996, except that Messrs. Whitehead, Garth, Casey, Lynch,
White, Walker, Contris, Clark and Oberfield and Ms. Troxell have not yet
reported on a Form 5 for the year ended December 31, 1996 a repricing of options
on January 16, 1996 and Mr. Rollins has not yet amended a Form 5 to report the
same repricings.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The following table sets forth, with respect to the years ended December
31, 1996, 1995 and 1994, compensation awarded to, earned by or paid to (i)
Unison's Chief Executive Officer throughout 1996 and (ii) the four other
executive officers who were serving as executive officers at December 31, 1996.
 
                         SUMMARY COMPENSATION TABLE (1)
 
   
<TABLE>
<CAPTION>
                                                                       LONG-TERM
                                                                      COMPENSATION
                                                       ANNUAL         ------------
                                                    COMPENSATION       SECURITIES
                                                 ------------------    UNDERLYING
                                                  SALARY     BONUS    OPTIONS/SARS    ALL OTHER
      NAME AND PRINCIPAL POSITION         YEAR     ($)        ($)        (#)(2)      COMPENSATION
      ---------------------------         ----   --------   -------   ------------   ------------
<S>                                       <C>    <C>        <C>       <C>            <C>
Jerry M. Walker,........................  1996   $275,000   $41,250      33,924
  President, Chief Executive Officer(3)   1995    200,000   $37,500      33,924
                                          1994    161,952
Phillip R. Rollins,.....................  1996   $220,000   $33,000      73,924
  Executive Vice President -              1995    200,000    30,000      33,924
  Operations, Chief Operating Officer     1994    138,515
</TABLE>
    
 
                                       39
<PAGE>   42
 
   
<TABLE>
<CAPTION>
                                                                       LONG-TERM
                                                                      COMPENSATION
                                                       ANNUAL         ------------
                                                    COMPENSATION       SECURITIES
                                                 ------------------    UNDERLYING
                                                  SALARY     BONUS    OPTIONS/SARS    ALL OTHER
      NAME AND PRINCIPAL POSITION         YEAR     ($)        ($)        (#)(2)      COMPENSATION
      ---------------------------         ----   --------   -------   ------------   ------------
<S>                                       <C>    <C>        <C>       <C>            <C>
Craig R. Clark,.........................  1996   $220,000   $33,000     133,924
  Executive Vice President,               1995    184,373    30,000      33,924        $175,000(5)
  Chief Financial Officer                 1994     14,231    20,000                      88,250(6)
  and Chief Accounting Officer(4)
Paul J. Contris,........................  1996   $220,000   $33,000      73,924
  Executive Vice President -              1995    200,000    30,000      33,924
  Acquisitions and Development(7)         1994    138,515
L. Robert Oberfield,....................  1996   $136,800                16,185
  President, Quest Pharmacies, Inc.       1995     64,000                 6,185
</TABLE>
    
 
---------------
(1) Certain columns have been omitted where there has been no compensation paid
    or awarded to or earned by any of the named executives required to be
    reported in such columns.
 
(2) The amounts shown for 1996 include both new option grants and outstanding
    options from prior years that were granted during 1995 and "repriced" during
    1996.
 
(3) Effective April 25, 1997, Mr. Walker resigned as President and Chief
    Executive Officer and as a Director.
 
(4) Effective April 25, 1997, Mr. Clark resigned as Executive Vice President,
    Chief Financial Officer, Chief Accounting Officer and as a Director.
 
(5) Represents a payment equal to one year's base salary in connection with the
    termination of Mr. Clark's employment agreement with BritWill.
 
(6) Includes consulting fees of $87,750 paid by BritWill before Mr. Clark became
    an employee of BritWill and $500 of fees as a director of BritWill. See
    "-- Employment Contracts, Termination of Employment, and Change-in-Control
    Arrangements."
 
   
(7) Mr. Contris served as Unison's Executive Vice President - Finance and Chief
    Accounting Officer from August 15, 1995 until June 1996. Effective April 25,
    1997, Mr. Contris resigned as Executive Vice President -- Acquisitions and
    Development and as a Director.
    
 
                                       40
<PAGE>   43
 
                     OPTION GRANTS IN LAST FISCAL YEAR (1)
 
     The following table sets forth information about stock option grants during
the last fiscal year to the past and present executive officers named in the
Summary Compensation Table.
 
<TABLE>
<CAPTION>
                                             INDIVIDUAL GRANTS
                            ----------------------------------------------------
                                              PERCENT OF
                                                TOTAL                               POTENTIAL REALIZABLE VALUE
                               NUMBER OF       OPTIONS                                AT ASSUMED ANNUAL RATES
                              SECURITIES      GRANTED TO   EXERCISE                 OF STOCK PRICE APPRECIATION
                              UNDERLYING      EMPLOYEES    OR BASE                      FOR OPTION TERM(2)
                            OPTIONS GRANTED   IN FISCAL     PRICE     EXPIRATION    ---------------------------
           NAME                 (#)(1)           YEAR       ($/SH)       DATE         5% ($)          10% ($)
           ----             ---------------   ----------   --------   ----------    -----------     -----------
<S>                         <C>               <C>          <C>        <C>           <C>             <C>
Jerry M. Walker...........      33,924(3)        4.97%      $9.00     8/10/2005      $192,012        $486,595
Phillip R. Rollins(5).....      33,924(3)        4.97        9.00     8/10/2005       192,012         486,595
                                40,000(4)        5.86        9.50      9/6/2006       238,980         605,622
Craig R. Clark............      33,924(3)        4.97        9.00     8/10/2005       192,012         486,595
                                60,000           8.79        9.00      9/6/2006       339,603         860,621
                                40,000(4)        5.86        9.50      9/6/2006       238,980         605,622
Paul J. Contris...........      33,924(3)        4.97        9.00     8/10/2005       192,012         486,595
                                40,000(4)        5.86        9.50      9/6/2006       238,980         605,622
L. Robert Oberfield(5)....       6,185(3)         .91        9.00     8/10/2005        35,007          88,716
                                10,000(4)        1.46        9.50      9/6/2006        59,745         151,406
</TABLE>
 
---------------
(1) Consists entirely of stock options. In connection with their resignations,
    Messrs. Walker, Contris and Clark relinquished their options. Includes
    options granted in 1995 that were repriced in 1996.
 
(2) Amounts represent hypothetical gains that could be achieved for the
    respective options if exercised at the end of the option term. These gains
    are based on assumed rates of stock appreciation of 5% or 10% compounded
    annually from the date the respective options were granted to their
    expiration date and are not presented to forecast possible future
    appreciation, if any, in the price of the Common Stock. The potential
    realizable value of the foregoing options is calculated by assuming that the
    market price of the underlying security appreciates at the indicated rate
    for the entire term of the option and that the option is exercised at the
    repriced exercise price and sold on the last day of its term at the
    appreciated price.
 
(3) These options were granted in 1995 with an exercise price of $10.00 per
    share and were repriced in January 1996 to $9.00 per share, which was the
    IPO price. The percent of total options granted to employees in fiscal year
    is based on 270,541 total grants issued in 1995 and repriced in 1996 plus
    412,412 new grants in 1996.
 
(4) These options were granted with an exercise price of $13.75 per share and
    were repriced in December 1996 to the current market value of $9.50 per
    share, which was the market value of the shares on the date of repricing.
    The percent of total options granted to employees in the fiscal year is
    based on 412,412 total grants in 1996 plus the 270,541 shares granted in
    1995 that were repriced in 1996.
 
(5) Mr. Rollins' options are exercisable 50% after one year after the grant and
    100% two years after the grants. Mr. Oberfield's options are exercisable
    over a period of four years from the grant date. The options granted to and
    held by Messrs. Walker, Clark, and Contris were terminated in connection
    with their resignations from the Company without being exercised.
 
                                       41
<PAGE>   44
 
                     FISCAL YEAR-END OPTION VALUE TABLE(1)
 
     The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the number and value
of options outstanding at the end of the last fiscal year. There were no option
exercises during the last fiscal year.
 
<TABLE>
<CAPTION>
                                                               NUMBER OF
                                                              SECURITIES              VALUE OF
                                                              UNDERLYING             UNEXERCISED
                                                              UNEXERCISED           IN-THE-MONEY
                                                              OPTIONS AT             OPTIONS AT
                                                          FISCAL YEAR-END (#)    FISCAL YEAR-END ($)
                                                             EXERCISABLE/           EXERCISABLE/
NAME                                                         UNEXERCISABLE        UNEXERCISABLE(1)
----                                                      -------------------    -------------------
<S>                                                       <C>                    <C>
Jerry M. Walker.........................................    16,962/ 16,962        $69,968/$ 69,968
Phillip R. Rollins......................................    16,962/ 56,962         69,968/ 214,968
Craig R. Clark..........................................    16,962/116,962         69,968/ 462,468
Paul J. Contris.........................................     8,481/ 56,962         34,984/ 179,984
L. Robert Oberfield.....................................     2,474/ 13,711         10,205/  46,455
</TABLE>
 
---------------
(1) Value as of December 31, 1996, based upon closing bid price on that date of
    $13.125 as reported on the Nasdaq National Market, minus the exercise price
    after repricing, multiplied by the number of shares underlying the option.
    In connection with their resignations, Messrs. Walker, Contris and Clark
    relinquished their options.
 
COMPENSATION OF DIRECTORS
 
     The nonemployee directors of Unison receive an annual retainer of $10,000
plus $1,000 for each Board and Committee meeting attended and reimbursement of
expenses. In addition they are entitled to participate in the Option Plan.
Nonemployee Directors are entitled to receive annual option grants, in respect
of 15,000 shares (17,500 shares in the case of the Chairman of the Board) for
1996 and at each subsequent annual meeting of stockholders, at market value on
that date. Each automatic grant becomes exercisable 50% one year after the grant
and 100% two years after the grant and has a term of ten years, subject to
earlier termination following the optionee's removal from the Board of Directors
for cause. Directors who are also executive officers of Unison receive no
additional compensation for serving on the Board of Directors. Mr. Kremser
receives compensation pursuant to a services agreement described elsewhere
herein. As compensation for services on the Executive Committee, Mr. Lynch will
receive an additional $15,000 per month.
 
THE 1995 STOCK OPTION PLAN
 
     Unison's 1995 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors effective July 10, 1995 and approved by the stockholders on
August 8, 1995. The Board of Directors approved on September 6, 1996, and
Unison's stockholders approved at the Unison Special Meeting on October 28,
1996, an amendment to the Option Plan (the "Option Plan Amendment") which
increased the number of shares of Unison Common Stock authorized for issuance
under the Option Plan from 511,046 to 800,000.
 
     The Option Plan is divided into two separate components: (i) a
Discretionary Option Grant Program under which eligible individuals may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
Common Stock at an exercise price determined by the Plan Administrator and (ii)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Unison Common Stock at an exercise price equal to 100% of their fair
market value on the grant date.
 
     The Discretionary Option Grant Program is administered by the Compensation
Committee. The Compensation Committee as Plan Administrator has complete
discretion to determine which eligible individuals are to receive option grants,
the time or times when such option grants are to be made, the number of shares
subject to each such grant, the status of any granted option as either an
incentive stock option or a
 
                                       42
<PAGE>   45
 
non-qualified stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant and the maximum term for which any granted
option is to remain outstanding.
 
     Upon an acquisition of Unison by merger, consolidation or reorganization,
each outstanding option may be substituted with shares of the acquiring company
or such option may be canceled in consideration for a cash payment to the
optionee of an amount per option share equal to the excess of the highest fair
market value of Unison Common Stock during the 60-day period preceding the
acquisition over the option exercise price. A similar cash payment will be made
to each optionee upon the dissolution or liquidation of Unison.
 
     The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of Unison Common
Stock on the new grant date.
 
     Under the Automatic Option Grant Program, each individual serving as a
non-employee member of the Board of Directors of Unison on the date of adoption
of the Option Plan by the Board of Directors received an option grant on such
date for 9,246 shares of Unison Common Stock, except that the Chairman of the
Board of Directors received an option for 10,496 shares. The Option Plan
Amendment increased these amounts. Nonemployee Directors are now entitled to
receive annual option grants in respect of 15,000 shares (17,500 shares in the
case of the Chairman of the Board) for 1996 and at each subsequent annual
meeting of stockholders.
 
     Each automatic grant becomes exercisable 50% one year after the grant and
100% two years after the grant and has a term of 10 years, subject to earlier
termination following the optionee's removal from the Board of Directors for
cause.
 
     The Board of Directors may amend or modify the Option Plan at any time. The
Option Plan will terminate on July 9, 2005, unless sooner terminated by the
Board of Directors.
 
     Effective August 10, 1995, the Board of Directors granted options to
purchase 261,520 shares of Unison Common Stock in the aggregate under the 1995
Plan to certain employees of Unison, including each of the executive officers in
the following amounts: Jerry M. Walker, Philip R. Rollins, Craig R. Clark and
Paul J. Contris, 33,924 shares each, which vest over a two-year period from the
grant date; and to L. Robert Oberfield and Terry Troxell, 6,185 shares each,
which vest over a four-year period from the grant date. All of the options have
an exercise price (after repricing in January 1996) of $9.00 per share, the fair
market value of the Common Stock on the grant date, as determined by the Board
of Directors.
 
     In September 1996 the Compensation Committee of the Board of Directors
confirmed a special, one-time grant (originally promised in July 1996 subject to
Compensation Committee Approval) of options for 60,000 shares to Craig R. Clark
having an exercise price of $9.50 per share, in conjunction with his assumption
of additional responsibilities as Unison's Chief Accounting Officer. On the same
date, the Compensation Committee recommended, and the full Board approved, the
issuance of options for an additional 324,350 shares to Unison employees at an
exercise price of $13.75 per share (subsequently repriced at $9.50 per share),
including options for 40,000 shares each to Messrs. Rollins, Contris and Clark,
options for 10,000 shares to each of Mr. Oberfield and Mr. Henderson, options
for 6,500 shares to William Allen and options for 7,500 shares to Ms. Troxell.
Mr. Allen received an additional option grant in October 1996 for 10,000 shares
at an exercise price of $10.50 per share. The following table sets forth stock
options granted in 1996.
 
                                       43
<PAGE>   46
 
                               1996 OPTION GRANTS
                            UNISON STOCK OPTION PLAN
 
<TABLE>
<CAPTION>
                                                                  NUMBER OF
NAME AND POSITION                                               OPTION SHARES
-----------------                                               -------------
<S>                                                             <C>
Jerry M. Walker, President, CEO.............................             0
Phillip R. Rollins, Executive Vice President................        40,000
Craig R. Clark, Executive Vice President....................       100,000
Paul J. Contris, Executive Vice President...................        40,000
L. Robert Oberfield, President,
  Quest Pharmacies, Inc.....................................        10,000
Executive Group (8 persons).................................       224,000
Non-Executive Director Group................................        92,500
Non-Executive Officer Employee Group........................       188,412
</TABLE>
 
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
 
     In connection with their resignations, in each case effective April 25,
1997, Messrs. Walker, Clark and Contris have received or will receive severance
payments in the amounts of $67,373, $18,333 and $55,000, respectively, in full
satisfaction of the Company's monetary obligations to them under their (now
terminated) employment agreements.
 
     Prior to its IPO in 1995 Unison entered into an employment agreement with
Mr. Rollins. The employment agreement will expire in August 1998, subject to
automatic renewal for successive one-year periods unless either Unison or Mr.
Rollins gives notice of non-renewal 30 days prior to expiration. As of December
31, 1996, the employment agreement provides for an annual base salary of
$220,000 and the right to earn quarterly and annual incentive compensation
totalling at least 60% of base salary, based on Unison's attainment of its
quarterly and annual budget as reflected in its quarterly and annual filings
with the SEC. The employment agreement provides that in the event of termination
by Unison other than for cause, Unison will pay Mr. Rollins one year's base
salary or his base salary for the remaining term of the agreement, whichever is
longer, and Mr. Rollins' pro-rated performance bonus. If the employment
agreement is not renewed at the end of the initial or subsequent term, Mr.
Rollins will be entitled to receive one year's base salary plus his pro-rated
performance bonus. The employment agreement contains a one-year nonsolicitation
of employees and customers provision. The contract also permits termination upon
Unison's failure to meet certain financial covenants under pledge agreements
that secure Unison's obligations incurred in the BritWill Acquisition. See
"Compensation Committee Interlocks and Insider Participation in Compensation
Decisions." The contract also provides that Mr. Rollins could be terminated for
cause defined in part as a material neglect of duties. In the event of a for
cause termination, Mr. Rollins is entitled to the equivalent of one month's
salary.
 
     Unison entered into an employment agreement with Mr. Oberfield for a
one-year term beginning in May 1995, subject to automatic renewal for successive
one-year terms unless either Unison or Mr. Oberfield has given notice of
non-renewal 30 days prior to expiration. The employment agreement provides for
an initial annual base salary of $96,000. The annual base salary increased to
$136,800 as of January 1996 because Quest became profitable during 1995. Mr.
Oberfield is also entitled to participate in Unison's incentive compensation
program for key employees, up to a maximum award of 15% of his base salary. If
the employment agreement is not renewed by Unison other than for cause, Unison
must pay Mr. Oberfield one year's base salary and his pro-rated incentive
compensation. The employment agreement contains a one-year nonsolicitation of
employees and customers provision. During 1995, Mr. Oberfield was granted an
option to purchase 6,185 shares of Unison Common Stock under the Option Plan,
and in September 1996 he was granted an option to purchase an additional 10,000
shares at $13.75 per share which were subsequently repriced at $9.50 per share.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
 
     Prior to August 1995, decisions concerning compensation of executive
officers were made by an Executive Committee of the Board of Directors, then
consisting of Messrs. Walker, Rollins and Contris. In August 1995, the Board of
Directors created a Compensation Committee consisting of Messrs. Garth, White
and Casey. See Item 10, "Directors and Executive Officers of the Registrant."
 
                                       44
<PAGE>   47
 
     At the time that Unison acquired BritWill in August 1995, Mr. Garth was
outside counsel, a former director and a shareholder of BritWill, and Mr. White
was a director and shareholder of BritWill. Mr. Garth and Mr. White have (or
had) direct or indirect material interests in the following recent or
anticipated transactions with BritWill or Unison.
 
     - As former shareholders of BritWill, Mr. Garth and Mr. White have
       participated and will participate pro rata in all acquisition payments
       made and acquisition obligations incurred by Unison in connection with
       the BritWill Acquisition (the "BritWill Acquisition Obligations"). The
       BritWill Acquisition Obligations are secured by stock pledge agreements
       from Messrs. Walker, Rollins, Clark and Contris. The BritWill Acquisition
       Obligations paid through December 31, 1996 include $5.6 million of
       principal, $853,000 of interest, $2.3 million of payment on monthly
       contingent obligations and 561,815 shares of Unison Common Stock
       delivered to the former BritWill shareholders. The proceeds from the sale
       of the Senior Notes were used (in part) to prepay in January 1997 the
       remaining $8.0 million outstanding under the Subordinated Note and $1.75
       million of contingent payment obligations, after which the remaining
       BritWill Acquisition Obligations are solely Additional Payment
       Obligations totaling approximately $9.8 million ($14.1 million including
       an interest component), primarily due on the earlier of Unison's next
       public or private sale of debt or equity securities exceeding $10 million
       or August 9, 2000.
 
     - Mr. Garth had a $400,000 interest in a $2.5 million promissory note
       payable by BritWill and bearing interest at the rate of 12% per annum
       (the "Participation Note"). The Participation Note was refinanced by
       BritWill when it was acquired by Unison, and the $3.4 million refinancing
       note (the "Renewal Note") was repaid from the proceeds of Unison's IPO in
       1995.
 
     - Mr. Garth's company, Cheyenne Capital, received consulting fees of
       $24,000 per year from Unison in connection with the start-up and
       oversight of nine facilities acquired in the BritWill Acquisition which
       were previously owned by Mr. Garth. The consulting agreement was
       terminated on December 31, 1996.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth information regarding the beneficial
ownership of Unison Common Stock at July 7, 1997 with respect to (i) each person
known to Unison to own beneficially more than five percent of the outstanding
shares of Unison Common Stock, (ii) each director of Unison, (iii) each of the
executive officers listed in the Summary Compensation Table set forth herein and
(iv) all directors and executive officers of Unison as a group.
 
<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY OWNED(1)
                                                              ----------------------------
IDENTITY OF STOCKHOLDER OR GROUP                                NUMBER            PERCENT
--------------------------------                              ----------          --------
<S>                                                           <C>                 <C>
David A. Kremser(2).........................................  1,540,431            23.80%
Bruce H. Whitehead(3).......................................    477,335             7.41
U.S. Bancorp(4)
  111 SW Fifth Avenue
  Portland, Oregon 97204....................................    369,100             5.75
Jerry M. Walker(5)..........................................    287,946             4.48
Phillip R. Rollins(6).......................................    364,098             5.62
Paul J. Contris(7)..........................................    107,000             1.67
John T. Lynch, Jr.(8).......................................    214,331             3.30
Craig R. Clark(9)...........................................     38,022                *
Mark W. White(10)...........................................     19,788                *
Tyrrell L. Garth(11)........................................     16,746                *
John T. Casey(12)...........................................     18,746                *
L. Robert Oberfield(13).....................................      8,961                *
All executive officers and directors as a group (16
  persons)(17)..............................................  3,183,373            47.63
</TABLE>
 
---------------
  *  Less than one percent
 
                                       45
<PAGE>   48
 
 (1) Beneficial ownership is determined in accordance with the rules of the
     Commission and generally includes voting or investment power with respect
     to securities. In accordance with Commission rules, shares which may be
     acquired upon exercise of stock options which are currently exercisable or
     which become exercisable within 60 days of the date of the table are deemed
     beneficially owned by the optionee. Except as indicated by footnote, and
     subject to community property laws where applicable, the persons or
     entities named in the table above have sole voting and investment power
     with respect to all shares of Common Stock shown as beneficially owned by
     them. Except as otherwise indicated, the mailing address of each person
     known to the Company to be the owner of more than five percent of its
     Common Stock is in care of the Company.
 
 (2) Includes 1,490,431 shares of Unison Common Stock issued to Mr. Kremser in
     the Signature Acquisition, including additional shares issued to him as
     part of the Equity Adjustment Amount, and 50,000 shares issuable pursuant
     to vested options. Excludes 35,000 shares issuable upon exercise of options
     which will vest in December 1997 and thereafter.
 
 (3) Includes 458,089 shares of Unison Common Stock issued to Whitehead Family
     Investments, Ltd. ("WFI") upon conversion of the Convertible Debenture
     issued to the former shareholders of BritWill as partial payment of the
     purchase price for the BritWill Acquisition. Mr. Whitehead has sole voting
     and investment power with respect to the shares held by WFI. Does not
     include 31,250 shares of Unison Common Stock issuable upon exercise of
     outstanding options which will vest in August 1998 and thereafter. Includes
     19,246 shares of Unison Common Stock issuable upon exercise of immediately
     exercisable options.
 
 (4) In a report on Schedule 13G filed in February 1997, U.S. Bancorp stated
     that holdings as of December 31, 1996 included 367,000 shares as to which
     U.S. Bancorp has sole voting power, no shares for which voting power is
     shared, 198,800 shares as to which U.S. Bancorp has sole dispositive power
     and 11,700 shares as to which U.S. Bancorp has shared dispositive power.
 
 (5) Currently 265,518 of these shares are pledged to secure payment of the
     deferred purchase price for the BritWill Acquisition.
 
 (6) Currently 132,759 of these shares are pledged to secure payment of the
     deferred purchase price for the BritWill Acquisition. Does not include
     50,000 shares of Unison Common Stock issuable upon exercise of options
     which will vest in August 1998 and thereafter. Includes 53,924 shares of
     Unison Common Stock issuable upon exercise of immediately exercisable
     options.
 
 (7) Currently 86,294 of these shares are pledged to secure payment of the
     deferred purchase price for the BritWill Acquisition.
 
 (8) Includes 10,140 shares of Unison Common Stock as to which he currently
     shares investment power with Bruce H. Whitehead. Excludes 27,500 shares of
     Unison Common Stock issuable upon exercise of options which will vest in
     August 1998 and thereafter. Includes 66,746 shares of Unison Common Stock
     issuable upon exercise of immediately exercisable options.
 
 (9) Mr. Clark currently shares investment power over these shares with Bruce H.
     Whitehead, which are pledged to secure payment of the deferred purchase
     price for the BritWill Acquisition.
 
(10) Includes 3,042 shares of Common Stock as to which he currently shares
     investment power with Bruce H. Whitehead. Does not include 27,500 shares of
     Common Stock issuable upon exercise of options which will vest in August
     1998 and thereafter. Includes 16,746 shares of Unison Common Stock issuable
     upon exercise of immediately exercisable options.
 
(11) Does not include 27,500 shares of Unison Common Stock issuable upon
     exercise of options which will vest in August 1998 and thereafter. Includes
     16,746 shares of Unison Common Stock issuable upon exercise of immediately
     exercisable options.
 
(12) Includes 16,746 shares of Unison Common Stock issuable upon the exercise of
     immediately exercisable options, but does not include another 27,500 shares
     issuable upon exercise of options that will vest in August 1998 and
     thereafter.
 
(13) Does not include 8,474 shares of Unison Common Stock issuable upon exercise
     of options which will vest over a period beginning in August 1998. Includes
     6,711 shares of Unison Common Stock issuable upon exercise of immediately
     exercisable options.
                                       46
<PAGE>   49
 
(14) Includes a total of 264,887 shares of Unison Common Stock issuable upon
     exercise of immediately exercisable options (including those described in
     the preceding footnotes) and the shares owned by Messrs. Walker, Contris
     and Clark notwithstanding they are no longer serving as executive officers.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     When Unison acquired BritWill in August 1995, Mr. Whitehead indirectly
owned approximately 81.5% of BritWill's outstanding stock and served as its
Chairman and as a director. As a result of this interest in the BritWill
Acquisition Obligations, Mr. Whitehead currently is beneficially Unison's second
largest shareholder and one of its largest creditors. Mr. Clark was a BritWill
shareholder and served as BritWill's Executive Vice President and Chief
Financial Officer at the time Unison acquired BritWill. Messrs. Garth, Lynch and
White were also BritWill shareholders and directors. For information concerning
recent and anticipated transactions with BritWill or Unison in which Messrs.
Garth or White had or have a material direct or indirect interest, see Item 11,
"Executive Compensation -- Compensation Committee Interlocks and Insider
Participation in Compensation Decisions." Messrs. Clark, Lynch and Whitehead
also have pro rata interests in the BritWill Acquisition Obligations described
therein.
 
     Mr. Whitehead has (or had) a direct or indirect material interest in the
following additional recent or anticipated transactions with BritWill or Unison.
 
     - Prior to Unison's acquisition of BritWill, Mr. Whitehead sold certain
       healthcare facilities or related interests to BritWill and acquired
       certain other direct and indirect financial interests and obligations
       related to BritWill's healthcare facilities, some of which have continued
       thereafter. Through BritWill Texas, Mr. Whitehead is the indirect owner
       and lessor of six of the long-term healthcare facilities that Unison
       leases in Texas (including three of the Disposition Facilities that were
       subleased to an unrelated party effective March 1, 1997) with 767
       licensed beds and an annual base rental of $1.1 million, which is
       approximately the amount of the annual payment obligations on the related
       $10.2 million acquisition mortgage loan secured by those facilities from
       Omega, an unrelated party, plus payments due on certain seller
       subordinated notes incurred when BritWill Texas acquired the facilities.
       The parties are currently in the process of restructuring the ownership
       structure for three of the six facilities to eliminate BritWill Texas
       from the chain of title. The parties anticipate that BritWill Texas will
       convey fee title to the three facilities to Omega and that Omega will
       then lease the facilities to BritWill Investments - II, Inc., a
       subsidiary of Unison, on substantially the same economic terms that
       existed under the BritWill Texas mortgage. Mr. Whitehead, who had
       guaranteed the BritWill Texas loan, will remain liable under his guaranty
       for all obligations owing under the new lease. Mr. Whitehead is also the
       guarantor of BritWill's (now Unison's) obligations under the leases of
       all fourteen other healthcare facilities that are leased from Omega.
 
     - Mr. Whitehead directly or indirectly owned all of the interests in the
       Participation Note and the Renewal Note (as described in Item 11 above)
       that were not owned by Mr. Garth.
 
     - From time to time both before and after Unison's acquisition of BritWill,
       Mr. Whitehead has made loans and other financial accommodations to
       BritWill (now Unison). In addition to the Renewal Note and a portion of
       the BritWill Acquisition Obligations, $750,000 of loans from Mr.
       Whitehead or his affiliates was repaid from the proceeds of the IPO. A
       Unison subsidiary is obligated to repay to an affiliate of Mr. Whitehead
       five unsecured promissory notes in the amounts at December 31, 1996 of
       $1.2 million, $392,000, $319,000, $194,000, and $401,000 with interest at
       rates currently ranging from 9.0% to 10.75% per annum and with scheduled
       maturities in November 2001 and October 2004. Aggregate monthly payments
       on these five notes total approximately $39,000. In addition,
       approximately $1.1 million of the proceeds from a $7.5 million short-term
       borrowing agreement (the "Bank Financing") was used to repay a loan from
       Mr. Whitehead that bore interest at the rate of 12% per annum. The Bank
       Financing was repaid from the proceeds of the sale of the Senior Notes.
 
   
     - On April 21, 1997, the Company obtained a $3.0 million loan for general
       working capital purposes from Elk Meadows Investments, L.L.C. and
       BritWill Investments Company, Ltd., as joint lenders. Elk Meadows
       Investments, L.L.C. is controlled by David Kremser and BritWill
       Investments Company,
    
                                       47
<PAGE>   50
 
   
Ltd. is controlled by Bruce Whitehead. The loan matured on November 1, 1997. On
September 25, 1997, Unison borrowed an additional $1.0 million from these
entities which matured on October 7, 1997. Interest accrues on the loans at the
      Prime Rate plus 2%, subject to an increase in the rate upon a default. The
      Company paid a loan fee of $29,500 at the closing, and also agreed to pay
      all of the lenders' out of pocket fees and costs, including attorneys fees
      and costs, in an amount not yet determined or demanded by the lenders.
      Repayment of the loans is secured by (i) a pledge from the Company of
      approximately $5 million of accounts receivable generated by certain of
      the Company's affiliates and assigned to the Company, and (ii) a pledge
      from the Company of its stock in those affiliates of the Company that
      either assigned their accounts receivable to the Company so they could be
      pledged by the Company as security for the subject loan or control the
      entities that assigned such accounts receivable. The collateral securing
      the loan also secures repayment of other obligations owing from the
      Company and its affiliates to Messrs. Whitehead and Kremser, and to
      individuals and entities related to them. Unison is currently in default
      on its obligations to repay these loans.
    
 
     In addition to his interests as a former director and shareholder of
BritWill, Mr. Lynch is a General Partner of Trouver. Trouver (a) earned
financial advisory fees of $675,000 in connection with Unison's acquisition of
BritWill, (b) assisted Unison in securing lease or management agreements in
respect of four long-term care facilities for which it is entitled to receive
fees of up to approximately $400,000 over the next seven years based on Unison's
management fees or earnings from those facilities over that period, and
(c)earned financial advisory fees of approximately $84,000 from Unison in
connection with the Ampro Acquisition.
 
   
     The Company entered into a services agreement with Mr. Kremser commencing
March 31, 1997. As compensation for his services to the Company in all
capacities, Mr. Kremser is entitled to cash compensation of $7,500 per week plus
expenses as well as immediately vested options for 50,000 shares of Unison
common stock. The exercise price of these options is $2.875 (market value at the
grant date), which approximates the fair value of consideration received. Cash
compensation ended in September 1997, when Mr. Kremser's tenure as interim CEO
ended, and the options will terminate on March 31, 2002. Mr. Kremser and the
Company are also parties to an indemnification agreement and a tolling agreement
in respect of claims he may have against the Company. The Company has also
entered into an agreement with Woodhill Capital Corporation, an entity of which
Mr. Lynch is president and sole shareholder, providing for the services of Mr.
Lynch on the Executive Committee and as a financial advisor beginning March 1,
1997. Under the terms of the agreement, Woodhill is entitled to receive $15,000
per month plus expenses and Mr. Lynch is granted options to purchase 50,000
shares of Unison Stock at $3.125 per share, fully vested. The agreement is
terminable by either party with two weeks' notice.
    
 
   
     Mr. Oberfield, one of Unison's executive officers, serves as the president
and is the minority shareholder of its Quest subsidiary. He receives
compensation based in part upon the earnings of the subsidiary. The Shareholders
Agreement between Mr. Oberfield and the Company contains a put and call feature
whereby, beginning May 1, 1998 and each May thereafter (the "Trigger Date"),
Unison may require Mr. Oberfield to sell his stock in the subsidiary (the "Quest
Stock") to Unison or Mr. Oberfield may require Unison to purchase his Quest
Stock. The price of the shares of Quest Stock will be determined as (a) 100% of
the price/earnings ratio of Unison's Common Stock as of the applicable Trigger
Date multiplied by (b) an annualized estimate of Quest's consolidated net income
(based on earnings for the three-month period immediately preceding the Trigger
Date) multiplied by (c) Mr. Oberfield's percentage share (currently 25%) of the
total outstanding Quest Stock (currently 10,000 shares). Consideration for the
Quest Stock may be in the form of cash, promissory note, or, at Mr. Oberfield's
option, shares of Unison Common Stock.
    
 
     Effective February 1, 1996, Unison purchased 90% of the outstanding common
stock of Sunbelt from Mr. Henderson and Paige Plash. In consideration for the
stock of Sunbelt, Unison paid $800,000 in cash, issued term notes for $1.0
million in the aggregate (the "Notes") and issued subordinated convertible
debentures totaling $1.8 million in the aggregate (the "Debentures").
Approximately 56.2% of the purchase price was payable to Mr. Henderson. Interest
on the Notes and Debentures was 10.0% payable quarterly. The Notes and
Debentures were converted in January 1997 into 105,196 shares of Unison Common
Stock with the aggregate balance of $2.0 million paid in cash. In November 1996,
Unison purchased the remaining 10% of
 
                                       48
<PAGE>   51
 
Sunbelt stock effective as of February 1, 1996. The aggregate purchase price,
payable 50% to each of Mr. Henderson and Mr. Plash, amounted to $1.4 million
plus a guaranteed payment of $709,000. Additional contingent payments of up to
$1.4 million will be due if specified income targets are achieved. Consideration
for the purchase (excluding the guaranteed payments) was comprised of promissory
notes in the aggregate amount of $1.2 million and 27,942 shares of Unison Common
Stock.
 
                                       49
<PAGE>   52
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) Documents filed as part of this report:
 
     1. FINANCIAL STATEMENTS.
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors..............................   F-1
Consolidated Balance Sheets as of December 31, 1996 and
  1995......................................................   F-5
Consolidated Statements of Operations for the years ended
  December 31, 1996, 1995, and 1994.........................   F-6
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 1996, 1995, and 1994.....   F-7
Consolidated Statements of Cash Flows for the years ended
  December 31, 1996, 1995 and 1994..........................   F-8
Notes to Consolidated Financial Statements..................   F-9
 
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors..............................  F-29
Report of Independent Accountants...........................  F-30
Consolidated Balance Sheet as of June 30, 1995..............  F-31
Consolidated Statements of Operations for the year ended
  December 31, 1994, six months ended June 30, 1995 and one
  month ended July 31, 1995.................................  F-32
Consolidated Statements of Shareholders' Equity for the year
  ended December 31, 1994 and six months ended June 30,
  1995......................................................  F-33
Consolidated Statements of Cash Flows for the year ended
  December 31, 1994, six months ended June 30, 1995 and one
  month ended July 31, 1995.................................  F-34
Notes to Consolidated Financial Statements..................  F-35
</TABLE>
 
     2. FINANCIAL STATEMENT SCHEDULES.
 
<TABLE>
<S>                                                           <C>
UNISON HEALTHCARE CORPORATION
Schedule II Valuation and Qualifying Accounts...............   S-1
 
BRITWILL HEALTH CARE COMPANY
Schedule II Valuation and Qualifying Accounts...............   S-2
</TABLE>
 
     All other schedules are omitted because they are not applicable or not
required.
 
     3. EXHIBITS
 
<TABLE>
<C>         <S>
   2        Second Amended and Restated Purchase and Sale Agreement
            among Unison HealthCare Corporation and Whitehead Family
            Investments, Ltd., as amended (incorporated by reference to
            Exhibit 2 to Amendment No. 1 to the Registration Statement
            on Form S-1 filed on November 16, 1995, File No. 33-97662)
   2.1      Modification Agreement dated April 15, 1996 among Unison
            HealthCare Corporation, BritWill HealthCare Company and
            Bruce H. Whitehead (incorporated by reference to Exhibit 2.1
            to the Company's Annual Report on Form 10-K for the year
            ended December 31, 1995)
   2.1.1    Modification Agreement dated August 28, 1996 among Unison
            HealthCare Corporation, BritWill HealthCare Company and
            Bruce H. Whitehead (incorporated by reference to Exhibit
            2.1.1 to the Registration Statement on Form S-4 filed on
            September 18, 1996, File No. 333-12263)
</TABLE>
 
                                       50
<PAGE>   53
<TABLE>
<C>         <S>
   2.2      Purchase and Sale Agreement effective as of February 1, 1996
            by and among Unison HealthCare Corporation, a Delaware
            corporation, Sunbelt Therapy Management Services, Inc., an
            Arizona corporation, Paul G. Henderson and Paige B. Plash
            (incorporated by reference to Exhibit 2.1 to the Form 8-K
            filed on April 12, 1996)
   2.2.1    Agreement for Purchase of Shares as of November 24, 1996,
            among Unison Health Care Corporation, Paul G. Henderson and
            Paige B. Plash*
   2.3      Agreement and Plan of Merger among Unison HealthCare
            Corporation, Signature Health Care Corporation, David A.
            Kremser and John D. Filkoski (incorporated by reference to
            Exhibit 2.3 to the Company's Quarterly Report on Form 10-Q
            for the period ended June 30, 1996)
   2.3.1    Amendment to Agreement and Plan of Merger among Union
            HealthCare Corporation, Signature Health Care Corporation,
            David A. Kremser and John D. Filkoski*
   2.4      Agreement and Plan of Merger among Unison HealthCare
            Corporation, Arkansas, Inc., David A. Kremser and John D.
            Filkoski (incorporated by reference to Exhibit 2.4 to the
            Company's Quarterly Report on Form 10-Q for the period ended
            June 30, 1996)
   2.5      Agreement and Plan of Merger among Unison HealthCare
            Corporation, Cornerstone Care, Inc., David A. Kremser and
            John D. Filkoski (incorporated by reference to Exhibit 2.5
            to the Company's Quarterly Report on Form 10-Q for the
            period ended June 30, 1996)
   2.6      Agreement and Plan of Merger among Unison HealthCare
            Corporation, Douglas Manor, Inc., David A. Kremser and John
            D. Filkoski (incorporated by reference to Exhibit 2.6 to the
            Company's Quarterly Report on Form 10-Q for the period ended
            June 30, 1996)
   2.7      Agreement and Plan of Merger among Unison HealthCare
            Corporation, Safford Care, Inc., David A. Kremser and John
            D. Filkoski (incorporated by reference to Exhibit 2.7 to the
            Company's Quarterly Report on Form 10-Q for the period ended
            June 30, 1996)
   2.7.1    Amendment to Agreements and Plans of Merger among Unison
            HealthCare Corporation, Arkansas, Inc., Cornerstone Care,
            Inc., Douglas Manor, Inc., Safford Care, Inc., David A.
            Kremser and John D. Filkoski*
   2.8      Agreement and Plan of Merger among Unison HealthCare
            Corporation, a Delaware corporation, Labco Acquisition Co.,
            a Delaware corporation, and American Professional Holding,
            Inc., a Utah corporation (incorporated by reference to the
            Company's Current Report on Form 8-K dated July 31, 1996)
   2.8.1    First Amendment to Agreement and Plan of Merger among Unison
            HealthCare Corporation, a Delaware corporation, Labco
            Acquisition Co., a Delaware corporation, and American
            Professional Holding, Inc., a Utah corporation (incorporated
            by reference to Exhibit 2.8.1 to Amendment No. 1 to the
            Registration Statement on Form S-4 filed on October 11,
            1996, File No. 333-12263)
   2.9      Agreement and Plan of Merger among Unison HealthCare
            Corporation, a Delaware corporation, Memphis Acquisition
            Co., a Delaware corporation, and Memphis Clinical
            Laboratory, Inc., a Tennessee corporation (incorporated by
            reference to the Company's Current Report on Form 8-K dated
            July 31, 1996)
   2.10     Stock Purchase Agreement among Unison HealthCare
            Corporation, Linda Redwine, David A. Kremser and John D.
            Filkoski (incorporated by reference to the Company's Current
            Report on Form 8-K dated October 10, 1996)
   3.1      Restated Certificate of Incorporation of Unison HealthCare
            Corporation (incorporated by reference to Exhibit 3.1 to
            Amendment No. 1 to the Registration Statement on Form S-1
            filed on November 16, 1995, File No. 33-97662)
   3.1.1    Amendment to Restated Certificate of Incorporation of Unison
            HealthCare Corporation*
   3.2      Articles of Incorporation of SunQuest SPC, Inc.*
   3.3      Certificate of Incorporation of BritWill HealthCare Company*
</TABLE>
 
                                       51
<PAGE>   54
<TABLE>
<C>         <S>
   3.4      Certificate of Incorporation of BritWill Investments-I,
            Inc.*
   3.5      Certificate of Incorporation of BritWill Investments-II,
            Inc.*
   3.6      Certificate of Incorporation of BritWill Funding
            Corporation*
   3.7      Articles of Incorporation of Emory Care Center, Inc.*
   3.8      Charter of Memphis Clinical Laboratory, Inc.*
   3.9      Articles of Incorporation of American Professional Holding,
            Inc.*
   3.10     Articles of Incorporation of Ampro Medical Services, Inc.*
   3.11     Articles of Incorporation of Gamma Laboratories, Inc.*
   3.12     Certificate of Incorporation of Signature Health Care
            Corporation*
   3.13     Articles of Incorporation of Brookshire House, Inc.*
   3.14     Articles of Incorporation of Christopher Nursing Center,
            Inc.*
   3.15     Articles of Incorporation of Amberwood Court, Inc.*
   3.16     Articles of Incorporation of The Arbors Health Care Center,
            Inc.*
   3.17     Articles of Incorporation of Los Arcos, Inc.*
   3.18     Articles of Incorporation of Pueblo Norte, Inc.*
   3.19     Articles of Incorporation of Rio Verde Nursing Center, Inc.*
   3.20     Articles of Incorporation of Signature Management Group,
            Inc.*
   3.21     Articles of Incorporation of Cornerstone Care, Inc.*
   3.22     Articles of Incorporation of Arkansas, Inc.*
   3.23     Articles of Incorporation of Douglas Manor, Inc.*
   3.24     Articles of Incorporation of Safford Care, Inc.*
   3.25     Articles of Incorporation of RehabWest, Inc.*
   3.26     Articles of Incorporation of Quest Pharmacies, Inc., and
            related Shareholder Agreements*
   3.27     Articles of Incorporation of Sunbelt Therapy Management
            Services, Inc. (AL)*
   3.28     Articles of Incorporation of Decatur SportsFit & Wellness
            Center, Inc.*
   3.29     Articles of Incorporation of Therapy Health Systems, Inc.*
   3.30     Articles of Incorporation of Henderson & Associates
            Rehabilitation, Inc.*
   3.31     Articles of Incorporation of Sunbelt Therapy Management
            Services, Inc. (AZ)*
   3.32     Articles of Incorporation of Cedar Care, Inc.*
   3.33     Articles of Incorporation of Sherwood Healthcare
            Corporation*
   3.34     Partnership Agreement of BritWill Indiana Partnership*
   3.35     Bylaws of Unison HealthCare Corporation (incorporated by
            reference to Exhibit 3.2 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
   3.36     Bylaws of Henderson & Associates Rehabilitation, Inc.*
   3.37     Form of Bylaws of SunQuest SPC, Inc., The Arbors Health Care
            Center, Inc. and Sunbelt Therapy Management Services, Inc.
            (AZ)*
   3.38     Form of Bylaws of Brookshire House, Inc., Christopher
            Nursing Center, Inc., Amberwood Court, Inc., Los Arcos,
            Inc., Pueblo Norte, Inc., Rio Verde Nursing Center, Inc.,
            Signature Management Group, Inc., Cornerstone Care, Inc.,
            Arkansas, Inc., Douglas Manor, Inc., Safford Care, Inc. and
            RehabWest, Inc.*
   3.39     Form of Bylaws of BritWill HealthCare Company, BritWill
            Investments-I, Inc., BritWill Investments-II, Inc., BritWill
            Funding Corporation and Signature Health Care Corporation*
   3.40     Bylaws of Therapy Health Systems, Inc.*
</TABLE>
 
                                       52
<PAGE>   55
<TABLE>
<C>         <S>
   3.41     Bylaws of Gamma Laboratories, Inc.*
   3.42     Bylaws of Memphis Clinical Laboratory, Inc.*
   3.43     Bylaws of Emory Care Center, Inc.*
   3.44     Bylaws of Ampro Medical Services, Inc.*
   3.45     Bylaws of American Professional Holding, Inc.*
   3.46     Form of Bylaws of Cedar Care, Inc. and Sherwood Healthcare
            Corporation**
   4.1      Specimen 12 1/4% Senior Note due 2006*
   4.2      Securities Purchase Agreement dated as of October 28, 1996
            between Unison HealthCare Corporation and the Initial
            Purchasers*
   4.3      Indenture dated as of October 31, 1996 among Unison
            HealthCare Corporation, the Guarantors and First Bank
            National Association, as Trustee*
   4.3.1    Supplement No. 1 dated as of February 1, 1997 to Indenture
            dated as of October 28, 1996*
   4.4      Senior Note Registration Rights Agreement dated as of
            October 31, 1996 among Unison HealthCare Corporation, the
            Guarantors and the Initial Purchasers*
   9        Voting Agreement among the Company and Messrs. Walker,
            Rollins, Contris, Lynch, Boystak and King (incorporated by
            reference to Exhibit 9 to the Registration Statement on Form
            S-1 filed on October 2, 1995, File No. 33-97662)
  10.1      Promissory Note of Unison HealthCare Corporation to the
            Agent for the Former BritWill Shareholders in the amount of
            $1,000,000 dated May 6, 1996 (incorporated by reference to
            Exhibit 10.1 to the Company's quarterly report on Form 10-Q
            filed on May 15, 1996, File No. 0-27374)
  10.1.1    Second Amended and Restated Subordinated Promissory Note of
            the Company to the former shareholders of BritWill
            (incorporated by reference to Exhibit 10.1.1 to the
            Company's Annual Report on Form 10-K for the year ended
            December 31, 1995)
  10.1.2    Contingent Payment Agreement dated April 15, 1996 among
            Unison HealthCare Corporation, BritWill HealthCare Company
            and Bruce H. Whitehead (incorporated by reference to Exhibit
            10.1.2 to the Company's Annual Report on Form 10-K for the
            year ended December 31, 1995)
  10.2      Term Note of the Company to the former shareholders of
            BritWill (incorporated by reference to Exhibit 10.2 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.3      Convertible Debenture of the Company issued to the former
            shareholders of BritWill (incorporated by reference to
            Exhibit 10.3 to Amendment No. 1 to the Registration
            Statement on Form S-1 filed on November 16, 1995, File No.
            33-97662)
  10.4      Renewal Note of BritWill to the former shareholders of
            BritWill (incorporated by reference to Exhibit 10.4 to the
            Registration Statement on Form S-1 filed on December 4,
            1995, File No. 33-97662)
  10.4.1    Letter agreement modifying the Term Note and the Renewal
            Note (incorporated by reference to Exhibit 10.4.1 to
            Amendment No. 2 to the Registration Statement on Form S-1
            filed on December 4, 1995, File No. 33-97662)
  10.5      $500,000 Supplemental Note of the Company to the former
            shareholders of BritWill (incorporated by reference to
            Exhibit 10.5 to the Registration Statement on Form S-1 filed
            on October 2, 1995, File No. 33-97662)
  10.5.1    Letter agreement regarding the $500,000 Supplemental Note
            (incorporated by reference to Exhibit 10.5.1 to Amendment
            No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
</TABLE>
 
                                       53
<PAGE>   56
<TABLE>
<C>         <S>
  10.6      $250,000 Supplemental Note of the Company to WFI
            (incorporated by reference to Exhibit 10.6 to Amendment No.
            1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.7      Example of Stock Pledge Agreement of certain officers and
            the Former Shareholders of BritWill (incorporated by
            reference to Exhibit 10.7 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.8      Registration Rights Agreement between the Company and WFI
            (incorporated by reference to Exhibit 10.8 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.9      Employment Agreement of Jerry M. Walker (incorporated by
            reference to Exhibit 10.9 to Amendment No. 1 to the
            Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
  10.10     Employment Agreement of Phillip R. Rollins, Sr.
            (incorporated by reference to Exhibit 10.10 to Amendment No.
            1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.11     Employment Agreement of Craig R. Clark (incorporated by
            reference to Exhibit 10.11 to Amendment No. 1 to the
            Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
  10.12     Employment Agreement of Paul J. Contris (incorporated by
            reference to Exhibit 10.12 to Amendment No. 1 to the
            Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
  10.13     Employment and Non-Competition Agreement of L. Robert
            Oberfield (incorporated by reference to Exhibit 10.13 to
            Amendment No. 1 to the Registration Statement on Form S-1
            filed on November 16, 1995, File No. 33-97662)
  10.14     Shareholders Agreement dated May 15, 1995, among Quest
            Pharmacies, Inc., the Company and L. Robert Oberfield
            (incorporated by reference to Exhibit 10.14 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.15     Unison HealthCare Corporation 1995 Stock Option Plan, as
            amended*
  10.16     [Intentionally Omitted]
  10.17     Receivables Acquisition Agreement, dated November 14, 1994,
            as amended, with HealthPartners Funding, L.P. (incorporated
            by reference to Exhibit 10.17 to the Registration Statement
            on Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.18     Agreements between the Company and Trouver Capital Partners,
            L.P. dated March 16, 1992 and July 10, 1995 (incorporated by
            reference to Exhibit 10.18 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.19     Agreement between BritWill and Trouver Capital Partners,
            L.P. dated September 15, 1992, as amended (incorporated by
            reference to Exhibit 10.19 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.20     Master Lease between BritWill -- I and Omega, dated as of
            November 1, 1992, for Capital Care HealthCare Center, Cedar
            Crest HealthCare Center (Wellington Manor), English Estates
            (Kingsbury Rehabilitation and HealthCare Center), Lockerbie
            HealthCare Center, Parkview Manor and Sunset Manor
            (incorporated by reference to Exhibit 10.20 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.21     Agreement of Acquisition and Lease between BritWill and
            Omega, dated as of November 1, 1992 (incorporated by
            reference to Exhibit 10.21 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.22     Leasehold Mortgage between BritWill -- I and Omega, dated
            November 1, 1992 (incorporated by reference to Exhibit 10.22
            to the Registration Statement on Form S-1 filed on October
            2, 1995, File No. 33-97662)
</TABLE>
 
                                       54
<PAGE>   57
 
<TABLE>
<C>         <S>
   10.23    Loan Agreement (Texas Facilities) between BritWill Investments -- Texas and Omega, dated April 1, 1993
            (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 filed on October
            2, 1995, File No. 33-97662)
   10.24    [Intentionally Omitted]
   10.25    Loan Agreement between BritWill Investments -- Texas and Omega, dated November 30, 1993 (incorporated
            by reference to Exhibit 10.25 to the Registration Statement on Form S-1 filed on October 2, 1995, File
            No. 33-97662)
   10.26    BritWill Master Guaranty between BritWill and Omega, dated November 30, 1993 (incorporated by reference
            to Exhibit 10.26 to the Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.27    Letter of Credit Agreement between BritWill Investments -- II and Omega, dated November 30, 1993
            (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1 filed on October
            2, 1995, File No. 33-97662)
   10.28    Master Lease between BritWill -- II and Omega, dated as of November 30, 1993 (incorporated by reference
            to Exhibit 10.28 to the Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.29    Agreement Regarding Financial Covenants Compliance and Amendment Agreement among BritWill and Omega,
            dated December 13, 1994 (incorporated by reference to Exhibit 10.29 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.30    Master Lease between BritWill -- II and Omega, dated December 12, 1994 (incorporated by reference to
            Exhibit 10.30 to the Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.31    Amendment Agreement between the Company and Omega, dated August 10, 1995 (incorporated by reference to
            Exhibit 10.31 to the Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.32    Unison Master Guaranty to Omega, dated August 10, 1995 (incorporated by reference to Exhibit 10.32 to
            the Registration Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.32.1  Letter Agreement among Unison HealthCare Corporation, Bruce H. Whitehead and Omega dated October 31,
            1996*
   10.33    Subordinated Promissory Note in the amount of $2,475,000 of BritWill to WFI, dated December 24, 1992
            (incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1 filed on October
            2, 1995, File No. 33-97662)
   10.34    Participation Agreement among BritWill, WFI and Garth Financial Services, Inc., dated December 24, 1992
            (incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-1 filed on October
            2, 1995, File No. 33-97662)
   10.35    Bonus Participation Agreement between BritWill and WFI, dated December 24, 1992 (incorporated by
            reference to Exhibit 10.35 to the Registration Statement on Form S-1 filed on October 2, 1995, File No.
            33-97662)
   10.36    Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the amount of
            $1,081,548.39, dated November, 1993 (incorporated by reference to Exhibit 10.36 to the Registration
            Statement on Form S-1 filed on October 2, 1995, File No. 33-97662)
   10.37    Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the amount of $500,000,
            dated November, 1993 (incorporated by reference to Exhibit 10.37 to the Registration Statement on Form
            S-1 filed on October 2, 1995, File No. 33-97662)
   10.38    Unsecured Promissory Note of BritWill -- II to BritWill Investments -- Texas in the amount of $660,000,
            dated November, 1993 (incorporated by reference to Exhibit 10.38 to the Registration Statement on Form
            S-1 filed on October 2, 1995, File No. 33-97662)
</TABLE>
 
                                       55
<PAGE>   58
 
<TABLE>
 .39    10   [Intentionally Omitted]
<C>         <S>
  10.40     Management Services Agreement between Unison and Lake City
            Nursing Homes, Inc., dated December 1, 1993 (incorporated by
            reference to Exhibit 10.40 to the Registration Statement on
            Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.41     Lease Contract and Agreement between BritWill
            Investments -- Texas, as Lessor and BritWill -- II, as
            Lessee, dated December 1, 1993, for Four States Care Center,
            Heritage Plaza Nursing Center, Pine Haven Care Center,
            Reunion Plaza Senior Care and Retirement Center and
            Texarkana Nursing Center (incorporated by reference to
            Exhibit 10.41 to the Registration Statement on Form S-1
            filed on October 2, 1995, File No. 33-97662)
  10.42     Management Agreement between Sherwood HealthCare Corp. and
            BritWill Investments -- Indiana, dated November 1, 1991, as
            amended, for Capital Care, Parkview, Sunset Manor,
            Boonville, Holiday Manor, Kendallville Manor and Owensville
            (incorporated by reference to Exhibit 10.42 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.43     Management Agreement between Cedar Care, Inc. and BritWill
            Investments -- Indiana, dated November 1, 1991, as amended,
            for Cedar Crest, Country Side, English, Harty, Lockerbie and
            Willow Manor (incorporated by reference to Exhibit 10.43 to
            the Registration Statement on Form S-1 filed on October 2,
            1995, File No. 33-97662)
  10.44     [Intentionally Omitted]
  10.44.1   Lease for Oakwood Nursing Care Center*
  10.45     Lease for Elkhart Nursing Home (incorporated by reference to
            Exhibit 10.45 to the Registration Statement on Form S-1
            filed on October 2, 1995, File No. 33-97662)
  10.46     Management Services Agreement between the Company and
            Marshall Manor (Michigan), dated September 15, 1992
            (incorporated by reference to Exhibit 10.46 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.47     Leases for Center (aka Pine Grove Care Center) and
            Waxahachie (aka Pleasant Manor Living Center) with BritWill
            Investments -- Texas (incorporated by reference to Exhibit
            10.47 to the Registration Statement on Form S-1 filed on
            October 2, 1995, File No. 33-97662)
  10.48     Management Services Agreement between the Company and
            HP/HealthCare Acquirors, Inc. for Windsor Manor
            (incorporated by reference to Exhibit 10.48 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.49     Management Services Agreement for Bayshore Convalescent
            Center (incorporated by reference to Exhibit 10.49 to the
            Registration Statement on Form S-1 filed on October 2, 1995,
            File No. 33-97662)
  10.50     Lease for Henry Clay Villa, dated July 1, 1995 (incorporated
            by reference to Exhibit 10.50 to the Registration Statement
            on Form S-1 filed on October 2, 1995, File No. 33-97662)
  10.51     Lease for Marshall Manor Nursing Home (Alabama)
            (incorporated by reference to Exhibit 10.51 to Amendment No.
            1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.52     [Intentionally Omitted]
  10.53     [Intentionally Omitted]
  10.54     [Intentionally Omitted]
  10.55     Sublease for Ridgewood Health Care Center (incorporated by
            reference to Exhibit 10.55 to Amendment No. 1 to the
            Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
</TABLE>
 
                                       56
<PAGE>   59
 
<TABLE>
 .56    10   Management Services Agreement for Peachtree Nursing Center (aka Smyrna Nursing Center)
            and Rehabilitation Facility, dated September 15, 1993 (incorporated by reference to
            Exhibit 10.56 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
<C>         <S>
  10.57     Management Services Agreement for St. Barnabas Nursing Home, and Retirement
            Apartments, dated January 12, 1995 (incorporated by reference to Exhibit 10.57 to
            Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995,
            File No. 33-97662)
  10.58     [Intentionally Omitted]
  10.59     Lease for Boonville Convalescent Center (incorporated by reference to Exhibit 10.59 to
            Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995,
            File No. 33-97662)
  10.60     [Intentionally Omitted]
  10.61     [Intentionally Omitted]
  10.62     [Intentionally Omitted]
  10.63     Sublease for Holiday Manor (incorporated by reference to Exhibit 10.63 to Amendment
            No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995, File No.
            33-97662)
  10.64     [Intentionally Omitted]
  10.65     [Intentionally Omitted]
  10.66     Lease for Owensville Convalescent Center (incorporated by reference to Exhibit 10.66
            to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
  10.67     [Intentionally Omitted]
  10.68     [Intentionally Omitted]
  10.69     [Intentionally Omitted]
  10.70     Lease for Willow Manor Convalescent Center (incorporated by reference to Exhibit 10.70
            to Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16,
            1995, File No. 33-97662)
  10.71     Lease for Bonner Health Center, dated February 1, 1995 (incorporated by reference to
            Exhibit 10.71 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.72     Lease for Hillside Care Center (aka Prairie Manor), dated February 1, 1995
            (incorporated by reference to Exhibit 10.72 to Amendment No. 1 to the Registration
            Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
  10.73     Lease for Oswego Manor, dated March 2, 1994 (incorporated by reference to Exhibit
            10.73 to Amendment No. 1 to the Registration Statement on Form S-1 filed on November
            16, 1995, File No. 33-97662)
  10.74     [Intentionally Omitted]
  10.75     Lease for SunCrest HealthCare Center, dated September 14, 1994 (incorporated by
            reference to Exhibit 10.75 to Amendment No. 1 to the Registration Statement on Form
            S-1 filed on November 16, 1995, File No. 33-97662)
  10.76     Sublease for The Oaks of Boise (aka Franciscan Health Care Center of Boise)
            (incorporated by reference to Exhibit 10.76 to Amendment No. 1 to the Registration
            Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
  10.77     Lease for Mountainside Care Center (aka Sandpoint Manor) and St. Francis Preschool and
            Childcare Center (incorporated by reference to Exhibit 10.77 to Amendment No. 1 to the
            Registration Statement on Form S-1 filed on November 16, 1995, File No. 33-97662)
</TABLE>
 
                                       57
<PAGE>   60
 
<TABLE>
 .77.1  10   Sublease for Mountainside Care Center (incorporated by reference to Exhibit 10.77.1 to
            Amendment No. 1 to the Registration Statement on Form S-1 filed on November 16, 1995,
            File No. 33-97662)
<C>         <S>
  10.78     [Intentionally Omitted]
  10.79     Lease for White Pine Care Center, dated November 1, 1994 (incorporated by reference to
            Exhibit 10.79 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.80     [Intentionally Omitted]
  10.81     [Intentionally Omitted]
  10.82     [Intentionally Omitted]
  10.83     Lease for Green Acres Nursing Home, dated August 30, 1995 (incorporated by reference
            to Exhibit 10.83 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.84     Lease for Hemphill Care Center, dated September 1, 1994 (incorporated by reference to
            Exhibit 10.84 to Amendment No. 1 to the Registration Statement on Form S-1 filed on
            November 16, 1995, File No. 33-97662)
  10.85     [Intentionally Omitted]
  10.86     [Intentionally Omitted]
  10.87     [Intentionally Omitted]
  10.88     [Intentionally Omitted]
  10.89     [Intentionally Omitted]
  10.90     Lease for Nightingale West Nursing Home, dated August 24, 1995 (incorporated by
            reference to Exhibit 10.90 to Amendment No. 1 to the Registration Statement on Form
            S-1 filed on November 16, 1995, File No. 33-97662)
  10.91     Sublease for Twin Pines of Lewisville, dated September 8, 1995 (incorporated by
            reference to Exhibit 10.91 to Amendment No. 1 to the Registration Statement on Form
            S-1 filed on November 16, 1995, File No. 33-97662)
  10.92     Lease for Homestead of McKinney dated as of July 1, 1996 between Westminister
            Healthcare, Inc. and BritWill Investments-II, Inc.*
  10.93     [Intentionally Omitted]
  10.94     Letter Agreement regarding licensing and operation of the Indiana facilities from
            Cedar Care and Sherwood to the Company, dated August 10, 1995 (incorporated by
            reference to Exhibit 10.94 to Amendment No. 2 to the Registration Statement on Form
            S-1 filed on December 4, 1995, File No. 33-97662)
  10.95     Agreement Regarding Conversion of the Convertible Debenture, dated December 1, 1995
            (incorporated by reference to Exhibit 10.95 to Amendment No. 2 to the Registration
            Statement on Form S-1 filed on December 4, 1995, File No. 33-97662)
  10.96     Letter Agreement Regarding Consulting Services (incorporated by reference to Exhibit
            10.96 to Amendment No. 3 to the Registration Statement on Form S-1 filed on December
            12, 1995, File No. 33-97662)
  10.97     Loan and Security Agreement dated February 16, 1996 by and between Unison HealthCare
            Corporation, SunQuest SPC, Inc., BritWill HealthCare Company, BritWill Investments-I,
            Inc., BritWill Funding Corporation, BritWill Investments-II, Inc., Emory Care Center,
            Inc., Cedar Care, Inc., Sherwood Healthcare Corp. (collectively as borrowers) and
            HealthPartners Funding, L.P. (as lender) (incorporated by reference to Exhibit 10.97
            to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
</TABLE>
 
                                       58
<PAGE>   61
 
<TABLE>
 .97.1  10   Letter Agreement dated October 4, 1996 between HealthPartners Funding, L.P. and Unison
            HealthCare Corporation (incorporated by reference to Exhibit 10.97.1 to Amendment No. 1 to
            the Registration Statement on Form S-4 filed on October 11, 1996, File No. 333-12263)
<C>         <S>
  10.98     Security Agreement effective as of February 1, 1996 by and among Unison HealthCare
            Corporation, a Delaware corporation, Sunbelt Therapy Management Services, Inc., an Arizona
            corporation, Paul G. Henderson and Paige B. Plash (incorporated by reference to Exhibit
            10.1 to the Form 8-K filed on April 12, 1996)
  10.99     Promissory Note of Unison HealthCare Corporation to Omega Healthcare Investors, Inc. in
            the amount of $3,500,000, dated February 9, 1996 (incorporated by reference to Exhibit
            10.99 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995)
  10.100    Lease dated November 30, 1994 between Monica R. Salusky and SunQuest SPC, Inc.
            (commencement date: August 1, 1996) (incorporated by reference to the Company's Current
            Report on Form 8-K dated August 14, 1996)
  10.101    Modification of Lease dated as of July 31, 1996 between Monica R, Salusky, SunQuest SPC,
            Inc. and Unison HealthCare Corporation (incorporated by reference to the Company's Current
            Report on Form 8-K dated August 14, 1996)
  10.102    Lease dated June 19, 1996 between Walla Walla Partners, L.P. and SunQuest SPC, Inc.
            (commencement date: August 1, 1996) (incorporated by reference to the Company's Current
            Report on Form 8-K dated August 14, 1996)
  10.103    First Amendment to Lease dated July 26, 1996 between Walla Walla Partners, L.P. and
            SunQuest SPC, Inc. (incorporated by reference to the Company's Current Report on Form 8-K
            dated August 14, 1996)
  10.109    Promissory Note of Unison HealthCare Corporation to Red Line Healthcare Corporation in the
            amount of $771,004.60 dated August 30, 1996 (incorporated by reference to Exhibit 10.109
            to the Registration Statement on Form S-4 filed on September 18, 1996, File No. 333-12263)
  10.110    Receivables Purchase and Sale Agreement dated August 8, 1996 between HealthPartners
            Funding, L.P., Sunbelt Therapy Management Services, Inc. (an Arizona corporation),
            Henderson & Associates Rehabilitation, Inc., Decator Sportsfit & Wellness Center, Inc.,
            Therapy Health Systems, Inc., Sunbelt Therapy Management Services, Inc. (an Alabama
            corporation), Quest Pharmacies, Inc. and SunQuest SPC, Inc. (incorporated by reference to
            Exhibit 10.110 to the Registration Statement on Form S-4 filed on September 18, 1996, File
            No. 333-12263)
  10.111    Master Lease Agreement dated June 4, 1996 between Unison HealthCare Corporation and LINC
            Anthem Corporation (incorporated by reference to Exhibit 10.111 to the Registration
            Statement on Form S-4 filed on September 18, 1996, File No. 333-12263)
  10.112.1  Promissory Note dated March 17, 1997 to David A. Kremser in partial payment of Equity
            Adjustment Amount*
  10.112.2  Form of Promissory Notes dated March 17, 1997, to former Signature shareholders in partial
            payment of Equity Adjustment Amount*
  10.113    Services Agrement dated as of March 31, 1997, between the Registrant and David A. Kremser*
  10.114    Indemnification Agreement dated as of March 31, 1997, between the Registrant and David A.
            Kremser*
  10.115    Tolling Agreement dated as of March 31, 1997, between the Registrant and David A. Kremser*
  10.116    Option Agreement dated as of March 31, 1997, between the Registrant and David A. Kremser*
  10.117.1  Form of Loan and Security Agreement dated as of April 21, 1997 among the Registrant, Elk
            Meadows Investments, L.L.C. and BritWill Investments Company, Ltd.*
  10.117.2  Form of Stock Pledge Agreement dated as of April 21, 1997 among Registrant, Elk Meadows
            Investments, L.L.C. and BritWill Investments Company, Ltd.
</TABLE>
 
                                       59
<PAGE>   62
 
<TABLE>
 .118   10   Asset Purchase Agreement dated as of December 20, 1996, among Sunbelt Therapy
            Management Services, Inc., Spine Rehabilitation and Physical Therapy Center, Inc. and
            Douglas L. Bates*
<C>         <S>
  10.119    Master Lease Agreement dated November 25, 1996, between Unison HealthCare Corporation
            and Pacific Financial Company, relating to computer equipment and software*
  10.120    Form of sublease agreement dated as of March 1, 1997, between BritWill
            Investments-II, Inc. and Hasmark East Ltd., relating to Four States Care Center,
            Green Acres, Heritage Oaks and Texarkana Nursing Center*
  10.121    Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and Arkansas, Inc.
            (incorporated by reference to Exhibit 10.121 to the Registration Statement on Form
            S-4 filed on July 3, 1997)
  10.122    Lease dated as of June 13, 1995, between AHP of Colorado, Inc. and Cornerstone Care,
            Inc. (incorporated by reference to Exhibit 10.122 to the Registration Statement on
            Form S-4 filed on July 3, 1997)
  10.123    Lease dated as of July 28, 1995, between American Health Properties of Arizona, Inc.
            and Safford Care, Inc. (incorporated by reference to Exhibit 10.123 to the
            Registration Statement on Form S-4 filed on July 3, 1997)
  10.124    Lease dated as of July 28, 1995, between American Health Properties of Arizona, Inc.
            and Douglas Manor, Inc.*
  10.125    Promissory Note and related Term Loan Agreement and Form of Deed of Trust dated March
            30, 1994 in the original principal amount of $19.1 million between Signature Health
            Care, Inc. and National Health Investors, Inc.*
  10.126    Lease dated as of December 1, 1990 between Health Care Reit, Inc. and The Arbors
            Health Care Center Inc.*
  11.1      Unison HealthCare Corporation Statement Re: Computation of Per Share Earnings*
  21        List of subsidiaries*
  27        Financial Data Schedule (included only in the EDGAR filing)
</TABLE>
 
---------------
 * Filed herewith.
 
** To be filed by amendment.
 
(b) Reports on Form 8-K.
 
     Unison filed the following reports on Form 8-K during the quarter ended
December 31, 1996:
 
          (1) Report dated October 10, 1996 related to the Stock Purchase
     Agreement between Unison and RehabWest, Inc.
 
          (2) Report dated October 31, 1996 which included the following
     financial statements: (i) audited financial statements of Signature
     HealthCare Corporation for each of the three years ended December 31, 1995
     and unaudited financial statements for the six months ended June 30, 1996
     and 1995; (ii) audited combined financial statements of Arkansas, Inc.,
     Cornerstone Care, Inc., Douglas Manor, Inc. and Safford Care, Inc. for each
     of the three years ended December 31, 1995 and unaudited financial
     statements for the six months ended June 30, 1996 and 1995; (iii) audited
     financial statements of RehabWest, Inc. as of and for the years ended
     December 31, 1995 and 1994 and unaudited financial statements for the six
     months ended June 30, 1996 and 1995; (iv) audited financial statements of
     American Professional Holding, Inc. for each of the three years ended
     December 31, 1995 and unaudited financial statements for the six months
     ended June 30, 1996 and 1995; and (v) audited financial statements of
     Memphis Clinical Laboratory, Inc. for each of the three years ended
     December 31, 1995 and unaudited financial statements for the six months
     ended June 30, 1996 and 1995.
 
                                       60
<PAGE>   63
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
 
                                          Unison HealthCare Corporation
 
                                          By: /s/  MICHAEL A. JEFFRIES
 
                                            ------------------------------------
                                                    Michael A. Jeffries
                                               President and Chief Executive
                                                           Officer
                                              (Principal Executive Officer)
 
   
                                          Date:       April 21, 1998
    
 
                                          --------------------------------------
 
                                       61
<PAGE>   64
 
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
 
<TABLE>
<CAPTION>
                                                                                                PAGE
                                                                                                -----
<S>                                                                                             <C>
1.  FINANCIAL STATEMENTS
 
UNISON HEALTHCARE CORPORATION
Report of Independent Auditors................................................................    F-2
Report of Independent Auditor.................................................................    F-3
Report of Independent Auditor.................................................................    F-4
Consolidated Balance Sheets as of December 31, 1996 and 1995..................................    F-5
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994....    F-6
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31,
  1996, 1995 and 1994.........................................................................    F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....    F-8
Notes to Consolidated Financial Statements....................................................    F-9
 
BRITWILL HEALTHCARE COMPANY
Report of Independent Auditors................................................................   F-29
Report of Independent Accountants.............................................................   F-30
Consolidated Balance Sheet June 30, 1995......................................................   F-31
Consolidated Statements of Operations for the year ended December 31, 1994, six months ended
  June 30, 1995 and one month ended July 31, 1995.............................................   F-32
Consolidated Statements of Shareholders' Equity for the year ended December 31, 1994 and the
  six months ended June 30, 1995..............................................................   F-33
Consolidated Statements of Cash Flows for the year ended December 31, 1994, six months ended
  June 30, 1995 and one month ended July 31, 1995.............................................   F-34
Notes to Consolidated Financial Statements....................................................   F-35
2.  FINANCIAL STATEMENT SCHEDULES
 
UNISON HEALTHCARE CORPORATION
Schedule II Valuation and Qualifying Accounts.................................................    S-1
 
BRITWILL HEALTH CARE COMPANY
Schedule II Valuation and Qualifying Accounts.................................................    S-2
</TABLE>
 
                                       F-1
<PAGE>   65
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
Unison HealthCare Corporation:
 
     We have audited the accompanying consolidated balance sheets of Unison
HealthCare Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the index at
Item 14(a). These consolidated financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedules based on our
audits. We did not audit the consolidated financial statements of American
Professional Holding, Inc. (Ampro) and Memphis Clinical Laboratory, Inc.
(Memphis), which statements reflect total assets constituting 5% at December 31,
1995 of the related consolidated totals, and which reflect net operating
revenues constituting approximately 11% and 33% and net income constituting
approximately 123% and 121% of the consolidated totals for each of the two years
in the period ended December 31, 1995, respectively. Those statements and the
data relating to Ampro and Memphis included in the schedules as they relate to
December 31, 1995 and each of the two years in the period ended December 31,
1995, listed in the index at Item 14(a) were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to data
included for Ampro and Memphis, is based solely on the report of the other
auditors.
 
     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 our audits and the report of other auditors provide a reasonable
basis for our opinion.
 
     In our opinion, based on our audits and, for 1995 and 1994, the report of
other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Unison
HealthCare Corporation and subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, based on our
audits and, for 1995 and 1994, the report of other auditors, the related
financial statement schedules, as they relate to December 31, 1996 and 1995 and
each of the three years in the period ended December 31, 1996, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
                                          ERNST & YOUNG LLP
Phoenix, Arizona
May 16, 1997
 
                                       F-2
<PAGE>   66
 
                         REPORT OF INDEPENDENT AUDITOR
 
The Board of Directors
American Professional Holding, Inc.
 
     We have audited the accompanying consolidated balance sheets of American
Professional Holding, Inc. as of December 31, 1994 and 1995 and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1995. 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 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 American
Professional Holding, Inc. at December 31, 1994 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
 
Ronald H. Ridgers, P.C.
Richardson, Texas
March 30, 1996
 
                                       F-3
<PAGE>   67
 
                         REPORT OF INDEPENDENT AUDITOR
 
The Board of Directors
Memphis Clinical Laboratory, Inc.
 
     We have audited the accompanying balance sheets of Memphis Clinical
Laboratory, Inc. as of December 31, 1994 and 1995 and the related statements of
income and cash flows for each of the three years in the period ended December
31, 1995. 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 our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Memphis Clinical Laboratory,
Inc. at December 31, 1994 and 1995 and the results of its operations and cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
 
Ronald H. Ridgers, P.C.
Richardson, Texas
February 10, 1996
 
                                       F-4
<PAGE>   68
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                   ----------------------------
                                                                       1996            1995
                                                                   ------------     -----------
<S>                                                                <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents......................................  $ 17,409,000     $ 6,169,000
  Accounts receivable (Notes 2, 5, 10 and 13)....................    28,608,000      18,324,000
  Prepaid expenses and other current assets (Note 6).............     5,885,000       2,319,000
                                                                   ------------     -----------
     Total current assets........................................    51,902,000      26,812,000
Property and equipment, net
  (Notes 7 and 13)...............................................    30,830,000       3,688,000
Lease operating rights and other intangible assets, net (Note
  8).............................................................   113,781,000      39,160,000
Goodwill, net (Note 2)...........................................    28,431,000       8,452,000
Security deposits and other assets (Note 9)......................     5,977,000       3,189,000
                                                                   ------------     -----------
                                                                   $230,921,000     $81,301,000
                                                                   ============     ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Line of credit (Note 10).......................................  $         --     $   789,000
  Accounts payable (Note 11).....................................    10,505,000       9,968,000
  Accrued expenses (Note 12).....................................    21,437,000       9,238,000
  Current portion of notes payable and long-term debt due to
     related parties (Notes 13 and 17)...........................    12,312,000         636,000
  Current portion of other notes payable and long-term debt (Note
     13).........................................................    21,603,000       6,229,000
  Deferred taxes (Note 18).......................................            --         879,000
                                                                   ------------     -----------
     Total current liabilities...................................    65,857,000      27,739,000
Notes payable and long-term debt due to related parties, less
  current portion (Notes 13 and 17)..............................    15,882,000      13,691,000
  Other notes payable and long-term debt (Note 13)...............   107,341,000       5,392,000
Deferred taxes (Note 18).........................................    24,791,000       8,173,000
Leasehold liability, net (Note 16)...............................     4,434,000       4,622,000
Other liabilities................................................       927,000         781,000
                                                                   ------------     -----------
     Total liabilities...........................................   219,232,000      60,398,000
Stockholders' equity (Note 14):
  Preferred stock, $.001 par value; authorized 1,000,000 shares;
     no shares issued or outstanding.............................                            --
  Common stock, $.001 par value; authorized 25,000,000 shares in
     1996 and 10,000,000 shares in 1995; issued and outstanding
     6,078,000 shares in 1996 and 4,214,000 shares in 1995.......         5,000           3,000
  Additional paid-in capital.....................................    34,723,000      20,501,000
  Retained earnings (accumulated deficit)........................   (23,039,000)        399,000
                                                                   ------------     -----------
     Net stockholders' equity....................................    11,689,000      20,903,000
                                                                   ------------     -----------
                                                                   $230,921,000     $81,301,000
                                                                   ============     ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   69
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                     --------------------------------------------
                                                         1996            1995            1994
                                                     ------------     -----------     -----------
<S>                                                  <C>              <C>             <C>
Operating revenues:
  Net patient service revenues.....................  $146,379,000     $64,947,000     $17,070,000
  Other operating revenues.........................     2,295,000       3,541,000       1,336,000
                                                     ------------      ----------     -----------
          Total operating revenues.................   148,674,000      68,488,000      18,406,000
Expenses:
  Wages and related................................    85,789,000      35,047,000       9,593,000
  Other operating..................................    64,771,000      24,032,000       6,462,000
  Rent.............................................    15,658,000       6,673,000       1,406,000
  Interest.........................................     5,824,000       1,176,000         147,000
  Depreciation and amortization....................     4,561,000       1,311,000         286,000
  Impairment losses (Note 23)......................     3,865,000              --              --
                                                     ------------      ----------     -----------
          Total expenses...........................   180,468,000      68,239,000      17,894,000
                                                     ------------      ----------     -----------
Income (loss) before income taxes..................   (31,794,000)        249,000         512,000
Income tax expense (benefit).......................    (8,356,000)        132,000         172,000
                                                     ------------      ----------     -----------
Net income (loss)..................................  $(23,438,000)    $   117,000     $   340,000
                                                     ============      ==========     ===========
 
Net income (loss) per share........................  $      (5.01)    $      0.05     $      0.19
 
Common shares used in per share calculation........     4,676,037       2,280,213       1,806,164
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   70
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                         COMMON STOCK                      RETAINED
                                      ------------------   ADDITIONAL      EARNINGS
                                      NUMBER OF              PAID-IN     (ACCUMULATED
                                       SHARES     AMOUNT     CAPITAL       DEFICIT)        TOTAL
                                      ---------   ------   -----------   ------------   ------------
<S>                                   <C>         <C>      <C>           <C>            <C>
Balance at December 31, 1993
 
  As previously reported............. 1,250,000   $   --   $        --   $   (103,000)  $   (103,000)
  Pooling adjustments................   540,000    1,000       410,000         45,000        456,000
                                      ---------   ------   -----------   ------------    -----------
  Balance as restated................ 1,790,000    1,000       410,000        (58,000)       353,000
Stock warrants issued................        --       --        43,000             --         43,000
Net income...........................        --       --            --        340,000        340,000
                                      ---------   ------   -----------   ------------    -----------
 
Balance at December 31, 1994......... 1,790,000    1,000       453,000        282,000        736,000
Sale of common stock in public
  offering, net of stock issuance
  costs.............................. 2,000,000    2,000    14,612,000             --     14,614,000
Conversion of debenture..............   424,000       --     5,286,000             --      5,286,000
Stock warrants issued................        --       --       150,000             --        150,000
Net income...........................        --       --            --        117,000        117,000
                                      ---------   ------   -----------   ------------    -----------
 
Balance at December 31, 1995......... 4,214,000    3,000    20,501,000        399,000     20,903,000
Costs of initial public offering.....        --       --       (93,000)            --        (93,000)
Stock warrants exercised.............   178,000       --            --             --             --
Conversion of debenture..............   138,000       --     1,714,000             --      1,714,000
Common stock issued for
  acquisitions....................... 1,537,000    2,000    12,701,000             --     12,703,000
Stock options exercised..............    11,000       --       102,000             --        102,000
Tax benefit associated with exercise
  of stock options...................        --       --        11,000             --         11,000
Repurchase of stock warrants.........        --       --      (213,000)            --       (213,000)
Net loss.............................        --       --            --    (23,438,000)   (23,438,000)
                                      ---------   ------   -----------   ------------    -----------
 
Balance at December 31, 1996......... 6,078,000   $5,000   $34,723,000   $(23,039,000)  $ 11,689,000
                                      =========   ======   ===========   ============    ===========
</TABLE>
 
                            See accompanying notes.
 
                                       F-7
<PAGE>   71
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                  ----------------------------------------
                                                                      1996          1995          1994
                                                                  ------------   -----------   -----------
<S>                                                               <C>            <C>           <C>
OPERATING ACTIVITIES:
Net income (loss)...............................................  $(23,438,000)  $   117,000   $   340,000
Adjustments to reconcile net income (loss) to net cash used in
  operating activities:
  Impairment losses.............................................     3,865,000            --            --
  Depreciation and amortization.................................     4,561,000     1,311,000       286,000
  Provision for doubtful accounts...............................     2,742,000        29,000       128,000
  Change in deferred taxes......................................    (9,238,000)      (21,000)        8,000
  Minority interest expense.....................................       138,000        21,000            --
  Leasehold liability amortization..............................      (188,000)      (78,000)           --
  Other charges and credits, net................................       (69,000)           --            --
  Changes in operating assets and liabilities, net of
     acquisitions:
     Increase in net accounts receivable --.....................    (5,310,000)   (8,694,000)   (2,749,000)
     (Increase) decrease in prepaids and other..................       825,000      (607,000)     (575,000)
     Increase in accounts payable and accrued expenses..........     2,454,000     6,990,000     2,519,000
                                                                  ------------   -----------   -----------
Net cash used in operating activities...........................   (23,658,000)     (932,000)      (43,000)
                                                                  ------------   -----------   -----------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements................    (3,587,000)   (1,333,000)     (995,000)
Increase in intangibles and other assets........................    (2,707,000)   (1,397,000)     (155,000)
Increase in lease deposits......................................    (1,204,000)     (272,000)     (180,000)
Acquisitions, net of cash acquired..............................   (41,225,000)     (677,000)     (300,000)
                                                                  ------------   -----------   -----------
Net cash used in investing activities...........................   (48,723,000)   (3,679,000)   (1,630,000)
                                                                  ------------   -----------   -----------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit.............      (789,000)   (2,916,000)      950,000
Proceeds from sale of accounts receivable.......................            --     2,515,000       197,000
Proceeds from long-term borrowings..............................   113,567,000     2,448,000     1,130,000
Payments on long-term borrowings................................   (24,808,000)   (6,187,000)     (482,000)
Repayment of other long-term liabilities........................    (2,779,000)           --            --
Proceeds from public stock offering.............................            --    14,614,000            --
Bank overdrafts.................................................     3,043,000            --            --
Repurchase of stock warrants....................................      (213,000)           --            --
Exercise of stock options.......................................       102,000            --            --
Increase in deferred financing costs............................    (4,502,000)           --            --
                                                                  ------------   -----------   -----------
Net cash provided by financing activities.......................    83,621,000    10,474,000     1,795,000
                                                                  ------------   -----------   -----------
  Net increase in cash..........................................    11,240,000     5,863,000       122,000
Cash and cash equivalents at beginning of period................     6,169,000       306,000       184,000
                                                                  ------------   -----------   -----------
Cash and cash equivalents at end of period......................  $ 17,409,000   $ 6,169,000   $   306,000
                                                                  ============   ===========   ===========
Supplemental disclosure:
  Income taxes paid.............................................  $    124,000   $    92,000   $   172,000
  Interest expense paid.........................................     3,014,000     1,127,000       130,000
Supplemental disclosure of noncash investing and financing
  activities
Acquisitions:
  Fair value of assets acquired.................................   122,420,000    58,744,000            --
  Liabilities incurred and assumed..............................    68,492,000    59,421,000            --
  Common stock issued...........................................    12,703,000            --            --
                                                                  ------------   -----------
                                                                    41,225,000       677,000            --
Conversion of debentures into shares of common stock............     1,714,000     5,286,000            --
Acquisition of leasehold rights ($237,000) and equipment and
  leasehold improvements ($126,000) through issuance of note
  payable.......................................................            --            --       363,000
Common stock warrants issued (Note 16)..........................            --       150,000            --
Property and equipment purchased under capital leases...........     7,205,000            --            --
</TABLE>
 
                             See accompanying notes
 
                                       F-8
<PAGE>   72
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
 
1. DESCRIPTION OF BUSINESS
 
     Unison HealthCare Corporation ("Unison") is a provider of long-term and
specialty healthcare services. At December 31, 1996, Unison operated and managed
62 facilities, including long-term care and specialty care and
independent/assisted living facilities. Unison's operations are located in 13
states, principally in the midwest and southwest regions of the United States.
 
     Unison changed its name from SunQuest HealthCare Corporation in November
1995. In August 1995, Unison acquired all of the common stock of BritWill
HealthCare Company ("BritWill"). In March 1996, Unison acquired 90% of the
Common Stock of four rehabilitation therapy centers (collectively "Sunbelt
Therapy") and in November 1996 retroactively acquired the remaining 10%. In
October 1996, Unison acquired all of the common stock of Signature Health Care
Corporation and four affiliated companies ("Signature"). In October 1996, Unison
completed a merger with two clinical laboratory companies, American Professional
Holding, Inc. ("Ampro") and Memphis Clinical Laboratory, Inc. ("Memphis"). (Note
4). Unison also operates a pharmacy operation and a Medicare Part B billing and
supply company.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     The accompanying consolidated financial statements include the accounts of
Unison, its subsidiaries, and all of its leased facilities. Significant
intercompany transactions and balances have been eliminated in consolidation.
 
     Revenues and expenses related to the operations acquired from BritWill,
Sunbelt Therapy, Signature and other acquisitions are included in Unison's
results of operations for periods subsequent to the date of acquisition. The
mergers with Ampro and Memphis have been accounted for as poolings of interests.
Accordingly the consolidated financial statements of Unison have been restated
to include the accounts of Ampro and Memphis for all periods presented.
 
  Use of Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
  Net Operating Revenues
 
     Revenues are recognized when services are provided and products are
delivered.
 
     Unison's revenues are derived primarily from providing long-term healthcare
services. Contractual adjustments resulting from agreements with various
organizations to provide services for amounts which differ from billed charges,
including services under Medicare and Medicaid, are recorded as deductions from
gross patient service revenue. The estimated third party payor settlements under
Medicare and Medicaid programs are recorded in the period the related services
are rendered and are subject to audit and final settlement by the fiscal
intermediary. Differences between the net amounts accrued and subsequent
settlement, if any, are recorded in operations at the time the final settlement
is determined. As of December 31, 1996 and 1995, Unison has approximately
$2,260,000 and $1,800,000, respectively, of Medicare routine cost limit
exceptions which are subject to audit and final approval by the fiscal
intermediary. Based on consultation with outside reimbursement specialists, it
is management's opinion that the ultimate resolution of third party payor
settlements will not have a material adverse impact on the consolidated
financial position or results of operations of Unison.
 
                                       F-9
<PAGE>   73
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
     Unison receives management fees for the management of long-term care
facilities on behalf of the owners. Other operating revenues include management
fees amounting to $1.2 million in 1996, $1.7 million in 1995, and $1.1 million
in 1994.
 
     Provision for doubtful accounts is made when the related revenue is
recorded and is included in other operating expense. The provisions totaled
$2,742,000 in 1996, $29,000 in 1995 and $128,000 in 1994. Accounts, when
determined to be uncollectible, are charged against the allowance for doubtful
accounts. The allowance for doubtful accounts is determined by management using
estimates of potential losses based on an analysis of current and past due
accounts, collection experience in relation to amounts billed, prior settlements
experience and other relevant information. The allowance for doubtful accounts
totaled $3,776,000 and $783,000 at December 31, 1996 and 1995, respectively.
 
  Cash and cash equivalents
 
     Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
 
  Inventories
 
     Inventories are comprised primarily of nursing facility supplies and
pharmaceutical products and are stated at the lower of cost (first-in,
first-out) or market.
 
  Property and Equipment
 
     Property and equipment are stated at cost. Depreciation and amortization
for financial statement purposes are computed using the straight-line method
over the lesser of the respective lease term or the estimated useful life of the
respective asset.
 
  Intangible Assets
 
     Certain costs incurred in the acquisition of facilities such as assembled
workforce and covenants not to compete are amortized on a straight line basis
over five years. Lease operating rights (net of leasehold liabilities) have been
recorded in connection with the acquisitions of BritWill and Signature (Note 4)
and represent difference between the aggregate consideration given for all of
the acquired companies' assets, less the value of those assets which were
identified and discretely valued as defined by an independent valuation. Lease
operating rights are being amortized on a straight line basis over the
respective initial lease term, including probable renewal periods, not to exceed
thirty years.
 
     Management believes that goodwill related to nursing home acquisitions has
an unlimited useful life and, therefore, assigned a forty-year amortization
period to goodwill resulting from such acquisitions. In determining its
unlimited useful life, management considered factors such as: policies of
similar public healthcare and long-term care companies, nature of the long-term
care industry which is positively impacted by the increasing age of the American
population as well as the continual transfer of patients from a high cost acute
care setting to a lower cost long-term care setting, profitability of companies
in the long-term care industry, and the fact that nursing care services provided
in nursing home facilities will be continuously needed in the future and are not
subject to obsolescence.
 
                                      F-10
<PAGE>   74
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
     Goodwill resulting from various acquisitions is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                       AMORTIZATION      --------------------------
                                                      PERIOD (YEARS)        1996            1995
                                                      --------------     -----------     ----------
<S>                                                   <C>                <C>             <C>
BritWill............................................        40           $ 7,000,000     $7,000,000
Pharmacy............................................        20             1,197,000        545,000
Gamma Labs..........................................        15             1,087,000      1,087,000
Sunbelt.............................................        20             5,425,000             --
Signature...........................................        40             9,300,000             --
RehabWest...........................................        20             5,029,000             --
                                                                         -----------     ----------
                                                                          29,038,000      8,632,000
Accumulated amortization............................                        (607,000)      (180,000)
                                                                         -----------     ----------
                                                                         $28,431,000     $8,452,000
                                                                         ===========     ==========
</TABLE>
 
     Unison periodically assesses the recoverability of intangible assets by
comparing the carrying amount of the intangible assets to the future benefits or
undiscounted cash flows derived from that asset. Impairments are recognized in
operating results if it is probable that the carrying value of the asset will
not be recovered from future cash flows derived from that asset (Note 23).
 
  Income Taxes
 
     Unison accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the use of an asset and liability approach for measuring deferred
taxes based on temporary differences between financial statement and tax bases
of assets and liabilities existing at each balance sheet date using enacted tax
rates for years in which the related taxes are expected to be paid or recovered.
 
  Net Income (Loss) Per Share
 
     Net income (loss) per share is calculated by dividing net income (loss) by
the weighted average number of common and dilutive equivalent shares
outstanding.
 
  Reclassifications
 
     Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform with the 1996 presentation.
 
3. LIQUIDITY
 
     Unison incurred a loss from operations during 1996, and at December 31,
1996, has a working capital deficiency of $13,955,000 and is in default on
$18,640,000 of debt (Note 13). The 1996 loss resulted primarily from
non-recurring expenses including impairment losses on long-lived assets, costs
of failed acquisitions and related financing efforts, write-offs of non patient
receivables, penalties and fines, and similar items. The debt in default is
collateralized by nursing facilities with market values significantly in excess
of the debt. Management believes that the debt can be refinanced if payment on
the debt is accelerated, but has no reason to believe that the debt payments
will be accelerated.
 
     In February 1997, members of Unison's Board of Directors formed an
Executive Committee which replaced members of senior management and which now
has responsibility for overseeing Unison's operations until new management is
secured. The Executive Committee subsequently initiated various revenue enhance-
 
                                      F-11
<PAGE>   75
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
3. LIQUIDITY -- (CONTINUED)
ment and cost containment initiatives. Additionally, Unison has other assets,
such as its pharmacy and therapy companies, which could be sold to generate
additional cash flow if needed, and has access to a $10,000,000 line of credit.
The Company is attempting to develop lending relationships that will use the
Company's available accounts receivable and other available assets to reduce
overall borrowing costs and, if necessary, supply additional working capital.
The Company also intends to explore opportunities for a secured or unsecured
term loan or for equity financings, should that prove necessary or desirable.
There can be no assurance that such financings will be available or, if
available, that necessary funds will be available on terms favorable to Unison
and its shareholders.
 
     The Executive Committee believes that the revenue enhancement and cost
containment initiatives and access to cash flows from draws on its line of
credit or, if necessary, proceeds from sales of unencumbered assets and
additional borrowings, will provide Unison with the liquidity necessary to meet
its obligations during 1997.
 
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND DISPOSITIONS
 
     In August 1995, Unison acquired all of the common stock of BritWill,
another long-term care company operating approximately 28 facilities located in
Texas and Indiana. The terms of the BritWill acquisition were modified in April
1996, effective August 10, 1995, such that Unison acquired all of the
outstanding stock of BritWill for a total fixed purchase amount of $20,600,000
plus, to the extent applicable, monthly contingent payments if Unison's monthly
consolidated net patient revenues exceeded specified monthly amounts ranging
from $8,000,000 to $11,989,000 for the period from September 9, 1995 through
July 31, 2000. An additional lump sum contingent payment was payable on the
earlier of (i) August 9, 2000 if Unison had consolidated net patient revenues of
not less than $150,000,000 for the twelve-month period ended June 30, 2000 or
(ii) the sale by Unison of debt or equity securities exceeding $10,000,000. The
purchase price was comprised of a $5,602,000 term note (the "Term Note"), an
$8,000,000 subordinated promissory note (the "Subordinated Note"), and a
$7,000,000 noninterest bearing convertible subordinated debenture (the
"Convertible Debenture") (Note 13). During August 1996, as a result of the
proposed acquisition of the common stock of Signature, the contingent payments
became assured and Unison accrued the present value of the remaining contingent
payments related to the BritWill acquisition in an amount totaling $11,500,000
(the "Additional Payment Obligation") (Note 13). In connection with the BritWill
acquisition, Unison paid a financial advisory fee to Trouver Capital Partners,
L.P. ("Trouver") amounting to $675,000. One of Unison's directors is a partner
in Trouver. The acquisition was accounted for as a purchase. The contingent
portions of the purchase price were initially added to lease operating rights
when paid, and then in August 1996 when accrued. At December 31, 1996 and 1995,
contingent payments and accruals amounting to $19,523,000 and $567,000,
respectively, had been added to lease operating rights.
 
     Effective February 1, 1996, Unison acquired 90% of the common stock of
Sunbelt Therapy, paying $800,000 in cash and issuing term notes aggregating
$1,000,000 (the "Notes") and subordinated convertible debentures aggregating
$1,800,000 (the "Debentures"). The transaction was accounted for as a purchase.
In November 1996, Unison purchased the remaining 10% of Sunbelt Therapy
effective February 1, 1996. The aggregate purchase price amounted to $1,418,000
plus a guaranteed payment amounting to $709,000. Consideration for the purchase
was comprised of promissory notes in the aggregate amount of $1,876,000 and
27,942 shares of Unison common stock (Note 13). Additional contingent payments
of up to $1,418,000 will be due if specified income targets are achieved. The
additional consideration will be added to goodwill when and if such income
targets are achieved.
 
                                      F-12
<PAGE>   76
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND
DISPOSITIONS -- (CONTINUED)
     On October 31, 1996, Unison, through a newly formed wholly owned
subsidiary, simultaneously completed mergers with Ampro and Memphis for
aggregate consideration of $4,942,000. The outstanding shares of Ampro common
stock were converted into the right to receive 521,000 shares of Unison common
stock. Three shareholders who owned approximately 35% of the outstanding shares
of Memphis received pro rata portions of 19,000 shares of Unison common stock
and the holder of the remaining shares of Memphis received cash in the amount of
$237,000 and a promissory note in the amount of $250,000. The total amount
assigned to the 540,000 shares of Unison Common Stock issued was $4,455,000,
based on the closing market price on October 31, 1996 of $8.25. The transaction
has been recorded as a pooling of interests.
 
     Summarized results of operations of the separate companies for the period
from January 1, 1996 through October 31, 1996 are as follows (unaudited):
 
<TABLE>
<CAPTION>
                                                       UNISON          AMPRO        MEMPHIS
                                                    ------------     ----------     --------
    <S>                                             <C>              <C>            <C>
    Total revenues................................  $109,862,000     $5,137,000     $686,000
    Net income (loss).............................   (12,728,000)       163,000       50,000
</TABLE>
 
     Following is a reconciliation of restated revenues and net income (loss) to
amounts previously reported for the years ended December 31:
 
<TABLE>
<CAPTION>
                                                                   1995            1994
                                                                -----------     -----------
    <S>                                                         <C>             <C>
    Total operating revenues:
      As previously reported..................................  $61,285,000     $12,406,000
      Merged companies (Ampro and Memphis)....................    7,203,000       6,000,000
                                                                -----------     -----------
      As restated.............................................  $68,488,000     $18,406,000
                                                                ===========     ===========
    Net income (loss):
      As previously reported..................................  $   (26,000)    $   (80,000)
      Merged companies (Ampro and Memphis)....................      143,000         420,000
                                                                -----------     -----------
      As restated.............................................  $   117,000     $   340,000
                                                                ===========     ===========
</TABLE>
 
     On October 31, 1996, Unison acquired Signature, comprised of Signature
Health Care Corporation ("Signature Health Care") and four affiliated companies,
Douglas Manor, Inc. ("Douglas"), Safford Care, Inc. ("Safford"), Arkansas, Inc.
("Arkansas"), and Cornerstone, Inc. ("Cornerstone"). Signature operates 13
long-term care facilities in Colorado and Arizona. The initial aggregate
purchase price for Signature amounted to approximately $50,653,000, comprised of
cash and promissory notes totaling approximately $38,200,000 and 1,509,434
shares of Unison Common Stock. The amount assigned to the shares of Unison
Common Stock issued was $12,453,000, based on the closing market price on
October 31, 1996 of $8.25. In accordance with an adjustment provision of the
Signature merger agreements relating to the stockholders' equity, in March 1997
the former shareholders of Signature received additional consideration of
$2,511,000, paid in convertible promissory notes ($1,827,000) and 238,052 shares
of Unison common stock with a market value of $2.875 per share ($684,000). The
adjustment was recorded as an addition to the purchase price of Signature and
added to lease operating rights. In connection with the Signature acquisition,
Unison also acquired all of the outstanding stock of Rehabwest, Inc.
("Rehabwest"), a related rehabilitation services company, for a cash purchase
price of $6,100,000. These acquisitions were accounted for as purchases. The
former majority shareholder of Signature is currently serving as a Director of
Unison.
 
     On September 30, 1996, Unison announced a disposition plan designed to
improve its long-term financial strength and operating performance. The original
plan included the disposition of seven nursing facilities and
 
                                      F-13
<PAGE>   77
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
4. SIGNIFICANT BUSINESS TRANSACTIONS, ACQUISITIONS AND
DISPOSITIONS -- (CONTINUED)
was subsequently modified to include an aggregate of eight facilities (the
"Disposition Facilities"). On March 1, 1997, Unison subleased four of the
Disposition Facilities to an unrelated party. The provision for disposal of
these facilities is included in impairment losses (Note 23). Of the remaining
four Disposition Facilities, one is closed and three remain in operation with an
aggregate of 522 licensed beds.
 
     Summarized below are the unaudited pro forma consolidated results of
operations of Unison for the periods indicated, assuming the acquisitions, lease
agreements and dispositions described above and the private placement of the
Senior Notes described in Note 13 were consummated as of January 1, 1995. The
unaudited pro forma consolidated results of operations have been prepared for
comparative purposes only and are not necessarily indicative of what would have
occurred had these transactions occurred at January 1, 1995 or of results which
may occur in the future.
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                                  1996             1995
                                                              ------------     ------------
                                                                       (UNAUDITED)
    <S>                                                       <C>              <C>
    Revenues............................................      $182,382,000     $148,182,000
    Net loss............................................        19,039,000        5,652,000
    Net loss per share..................................             $3.21            $1.66
</TABLE>
 
5. ACCOUNTS RECEIVABLE
 
     In April 1995, Unison entered into a sales agreement with HealthPartners
Funding, L.P. ("Health Partners") to routinely sell eligible accounts
receivable, consisting primarily of Medicare and Medicaid receivables, up to
$3,000,000 for a discount fee of up to 1.583% of outstanding eligible
receivables purchased under the agreement. As of December 31, 1995, Unison had
sold approximately $2,515,000 of eligible accounts receivable to HealthPartners.
The proceeds from the sale were in the form of cash of $1,982,000 and
collateralization of accounts receivable of $533,000 (included in other current
assets) (Note 6). Under the terms of the sales agreement, Unison was required to
repurchase from HealthPartners all Medicare and Medicaid receivables which were
uncollected after 60 days, management receivables which were uncollected after
90 days and cost report settlement receivables which were uncollected after 120
days. As additional consideration, Unison granted to HealthPartners warrants to
purchase common stock equal to at least $150,000 (Note 14). In March 1996, the
sales agreement was terminated.
 
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
     Prepaid expenses and other current assets as of December 31 are summarized
as follows:
 
<TABLE>
<CAPTION>
                                                                     1996           1995
                                                                  ----------     ----------
    <S>                                                           <C>            <C>
    Prepaid expenses............................................  $1,615,000     $1,146,000
    Deferred taxes (Note 18)....................................   3,332,000             --
    Inventories.................................................     938,000        640,000
    HealthPartners receivable (Note 5)..........................          --        533,000
                                                                  ----------     ----------
                                                                  $5,885,000     $2,319,000
                                                                  ==========     ==========
</TABLE>
 
                                      F-14
<PAGE>   78
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
7. PROPERTY AND EQUIPMENT
 
     Property and equipment as of December 31 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                   LIFE (YEARS)        1996            1995
                                                   ------------     -----------     -----------
    <S>                                            <C>              <C>             <C>
    Land and building............................      15-25        $21,757,000     $   205,000
    Equipment....................................       5-15         11,806,000       3,408,000
    Leasehold improvements.......................      12-15          2,386,000       1,148,000
                                                       -----        -----------      ----------
                                                                     35,949,000       4,761,000
    Less accumulated depreciation................                    (5,119,000)     (1,073,000)
                                                                    -----------      ----------
                                                                    $30,830,000     $ 3,688,000
                                                                    ===========      ==========
</TABLE>
 
     Property and equipment includes assets acquired under capitalized leases of
approximately $7,205,000, net of $159,000 accumulated depreciation.
 
8. LEASE OPERATING RIGHTS AND OTHER INTANGIBLE ASSETS
 
     Lease operating rights and other intangible assets as of December 31 are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                 AMORTIZATION
                                                PERIOD (YEARS)         1996            1995
                                                --------------     ------------     -----------
    <S>                                         <C>                <C>              <C>
    Lease operating rights....................    25-30            $108,050,000     $36,999,000
    Capitalized assembled workforce...........      3                 1,845,000       1,250,000
    Debt and bond issue costs.................     3-10               5,200,000         194,000
    Covenant not to compete...................     2-5                  850,000         100,000
    Other.....................................     5-20               1,076,000       1,270,000
                                                                   ------------     -----------
                                                                    117,021,000      39,813,000
    Less amortization.........................                       (3,240,000)       (653,000)
                                                                   ------------     -----------
                                                                   $113,781,000     $39,160,000
                                                                   ============     ===========
</TABLE>
 
     Of the increase in lease operating rights during 1996, $55,234,000 was a
result of the acquisition of Signature and $18,500,000 represents the Additional
Payment Obligation of $11,500,000 and $7,000,000 of related deferred tax
liabilities relating to the BritWill acquisition (Note 4).
 
     The significant increase in debt and bond issue costs is due to issue costs
capitalized in connection with the Senior Notes described in Note 13.
 
9. SECURITY DEPOSITS AND OTHER ASSETS
 
     Security deposits and other assets as of December 31 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                                     1996           1995
                                                                  -----------    ----------
    <S>                                                           <C>            <C>
    Security deposits...........................................  $ 5,077,000    $2,735,000
    Other.......................................................      900,000       454,000
                                                                   ----------    ----------
                                                                  $ 5,977,000    $3,189,000
                                                                   ==========    ==========
</TABLE>
 
     In connection with certain lease agreements with Omega Healthcare
Investors, Inc. ("Omega"), Unison is required to maintain security deposits with
Omega. Omega invests these funds in a money market fund on behalf of Unison at
an approximate rate of 5% at December 31, 1996.
 
10. LINE OF CREDIT
 
     In March 1996, Unison's revolving lines of credit were replaced by a
$10,000,000 credit facility. Borrowings under this credit facility bear interest
at the prime rate plus 2.0%, mature in 1998 and are collateralized by Unison's
eligible accounts receivable. A commitment fee of .5% is payable on the unused
 
                                      F-15
<PAGE>   79
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
10. LINE OF CREDIT -- (CONTINUED)
portion. The agreement requires Unison to comply with certain financial and
operational covenants including limitations on additional borrowings and sale of
assets and alteration of Unison's existing capital structure. There were no
amounts outstanding under the line of credit at December 31, 1996.
 
11. ACCOUNTS PAYABLE
 
     Accounts payable as of December 31 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                    1996            1995
                                                                 -----------     ----------
    <S>                                                          <C>             <C>
    Trade payables.............................................  $ 7,462,000     $9,968,000
    Checks drawn in excess of bank balance.....................    3,043,000             --
                                                                 -----------     ----------
                                                                 $10,505,000     $9,968,000
                                                                 ===========     ==========
</TABLE>
 
12. ACCRUED EXPENSES
 
     Accrued expenses as of December 31 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                    1996            1995
                                                                 -----------     ----------
    <S>                                                          <C>             <C>
    Accrued compensation and benefits..........................  $ 8,487,000     $4,814,000
    Purchase accounting liabilities............................    2,688,000        879,000
    Due to State Medicaid......................................           --        470,000
    Accrued interest...........................................    2,879,000          8,000
    Accrued professional fees..................................    1,090,000             --
    Income and gross receipt taxes payable.....................    3,106,000             --
    Other......................................................    3,187,000      3,067,000
                                                                 -----------     ----------
    Accrued expenses...........................................  $21,437,000     $9,238,000
                                                                 ===========     ==========
</TABLE>
 
     The purchase accounting liabilities at December 31, 1996 represent
additional consideration payable to the former shareholders of Signature
amounting to $2,511,000 (Note 4) and an accrual of $177,000 for severance, exit
and lease terminations. As of December 31, 1995, the accrual represents
estimated severance, exit and lease termination costs incurred in connection
with the BritWill acquisition (Note 4).
 
                                      F-16
<PAGE>   80
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
13. NOTES PAYABLE AND LONG-TERM DEBT
 
     Notes payable and long-term debt is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                   ----------------------------
                                                                       1996            1995
                                                                   ------------     -----------
<S>                                                                <C>              <C>
Senior Notes...................................................... $100,000,000     $        --
Mortgage Note.....................................................   18,640,000              --
Notes in escrow...................................................    1,146,000              --
Additional Payment Obligation (Note 4)............................   11,500,000              --
Subordinated Note (Note 4)........................................    8,000,000       8,000,000
Term Note (Note 4)................................................           --       5,602,000
Convertible Debenture (Note 4)....................................           --       1,714,000
Subordinated notes payable to related party.......................    2,547,000       4,199,000
Other notes payable to related parties............................    4,676,000              --
Payable to State of Indiana Medicaid..............................           --       3,741,000
Capital lease obligations (Note 16)...............................    7,759,000              --
Note payable in annual installments of $200,000 plus interest
  at the prime rate, due January 1998.............................      400,000              --
Note payable in annual installments of $133,000 plus interest
  at the published federal rate, due February 1998................      267,000         400,000
10.0% subordinated note, payable monthly to 1998..................      219,000         234,000
Noninterest bearing note payable to lessor due 1999,
  net of unamortized discount.....................................      383,000         393,000
Notes payable to banks, interest at 8.0% to 10.5%, due 1997 to
  2000, collateralized by certain assets of subsidiaries..........      345,000         727,000
Unsecured notes payable to banks, variable interest rates, due
  1997 to 1998....................................................      433,000              --
Note payable to an individual, payable monthly with interest at
  10.0%,
  due 1998, collateralized by receivables of subsidiary...........      211,000         342,000
11.5% notes payable to lessor due 1997............................      283,000              --
Other.............................................................      329,000         596,000
                                                                   ------------     -----------
                                                                    157,138,000      25,948,000
Less current portion..............................................  (33,915,000)     (6,865,000)
                                                                   ------------     -----------
                                                                   $123,223,000     $19,083,000
                                                                   ============     ===========
</TABLE>
 
     On October 31, 1996, Unison completed the private placement of $100,000,000
of 12 1/4% Senior Notes due 2006 (the "Senior Notes"). The net proceeds to
Unison in the amount of $94,550,000 were used to: (i) complete the acquisitions
of Signature and RehabWest (Note 4); (ii) repay certain debt and contingent
obligations and; for general corporate purposes. In January 1997, a portion of
the proceeds from the Senior Notes were used to (i) repay the Subordinated Note
and (ii) prepay $1,750,000 of the Additional Payment Obligation. Interest on the
Senior Notes is payable semiannually. The stated interest rate of 12 1/4% per
annum is subject to temporary increase if the Senior Notes (or Exchange Notes
with the same terms) are not registered with the Securities and Exchange
Commission within specified time periods. As of December 31, 1996, the interest
rate on the Senior Notes was 12.75% and as of May 16, 1997 the interest rate is
13.00%. The interest rate is subject to further increases of 0.25% on June 13,
1997 and every 90 days thereafter (up to a maximum rate of 14 1/4%) until such
registration becomes effective. The Senior Note indenture contains certain
covenants, including limitations on additional indebtedness, investments,
transactions with affiliates, asset sales, payment of dividends and certain
other transactions.The Senior Notes are guaranteed by all of the Company's
current and future subsidiaries on a full, unconditional, joint and several
basis. All of Unison's
 
                                      F-17
<PAGE>   81
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
13. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
subsidiaries are wholly owned with the exception of Quest Pharmacies, Inc., of
which Unison owns 75%. Unison is a holding company with no material assets or
operations other than its investments in its subsidiaries. Accordingly, separate
audited financial statements for the individual subsidiary guarantors would not
be meaningful to investors and so are not included herein.
 
     In connection with the Signature acquisition, Unison assumed a 10.5%
mortgage loan (the "Mortgage Note") collateralized by property and equipment of
six of the Signature facilities. Principal and interest of $180,000 is payable
monthly with a balloon payment due in April 2004. The Mortgage Note requires
Unison to maintain consolidated net worth of at least $39,000,000, a minimum
current ratio (current assets to current liabilities) consolidated for the six
properties of at least 1.45 to 1 during 1996 and a debt service coverage ratio
(as defined) for the four preceding quarters consolidated for the six properties
of at least 1.5 to 1. While the minimum current ratio and debt service ratios
consolidated for the six properties were in compliance with the debt covenants,
the consolidated Unison net worth at December 31, 1996 was $11,689,000 and
accordingly, the Company was not in compliance with the net worth covenant.
Unison did not receive a waiver of this covenant violation and accordingly,
classified the entire obligation of $18,640,000 as current. In addition, the
Company has not met the financial reporting requirements of the Mortgage Note.
 
     Also in connection with the Signature acquisition (Note 4) Unison placed
promissory notes in the aggregate amount of $1,146,000 in escrow. Of this
amount, and subject to any outstanding claims, $500,000 and $646,000 will be
released from escrow and paid to the former owners of Signature on October 31,
1997 and 1998, respectively.
 
     In connection with the BritWill acquisition (Note 4), Unison incurred the
following indebtedness to the former shareholders of BritWill: (i) the Term Note
in the amount of $5,602,000; (ii) the Subordinated Note in the amount of
$8,000,000, (iii) the $7,000,000 noninterest-bearing Convertible Debenture
convertible into 561,815 shares of common stock and, (iv) the Additional Payment
Obligation of $11,500,000 which became assured during August 1996 (Note 4). The
Additional Payment Obligation represents the present value of the remaining
monthly payments, ranging from $99,000 to $166,000 at interest rates ranging
from 12% to 14% through the term of the loan with a balloon payment of $8.1
million due August 9, 2000. The Term Note, as amended, was repaid in January
1996. The Subordinated Note is payable in monthly installments of interest only
at 8% and was repaid in January 1997 with proceeds from the Senior Notes. The
holder of the Convertible Debenture converted a portion of the Convertible
Debenture in December 1995 into 424,251 shares of Unison common stock and
converted the remainder on March 28, 1996 into 137,564 shares of Unison common
stock.
 
     The terms of the Subordinated Note require Unison to meet certain financial
covenants, including current and cash flow ratios.
 
     Subordinated notes payable to a related party are payable to BritWill
Investments Texas, Ltd. ("BritWill Texas"), an affiliate of BritWill. The notes
are payable monthly with interest at 9% to 10% with the balance due in October
2004. As of December 31, 1995, the aggregate balance included a $1,400,000
advance from BritWill Texas for a lease security deposit. In 1996, this
liability was forgiven and the balance was recorded as a reduction of lease
operating rights in the consolidated balance sheet.
 
     Other notes payable to related parties represent obligations to the former
owners of Sunbelt Therapy. In connection with the purchase of Sunbelt Therapy
(Note 4), Unison issued Notes and Debentures in the aggregate amount of
$2,800,000 with interest payable quarterly at 10.0% and convertible into Unison
common stock at a conversion price equal to 100% and 85% of the average closing
price of Unison's common stock for the 20 day trading period preceding the date
of conversion. In January 1997, the Notes and Debentures were
 
                                      F-18
<PAGE>   82
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
13. NOTES PAYABLE AND LONG-TERM DEBT -- (CONTINUED)
converted into 105,196 shares of Unison common stock with the balance of
$2,000,000 paid in cash. Effective February 1, 1996, Unison purchased the
remaining 10% minority ownership in Sunbelt Therapy (Note 4). The purchase price
included notes payable in the aggregate amount of $1,876,000. Interest on the
notes is payable quarterly beginning January 1997 at a rate of 9.0% per year,
with scheduled principal reductions due annually through January 1999.
 
     In March 1995, BritWill received an erroneous Medicaid reimbursement
payment of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the State of Indiana's agent regarding such overpayment
resulted in BritWill retaining the funds subject to BritWill's payment of
interest thereon to the State of Indiana at the higher of the prime rate plus
3.25% or 12%. In April 1996, Unison agreed to repayment of the remaining
$3,741,000 balance by: (i) a $1,100,000 payment to the State of Indiana in April
1996; and (ii) withholding of Medicaid reimbursement payments due five of
Unison's facilities in Indiana to offset the amount due to the State until the
balance was paid in full in September 1996. Interest was payable at 14%.
 
     Future maturities of notes payable and long-term debt at December 31, 1996
are as follows:
 
<TABLE>
        <S>                                                              <C>
        Year ending December 31,
                    1997.............................................    $ 33,915,000
                    1998.............................................       4,761,000
                    1999.............................................       2,951,000
                    2000.............................................       9,768,000
                    2001.............................................       1,607,000
               Thereafter............................................     104,136,000
                                                                         ------------
                                                                         $157,138,000
                                                                         ============
</TABLE>
 
     As of December 31, 1996, Unison was not in compliance with certain debt
covenants for the Mortgage Note, Subordinated Note, and certain capitalized
equipment leases. Because holders of these debt instruments have the right to
accelerate payment of the debt, these notes and leases have been classified as
current liabilities in the accompanying consolidated balance sheet.
 
14. STOCKHOLDER'S EQUITY
 
     In December 1995 and January 1996, Unison completed an initial public
offering ("the IPO") resulting in the issuance of 2,000,000 shares of common
stock at $9.00 per share. Proceeds from the IPO amounted to $14,614,000, net of
expenses, of which $9,727,000 was used to repay debt (Notes 13 and 17). In
connection with the IPO, Unison issued warrants to the representatives of the
underwriters to purchase up to 120,000 shares of common stock, at an exercise
price of $11.70 per share (market value at date of grant), which approximates
the fair value of consideration received at the date of issuance, in exchange
for certain advisory services to be provided to Unison during the twelve-month
period following the IPO. The warrants are exercisable for a five-year period
beginning in December 1996.
 
     On August 10, 1995, Unison entered into a stock purchase warrant agreement
with HealthPartners. The agreement entitled HealthPartners to purchase shares of
Unison's common stock with an aggregate market value of $150,000, or
approximately 16,667 shares based on the IPO price of $9.00 per share. The
$150,000 has been capitalized as a deferred financing cost and is being
amortized over two years. In December 1996, HealthPartners exercised its option
which required Unison to repurchase the warrants for $213,000 in cash, which has
been recorded as a reduction of additional paid-in capital.
 
                                      F-19
<PAGE>   83
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
14. STOCKHOLDER'S EQUITY -- (CONTINUED)
     Effective December 31, 1994, Unison completed a stock purchase warrant
agreement to satisfy amounts due to an individual who actively negotiated
several of Unison's management and operating lease agreements. The warrants were
exercised in 1996, whereby 178,000 shares of Unison common stock were purchased
for $200. Since the warrants were granted at less than fair market value,
leasehold rights totaling $43,000 have been capitalized and are being amortized
over the respective initial lease term.
 
     In August and October 1996, warrants to purchase an aggregate of 300,464
shares of common stock were issued to a commercial bank in connection with a
short-term loan agreement. The exercise prices of the warrants are $12.80 and
$13.00 (market value at date of grant), which approximates the fair value of
consideration received at the date of issuance, and the warrants expire on
October 31, 2001.
 
     Unison's common stock has been traded on the Nasdaq Stock Market's National
Market System since December 19, 1995. As of December 31, 1996, Unison does not
currently satisfy the minimum tangible net worth criteria for maintaining the
listing of its common stock on the Nasdaq Stock Market.
 
15. STOCK OPTIONS
 
     In July 1995, the Board of Directors approved the 1995 Stock Option Plan
(the "1995 Plan"). The 1995 Plan offers two types of options: (i) a
discretionary option grant program (the "Discretionary Program") under which
eligible individuals may, at the discretion of the Board of Directors, be
granted options to purchase shares of common stock at an exercise price
determined by the Board of Directors, and (ii) the automatic option grant
program (the "Automatic Program") under which grants of options will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of common stock at an exercise price equal to 100% of
their fair market value on the grant date. Each grant under the Automatic
Program vests over two years and is exercisable for ten years. Options granted
in 1995 under the Discretionary Program vest over periods of two to four years.
In January 1996, the 1995 Plan was amended by the Board of Directors to change
the exercise price of all outstanding options from $10.00 to $9.00 per share,
which was the IPO price (Note 14). The 1995 Plan was further amended in October
1996 to increase the number of shares of common stock authorized for issuance
under the 1995 Plan from 511,046 to 800,000.
 
     Unison has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of Unison's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
 
     Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if Unison had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.0% and 5.0%; dividend
yields of 0% and 0%; volatility factors of the expected market price of the
Company's common stock of .64 and .64; and a weighted-average expected life of
the option of 8 years.
 
     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Unison's employee stock options have characteristics
significantly different from those of traded options, and
 
                                      F-20
<PAGE>   84
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
15. STOCK OPTIONS -- (CONTINUED)
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
 
     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Unison's pro
forma information follows:
 
<TABLE>
<CAPTION>
                                                                     1996           1995
                                                                 ------------     --------
    <S>                                                          <C>              <C>
    Pro forma net loss.........................................  $ 24,157,000     $ 72,000
    Pro forma net loss per share...............................  $       5.16     $   0.03
</TABLE>
 
     Information regarding the 1995 Plan is as follows:
 
<TABLE>
<CAPTION>
                                                DISCRETIONARY PROGRAM             AUTOMATIC PROGRAM
                                            -----------------------------   -----------------------------
                                              NUMBER     WEIGHTED-AVERAGE     NUMBER     WEIGHTED-AVERAGE
                                            OF OPTIONS    EXERCISE PRICE    OF OPTIONS    EXERCISE PRICE
                                            ----------   ----------------   ----------   ----------------
    <S>                                     <C>          <C>                <C>          <C>
    Shares under option:
    Outstanding at December 31, 1994......         --                              --
      Granted.............................    261,520         $ 9.00           47,480         $ 9.00
      Canceled............................     (8,684)          9.00               --           9.00
                                              -------                         -------
    Outstanding at December 31, 1995......    252,836           9.00           47,480           9.00
      Granted.............................    412,412           9.47           92,500           9.50
      Canceled............................    (40,664)          9.24               --
      Exercised...........................    (11,307)          9.00               --
                                              -------                         -------
    Outstanding at December 31, 1996......    613,277           9.30          139,980           9.33
                                              =======                         =======
    Exercisable at December 31,
      1995................................         --                              --
      1996................................    127,998           9.00           23,740           9.00
    Weighted-average fair value of options
      granted:
      1995................................   $   6.18
      1996................................   $   6.39
</TABLE>
 
     Exercise prices for options outstanding at December 31, 1996 ranged from
$9.00 to $10.50. The weighted-average remaining contractual life of those
options is 9.5 years.
 
     At December 31, 1996, 35,436 shares of common stock were available under
the 1995 Plan for future awards.
 
16. LEASES
 
     As of December 31, 1996, Unison operated 51 facilities under noncancelable
operating leases with lease terms ranging from five to twenty years plus renewal
options. The lease agreements provide for contingent rental provisions based on
increases in the consumer price index, Medicaid reimbursement rates, and number
of licensed beds. Certain of the leases have purchase options determined by a
specified formula. Unison is responsible for all taxes, maintenance and other
executory costs.
 
                                      F-21
<PAGE>   85
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
16. LEASES -- (CONTINUED)
     Unison leases 14 facilities from Omega, of which nine facilities are in
Indiana and five are in Texas. Each of the Omega leases expires in 2005 and
allows Unison up to three five-year renewal options. The Omega leases require
Unison to pay stated rent, with annual increases based upon the greater of 5% of
incremental revenues or the Consumer Price Index, but limited to a maximum
annual increase of 5%. The Omega leases grant Unison the right, but not the
obligation, to purchase the Omega facilities upon the expiration of the initial
lease term.
 
   
     At December 31, 1996, Unison was obligated to Omega as a tenant under three
master lease agreements covering 14 facilities having an aggregate minimum rent
of approximately $34.9 million (subject to increase) during the remainder of
their initial terms. The master leases require the Company to maintain specified
cash flow to rent ratios, cash flow to debt service ratios, minimum cash,
current ratio and tangible net worth. Unison also leases six facilities located
in Texas from BritWill Texas (the "BritWill Texas Leases") for an initial term
that expires in December 2005. The lease agreement with BritWill Texas requires
the Company to pay to Omega monthly amounts equal to (i) the amount of loan
payments due to Omega from BritWill Texas pursuant to a loan agreement between
those parties, which provided the financing for BritWill Texas' acquisition of
the facilities, and (ii) lease payments on the facilities that are subleased by
BritWill Texas to Unison. The BritWill Texas Leases contain cross default
provisions with the Omega leases by which if Unison is in default with any Omega
indebtedness or lease obligation, the Company is also in default under the
BritWill Texas Leases. Unison was not in compliance with these covenants at
December 31, 1996. Omega has waived all existing covenant violations through
April 11, 1997. The Company may not be in compliance with these covenants
subsequent to April 11, 1997 and, accordingly, is negotiating with Omega to
restructure the aforementioned covenants. The Company has not obtained a
separate waiver of the covenant violations from BritWill Texas. Management is
attempting to renegotiate the leases; however, there can be no assurance that
such restructuring will be completed or that Omega will not exercise their
remedies of default under the master lease agreements.
    
 
     The Company leases six facilities formerly affiliated with Signature for an
initial term which expires in 2005 and which allows Unison the option to renew
for three additional 10-year terms and the option to purchase the facilities
through the end of the initial term or any renewal periods. The leases provide
for certain restrictions on the maintenance and operation of the facilities and
an annual 2.5% increase in rent.
 
     In connection with the BritWill acquisition (Note 4), Unison recorded a
leasehold liability in the amount of $4,700,000. This adjustment was based on an
independent appraisal which valued the present value of the BritWill lease
obligations based on market lease rates. The leasehold liability is being
amortized over the aggregate lease term of approximately 25 years.
 
                                      F-22
<PAGE>   86
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
16. LEASES -- (CONTINUED)
     Future minimum lease payments at December 31, 1996, by year and in the
aggregate, under noncancelable lease arrangements with initial or remaining
terms of one year or more consist of the following:
 
<TABLE>
<CAPTION>
                     YEAR ENDING DECEMBER 31,                 CAPITAL       OPERATING
        --------------------------------------------------  -----------    ------------
        <S>                                                 <C>            <C>
        1997..............................................  $ 1,661,000    $ 15,492,000
        1998..............................................    1,714,000      15,591,000
        1999..............................................    1,700,000      15,362,000
        2000..............................................    1,352,000      14,727,000
        2001..............................................    1,294,000      13,975,000
        Thereafter........................................    5,894,000      89,596,000
                                                             ----------    ------------
        Total minimum lease payments......................   13,615,000    $164,743,000
                                                                           ============
        Less amount representing interest.................   (5,856,000)
                                                             ----------
        Present value of net minimum lease payments.......    7,759,000
        Less current portion..............................     (793,000)
                                                             ----------
        Long-term obligations.............................  $ 6,966,000
                                                             ==========
</TABLE>
 
     Unison's lease payments are senior to all unsecured debt.
 
17. RELATED PARTY TRANSACTIONS
 
     The Term Note, Subordinated Note and Convertible Debenture issued as
consideration for the BritWill acquisition were issued to the former
shareholders of BritWill (Note 13). The primary BritWill shareholder receiving
payments was Whitehead Family Investments, Ltd. ("WFI"), which owned 81.5% of
the stock of BritWill prior to the BritWill acquisition. Bruce H. Whitehead,
Chairman of the Board of Unison, is the president of the general partner of WFI
and, together with a family trust, owns 100% of WFI.
 
     In connection with the BritWill acquisition, a note payable to WFI in the
amount of $3,375,000 was repaid with the proceeds from the IPO. Subsequent to
the BritWill acquisition, Unison also incurred notes payable to WFI in the
aggregate amount of $750,000 bearing interest at the rate of 12%. These notes
were repaid with the proceeds from the IPO.
 
     Unison's lease payments to Omega, the owner of 14 facilities that the
Company leases in Indiana and Texas, are personally guaranteed to $13,500,000 by
the Chairman of the Board of Unison as well as collateralized by substantially
all the personal property of Unison. Unison also leases six facilities in Texas
from BritWill Texas. Lease expense on these facilities for the five months ended
December 31, 1995 and the year ended December 31, 1996 amounted to $505,000 and
$2,661,000, respectively (Note 16).
 
     With the BritWill acquisition, Unison also assumed unsecured notes payable
to BritWill Texas with an aggregate balance at December 31, 1996 of $2,547,000
(Note 13). Interest expense on these notes amounted to $83,993 and $264,000 for
the five months ended December 31, 1995 and the year ended December 31, 1996,
respectively.
 
     On April 21, 1997, the Company obtained a $2,950,000 loan for general
working capital purposes from Elk Meadows Investments, L.L.C. and BritWill
Investments Company, Ltd., as joint lenders. Elk Meadows Investments, L.L.C. is
controlled by David Kremser and BritWill Investments Company, Ltd. is controlled
by Bruce Whitehead. The loan matures on the earlier of August 1, 1997, or 30
days after written demand from the lenders, subject to earlier maturity in the
event of acceleration upon a default. Interest accrues on the loan
 
                                      F-23
<PAGE>   87
 
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
17. RELATED PARTY TRANSACTIONS -- (CONTINUED)
at the Prime Rate plus 2%, subject to an increase in the rate upon a default.
Interim payments on the loan are not required prior to maturity. The Company
paid a loan fee of $29,500 at the closing, and also agreed to pay all of the
lenders' out of pocket fees and costs, including attorneys fees and costs, in an
amount not yet determined or demanded by the lenders. Repayment of the loan is
secured by (i) a pledge from the Company of approximately $5.0 million of
accounts receivable generated by certain of the Company's affiliates and
assigned to the Company and (ii) a pledge from the Company of its stock in those
affiliates of the Company that either assigned their accounts receivable to the
Company so they could be pledged by the Company as security for the subject loan
or control the entities that assigned such accounts receivable. The collateral
securing the loan also secures repayment of other obligations owing from the
Company and its affiliates to Messrs. Whitehead and Kremser, and to individuals
and entities related to them.
 
18. INCOME TAXES
 
     The components of the provision (benefit) for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                       -------------------------------------
                                                          1996           1995         1994
                                                       -----------     --------     --------
    <S>                                                <C>             <C>          <C>
    Current:
      Federal........................................  $   698,000     $153,000     $128,000
      State..........................................       61,000           --        1,000
    Deferred:
      Federal........................................   (7,777,000)     (28,000)      43,000
      State..........................................   (1,338,000)       7,000           --
                                                       -----------     --------     --------
                                                       $(8,356,000)    $132,000     $172,000
                                                       ===========     ========     ========
</TABLE>
 
     The difference between Unison's effective income tax rates and statutory
rates are as follows:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                          --------------------------------------
                                                              1996           1995         1994
                                                          ------------     --------     --------
<S>                                                       <C>              <C>          <C>
Statutory federal income tax expense (benefit)..........  $(10,810,000)    $ 85,000     $174,000
Increases (decreases) resulting from:
  Change in effective tax rate..........................      (495,000)          --           --
  Amortization of intangibles and nondeductible
     expenses...........................................     1,060,000       91,000           --
  State tax expense (benefit), net of federal benefit...      (876,000)       5,000        1,000
  Valuation allowance...................................     1,528,000      (56,000)      25,000
  Current federal income taxes of subsidiaries not
     consolidated for tax purposes......................       698,000           --           --
  Other.................................................       539,000        7,000      (28,000)
                                                          ------------     --------     --------
Income tax expense (benefit)............................  $ (8,356,000)    $132,000     $172,000
                                                          ============     ========     ========
</TABLE>
 
     Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences are
primarily attributable to reporting for income tax purposes certain items of
income and expense using a cash basis of accounting and recognition of
depreciation using the accelerated cost recovery system.
 
                                      F-24
<PAGE>   88
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
18. INCOME TAXES -- (CONTINUED)
     Significant components of deferred taxes are as follows:
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                              -----------------------------------------------------
                                                        1996                        1995
                                              -------------------------   -------------------------
                                               CURRENT      LONG-TERM       CURRENT      LONG-TERM
                                               -------      ---------       -------      ---------
<S>                                           <C>          <C>            <C>           <C>
Deferred liabilities:
  Intangibles...............................  $       --   $(31,165,000)  $        --   $(9,937,000)
  Accelerated depreciation..................          --        171,000            --       (30,000)
  Cash to accrual adjustment................    (208,000)            --    (1,085,000)           --
                                              ----------   ------------   -----------   -----------
Total liabilities...........................    (208,000)   (30,994,000)   (1,085,000)   (9,967,000)
Deferred assets:
  Allowance for doubtful accounts...........   1,388,000             --       206,000            --
  Reserve for loss on disposition of
     assets.................................   1,460,000             --            --            --
  Vacation accruals.........................     692,000             --            --            --
  Net operating loss
     carryforward...........................          --      7,604,000            --     1,794,000
  Valuation allowance.......................          --     (1,528,000)           --            --
  Other, net................................          --        127,000            --            --
                                              ----------   ------------   -----------   -----------
Total assets................................   3,540,000      6,203,000       206,000     1,794,000
                                              ----------   ------------   -----------   -----------
Total net asset (liability).................  $3,332,000   $(24,791,000)  $  (879,000)  $(8,173,000)
                                              ==========   ============   ===========   ===========
</TABLE>
 
   
     SFAS No. 109 requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The valuation reserve at December
31, 1996 relates to tax benefits arising from net operating losses and
depreciation of certain of the Company's subsidiaries. At December 31, 1996,
Unison has consolidated net operating loss carryforwards which approximate
$20,316,000 and begin to expire in 2009 for federal income tax purposes and 1999
for state income tax purposes. Certain of the net operating loss carryforwards
could be subject to annual limitations. Approximately $2,950,000 of certain
subsidiaries' net operating losses must be offset by taxable income of the same
company. Due to the uncertainty of their ultimate realization based upon past
performance and expiration dates, the Company has established a full valuation
allowance against these subsidiaries' carryforward benefits and will recognize
the benefits only as reassessment demonstrates that they are realizable.
    
 
19. FAIR VALUES OF FINANCIAL INSTRUMENTS
 
     The carrying amounts and fair values of Unison's financial instruments as
of December 31, 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                            CARRYING          FAIR
                                                             AMOUNT          VALUE
                                                            --------         -----
<S>                                                       <C>             <C>
Notes payable and long-term debt, excluding capital
  lease obligations.....................................  $149,379,000    $153,664,000
                                                          ------------    ------------
</TABLE>
 
     The carrying amounts reported in the consolidated balance sheet for cash,
accounts receivable, lease deposits, accounts payable and borrowings under
revolving lines of credit approximate their fair value. The fair value of
Unison's long-term borrowings is estimated by discounting future cash flows at
current rates offered to Unison for debt of comparable types and maturities.
Because no market exists for these financial instruments,
 
                                      F-25
<PAGE>   89
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
19. FAIR VALUES OF FINANCIAL INSTRUMENTS -- (CONTINUED)
considerable judgment is necessary in interpreting the data to develop estimates
of fair value. The use of different market assumptions may have a material
effect on the estimated fair value amounts.
 
20. INSURANCE
 
   
     Health care companies are subject to medical malpractice, personal injury
and other liability claims that are customary risks inherent in the operation of
health facilities and are generally covered by insurance. Unison maintains
property, liability and professional malpractice insurance policies through
commercial carriers on a claims made basis in amounts and with such coverages
and deductibles that are deemed appropriate by management, based upon historical
claims, industry standards and the nature and risks of its business. There can
be no assurance that a future claim will not exceed available insurance
coverages or that such coverages will continue to be available for the same
scope of coverages at reasonable premium rates. Any substantial increase in the
cost of such insurance or the unavailability of any such coverages could have an
adverse effect on Unison's business. However, based upon the evaluation of
Unison's historical asserted and unasserted claim experience, management does
not believe that the Company has a material, estimable and probable liability,
regardless of insurance coverage, at December 31, 1996.
    
 
     Unison maintains workers compensation coverage on its facilities with the
exception of certain facilities located in Texas. Management believes that the
reserve for incurred but not reported claims is adequate based on historical
results.
 
21. COMMITMENTS
 
     Unison has entered into an agreement with Trouver to provide financial
advisory services in connection with Unison's financing and business acquisition
plans. Trouver is compensated by Unison based on a percentage, ranging from 1.5%
to 10.0%, dependent upon the type of transaction consummated (Note 4).
 
22. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
 
     Unison acquires or leases and operates long-term health care facilities,
and uses such facilities to develop networks offering a range of other
healthcare services. Unison and others in the healthcare industry are subject to
certain inherent risks, including the following:
 
     - Substantial dependence on revenues derived from reimbursement under the
       Medicare and Medicaid programs;
 
     - Government regulation, budgetary constraints, and proposed legislative
       and regulatory changes; and
 
     - Lawsuits alleging malpractice and related claims.
 
     Approximately 83% in 1996, 83% in 1995, and 70% in 1994 of Unison's
long-term care net patient service revenues were derived from reimbursement
under Medicare and Medicaid programs, and approximately 84% and 82% of Unison's
patient accounts receivable at December 31, 1996 and 1995, respectively, are due
from such programs.
 
     Changes in Medicare and Medicaid reimbursement funding mechanisms, related
government budgetary constraints and differences between final settlements and
estimated settlements receivable under the Medicare and Medicaid programs, which
are subject to audit and retroactive adjustment, could have a significant
adverse effect on Unison. Unison's operations are also subject to a variety of
other Federal, state and local
 
                                      F-26
<PAGE>   90
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
22. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES -- (CONTINUED)
regulatory requirements. Failure to maintain required regulatory approvals and
licenses and/or changes in such regulatory requirements could have a significant
adverse effect on Unison.
 
     Unison is from time to time subject to malpractice and related claims and
lawsuits, which arise in the normal course of business and which could have a
significant effect on Unison. Management believes that adequate provision for
these items has been made in the accompanying consolidated financial statements
and that their ultimate resolution will not have a material effect on the
consolidated financial statements.
 
     Since its inception, Unison has grown through acquisitions. The
recoverability of acquisition costs, including excess costs over fair value of
net assets acquired, is dependent initially upon the consummation of the
acquisitions and subsequently upon Unison's ability to successfully integrate
and manage acquired operations. Also, Unison's development of healthcare
networks is dependent upon successfully effecting economies of scale, the
recruitment of skilled personnel and the expansion of services and related
revenues.
 
23.  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 -- ACCOUNTING FOR THE
     IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
     (SFAS NO. 121)
 
     In 1996, Unison incurred operating losses and shortfalls of cash from
operations. The Company also announced the planned disposition of eight nursing
facilities whose performance did not meet Unison's operational or financial
criteria (Note 4). Of these Disposition Facilities, one was closed in June 1996
and three others, which had incurred operating losses since the Company had
acquired them in August 1995, were disposed of in March 1997. These events, as
well as a history of operating losses at certain facilities, raised the
possibility of continuing losses associated with the Company's income producing
assets. Consequently, Unison evaluated its long-lived assets, including property
and equipment, goodwill, lease operating rights and other intangible assets, for
impairment in accordance with SFAS No. 121. Unison estimated the undiscounted
net cash flows from all business units and determined that the carrying value of
certain of Unison's long-lived assets exceeded such undiscounted cash flows.
Accordingly, Unison compared the fair value of the assets based on the present
value of the estimated future cash flows for the facilities (which were
estimated based on the remaining weighted average useful lives of the assets,
earnings history, and a discount rate commensurate with the risks involved and
market conditions and assumptions reflecting internal operating plans and
strategies) with the carrying value.
 
     Unison determined that the fair value of certain facilities was less than
their carrying value and estimated the costs to sublease and exit from the
Disposition Facilities (Note 4) and, accordingly, recorded a loss on impairment
of $3,865,000 in the 1996 consolidated statement of operations.
 
24.  SUBSEQUENT EVENTS
 
     Effective January 1, 1997, Unison, through its Sunbelt Therapy subsidiary,
purchased the assets of a rehabilitation therapy services company located in
Mississippi. Consideration for the purchase was comprised of cash amounting to
$600,000 and a $300,000 promissory note. Interest on the note bears interest at
10.0%, payable quarterly, and the principal balance is due January 2, 2002.
 
     Unison and certain of its current and former directors and officers are
named as defendants in several class action complaints seeking unspecified
damages following Unison's announcement in March 1997 that the Company expected
to restate its financial statements for the nine-month period ended September
30, 1996. To date, six such claims have been filed in federal district court in
Phoenix, Arizona alleging violations of Sections 10 and 20 of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. While
 
                                      F-27
<PAGE>   91
                         UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 1996, 1995 AND 1994
 
24.  SUBSEQUENT EVENTS -- (CONTINUED)
the purported class periods and the named defendants vary, the broadest class
period to date asserts that between May 14, 1996 (the date of Unison's
announcement of first quarter results) and March 10, 1997 (the date before
Unison's March 11 announcement of the restatement) the defendants knew, or were
reckless in not knowing, that Unison's results for the first three quarters of
1996 were materially overstated. In addition, the Company is informed that an
action has been filed in the Superior Court of the State of California (County
of Orange) against the Company, certain current and former officers and
directors and certain underwriting firms. The Orange County action is
purportedly filed on behalf of all persons who acquired Unison stock in the
Company's December 1995 initial public offering ("IPO"); it essentially alleges
that in connection with the IPO, the defendants made positive statements about
the Company's prospects for which there was no basis, that accounts receivable
were overstated, and that the Company's statement of financial position as of
September 30, 1995 was not fairly presented. Unison's bylaws require the Company
to indemnify current and former officers and directors to the extent permitted
by Delaware law against such liabilities and related expenses. The Company
denies the material allegations in these complaints and intends to defend the
actions vigorously. Management believes that the costs of the ultimate
disposition of these matters, if any, will be substantially covered by
insurance. An adverse determination could have a material adverse effect upon
Unison.
 
                                      F-28
<PAGE>   92
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
BritWill HealthCare Company
 
     We have audited the accompanying consolidated statement of operations and
cash flows of BritWill HealthCare Company for the month ended July 31, 1995.
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 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 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 results of operations and cash flows of BritWill
HealthCare Company for the one month ended July 31, 1995, in conformity with
generally accepted accounting principles.
 
                                          ERNST & YOUNG LLP
 
Phoenix, Arizona
April 10, 1996
 
                                      F-29
<PAGE>   93
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Shareholders of BritWill HealthCare Company
 
     In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of BritWill
HealthCare Company and its subsidiaries at June 30, 1995, and the results of
their operations and their cash flows for the six month period ended June 30,
1995 and for the year ended December 31, 1994, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
 
PRICE WATERHOUSE LLP
 
Dallas, Texas
November 8, 1995
 
                                      F-30
<PAGE>   94
 
                          BRITWILL HEALTHCARE COMPANY
 
                           CONSOLIDATED BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                                                            JUNE 30,
                                                                                              1995
                                                                                           -----------
<S>                                                                                        <C>
ASSETS
Current assets:
  Cash and cash equivalents..............................................................  $   858,606
  Accounts receivable, less allowance for doubtful accounts of $997,246..................    7,599,464
  Due from third party payors, net.......................................................    2,290,066
  Inventories............................................................................      442,033
  Due from affiliates....................................................................      512,594
  Prepaid expenses.......................................................................      486,874
  Other receivables......................................................................       31,151
  Security deposits......................................................................      637,517
  Restricted cash........................................................................       45,000
                                                                                           -----------
     Total current assets................................................................   12,903,305
Furniture, fixtures and equipment, net...................................................    2,210,682
Other assets, net........................................................................    6,827,126
Deferred charges, net....................................................................      537,321
Security deposits........................................................................    2,237,944
                                                                                           -----------
     Total assets........................................................................  $24,716,378
                                                                                           ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable.......................................................................  $ 5,133,964
  Accrued expenses.......................................................................    7,002,347
  Notes payable due affiliates...........................................................      528,230
  Income taxes payable...................................................................       92,126
                                                                                           -----------
     Total current liabilities...........................................................   12,756,667
Revolving line of credit.................................................................    1,672,577
Subordinated long-term debt due affiliates...............................................    8,488,465
Other long-term debt.....................................................................       48,183
                                                                                           -----------
     Total liabilities...................................................................   22,965,892
                                                                                           -----------
Commitments and contingencies
Shareholders' equity:
  Common stock, $1.00 par value; authorized 1,000,000 shares; 424,050 issued and
     outstanding.........................................................................      424,050
  Additional paid-in capital.............................................................    4,714,469
  Treasury stock, 54,650 shares, at par..................................................      (54,650)
  Accumulated deficit....................................................................   (3,333,383)
                                                                                           -----------
     Total shareholders' equity..........................................................    1,750,486
                                                                                           -----------
     Total liabilities and shareholders' equity..........................................  $24,716,378
                                                                                           ===========
</TABLE>
 
        See accompanying notes to the consolidated financial statements.
 
                                      F-31
<PAGE>   95
 
                          BRITWILL HEALTHCARE COMPANY
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED    SIX MONTHS     ONE MONTH
                                                                    DECEMBER     ENDED JUNE       ENDED
                                                                       31,           30,        JULY 31,
                                                                      1994          1995          1995
                                                                   -----------   -----------   -----------
<S>                                                                <C>           <C>           <C>
Revenues:
  Patient care services, net...................................... $53,800,520   $32,723,297   $ 5,655,071
  Management fee from related parties.............................     251,186        40,430            --
  Other income....................................................     373,239       228,426       207,270
                                                                   -----------   -----------   -----------
     Total revenues...............................................  54,424,945    32,992,153     5,862,341
                                                                   -----------   -----------   -----------
Expenses:
  Salaries and contract labor.....................................  32,634,732    19,812,601     3,467,433
  Rent............................................................   8,263,642     4,448,134       775,136
  Supplies........................................................   6,686,572     4,134,207       716,037
  General and administrative......................................   6,252,183     3,255,917       614,191
  Depreciation and
     amortization.................................................     986,812       500,682        90,803
  Bad debt........................................................     644,471        21,442        48,631
  Other...........................................................      71,529        10,731       121,900
                                                                   -----------   -----------   -----------
     Total expenses...............................................  55,539,941    32,183,714     5,834,131
                                                                   -----------   -----------   -----------
  Income (loss) from
     operations...................................................  (1,114,996)      808,439        28,210
  Interest income (expense):
     Interest income..............................................      54,545       109,309         3,878
     Interest expense.............................................    (131,764)     (226,587)     (105,127)
     Related party interest
       expense....................................................    (739,823)     (485,265)      (88,977)
                                                                   -----------   -----------   -----------
  Income (loss) before income taxes...............................  (1,932,038)      205,896      (162,016)
  Provision for income taxes......................................      52,896        26,000         4,500
                                                                   -----------   -----------   -----------
  Net income (loss)............................................... $(1,984,934)  $   179,896   $  (166,516)
                                                                   ===========   ===========   ===========
</TABLE>
 
        See accompanying notes to the consolidated financial statements.
 
                                      F-32
<PAGE>   96
 
                          BRITWILL HEALTHCARE COMPANY
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
        YEAR ENDED DECEMBER 31, 1994 AND SIX MONTHS ENDED JUNE 30, 1995
 
<TABLE>
<CAPTION>
                                     COMMON STOCK      ADDITIONAL    TREASURY STOCK
                                  ------------------    PAID-IN     -----------------   ACCUMULATED
                                  SHARES     AMOUNT     CAPITAL     SHARES    AMOUNT      DEFICIT        TOTAL
                                  -------   --------   ----------   ------   --------   -----------   -----------
<S>                               <C>       <C>        <C>          <C>      <C>        <C>           <C>
Balance, December 31, 1993....... 389,750   $389,750   $5,176,836       --         --   $(1,464,058)  $ 4,102,528
  Common stock issued............  31,300     31,300      (23,475)      --         --            --         7,825
  Employee receivable due to
    common stock issued..........      --         --       (7,825)      --         --            --        (7,825)
  Rescission of shares due to
    employee terminations........      --         --       42,600   42,600   $(42,600)           --            --
  Excess consideration over
    historical cost of assets
    acquired in a purchase
    combination
    (Note 1).....................      --         --     (482,596)      --         --            --      (482,596)
  Net loss.......................                                                        (1,984,934)   (1,984,934)
                                  -------   --------   ----------   ------     ------    ----------    ----------
Balance, December 31, 1994....... 421,050..  421,050    4,705,540   42,600    (42,600)   (3,448,992)    1,634,998
  Common stock issued............   3,000      3,000       (2,250)      --         --            --           750
  Employee receivable due to
    common stock issued..........      --         --         (750)      --         --            --          (750)
  Purchase of shares due to
    employee terminations........      --         --       11,929   12,050    (12,050)      (64,287)      (64,408)
  Net income.....................      --         --           --       --         --       179,896       179,896
                                  -------   --------   ----------   ------     ------    ----------    ----------
Balance, June 30, 1995........... 424,050   $424,050   $4,714,469   54,650   $(54,650)  $(3,333,383)  $ 1,750,486
                                  =======   ========   ==========   ======     ======    ==========    ==========
</TABLE>
 
        See accompanying notes to the consolidated financial statements.
 
                                      F-33
<PAGE>   97
 
                          BRITWILL HEALTHCARE COMPANY
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                  SIX MONTHS
                                                                    YEAR ENDED       ENDED        ONE MONTH
                                                                   DECEMBER 31,    JUNE 30,         ENDED
                                                                       1994          1995       JULY 31, 1995
                                                                   ------------   -----------   -------------
<S>                                                                <C>            <C>           <C>
Cash flows from operating activities:
  Net income (loss)..............................................  $ (1,984,934)  $   179,896    $   (166,516)
  Adjustments to reconcile net income (loss) to net cash provided
     by (used in) operating activities:
     Depreciation and amortization...............................     1,083,779       574,065          90,803
     Increase in accounts receivable.............................    (2,461,879)     (743,748)       (100,036)
     (Increase) decrease in amounts due from third party
      payors.....................................................    (1,011,345)   (1,140,747)        895,801
     Decrease (increase) in inventories..........................      (114,066)       (8,550)             --
     Increase in due from affiliates.............................      (361,752)     (143,360)             --
     Increase in prepaid expenses................................       (67,110)      (86,567)        (19,097)
     (Increase) decrease in other receivables....................        15,017       (12,320)         (1,047)
     (Increase) decrease in other assets and deferred
       charges...................................................       (69,733)     (173,037)         67,370
     Payment for restricted cash.................................       (45,000)           --              --
     (Increase) decrease in security deposits....................      (141,344)          883         (13,119)
     (Decrease) increase in accounts payable.....................     3,681,783    (1,115,972)     (1,604,192)
     Increase in accrued expenses................................     1,156,766     3,506,897          90,725
     Increase (decrease) in income taxes payable.................         1,146        39,230         (19,749)
                                                                    -----------   -----------     -----------
     Net cash (used in) provided by operating activities.........      (318,672)      876,670        (779,057)
                                                                    -----------   -----------     -----------
Cash flows from investing activities:
  Purchase of furniture and equipment............................      (551,714)     (485,009)       (136,997)
  Purchase of facilities from related party, net of liabilities
     of $340,000.................................................      (482,596)           --              --
  Construction in progress.......................................      (170,904)     (436,169)             --
                                                                    -----------   -----------     -----------
     Net cash used in investing activities.......................    (1,205,214)     (921,178)       (136,997)
                                                                    -----------   -----------     -----------
Cash flows from financing activities:
  Proceeds from issuance of notes payable........................     2,283,823            --              --
  Proceeds from revolving line of credit.........................            --     1,672,577       1,082,377
  Payments on notes payable and long-term debt...................      (364,922)   (1,754,875)       (117,894)
  Receipt of restricted cash.....................................            --       600,000              --
  Payment for debt issuance costs................................      (190,000)     (111,059)             --
  Repurchase of shares...........................................            --       (64,408)             --
                                                                    -----------   -----------     -----------
     Net cash provided by financing activities...................     1,728,901       342,235         964,483
                                                                    -----------   -----------     -----------
Net increase in cash and cash equivalents........................       205,015       297,727          48,429
Cash and cash equivalents at beginning of period.................       355,864       560,879         858,606
                                                                    -----------   -----------     -----------
Cash and cash equivalents at end of period.......................  $    560,879   $   858,606    $    907,035
                                                                    ===========   ===========     ===========
Supplemental disclosure of cash flow information:
  Cash paid during the period for:
     Interest....................................................  $    684,615   $   296,562    $     82,069
     Income taxes................................................        51,502
Supplemental schedule of noncash investing and financing
  activities:
  Security deposit with Omega through issuance of note...........     1,400,000
  Acquisition of other intangibles through issuance of note......       249,000
</TABLE>
 
        See accompanying notes to the consolidated financial statements.
 
                                      F-34
<PAGE>   98
 
                          BRITWILL HEALTHCARE COMPANY
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND NATURE OF BUSINESS
 
     BritWill HealthCare Company (the "Company") was organized as a Delaware
corporation on August 5, 1992. The Company leases and manages long-term care
facilities located throughout Texas and Indiana. The Company commenced
operations on December 24, 1992. At that time, BritWill Investments -- Indiana
L.P. (BI-Indy), an affiliate of the Company, managed thirteen long-term care
facilities owned by Cloverleaf Enterprises, Inc. Such facilities were leased and
operated by Sherwood Healthcare Corp. (Sherwood) and Cedar Care, Inc. (Cedar
Care). Under the terms of a management agreement, BI-Indy exercised its options
to acquire nine of these facilities and acquire the leasehold rights to the
remaining four facilities from Cloverleaf Enterprises, Inc. Concurrently, the
nine facilities were sold by BI-Indy to Omega Healthcare Investors, Inc. (Omega)
and leased back under a "Master Lease" agreement by BritWill Investments -- I
(BI-1), a subsidiary of the Company. The leasehold rights to the four facilities
were contributed to BI-1 by BI-Indy. Further, BI-Indy assigned the two
management agreements for these thirteen facilities to BI-1.
 
     In December 1993, BritWill Investments Texas, Ltd. (BI-TX), an affiliate of
the Company, entered into purchase agreements for six long-term care facilities
and entered into lease agreements for three facilities with third-party lessors.
The total consideration paid by BI-TX was approximately $18,440,000. BI-TX
financed these transactions through two participating mortgages with Omega
totaling $14,760,000 and the sale of five facilities to Omega for $13,810,000.
BritWill Investments -- II (BI-2), a subsidiary of the Company, then entered
into a noncancelable operating lease ("Texas Master Lease") with Omega for the
five facilities sold by BI-TX and also entered into two noncancelable operating
lease and sublease agreements for six facilities either owned or leased by
BI-TX.
 
     During 1993, BI-TX conveyed supply inventories and certain liabilities and
other accrued expenses from the facilities to BI-2. No consideration was paid by
BI-2 to BI-TX for the inventory and BI-TX did not give BI-2 any consideration
for the transfer of the liabilities and accrued expenses. The amount by which
the predecessor cost of the inventory exceeded the assumed liabilities, $77,009,
was recognized as additional paid-in capital.
 
     Effective November 1, 1994, BI-2 purchased the net assets of two nursing
homes operated by Avalon Care, Inc. ("Avalon"), an affiliated company. The
nursing homes acquired were: Elkhart Manor ("Elkhart") and Oakwood Health Care
Center ("Oakwood") facilities. Avalon assigned the responsibilities and rewards
of the Elkhart and Oakwood operating leases to BI-2. As consideration for the
purchase of the leases, BI-2 forgave intercompany debt from Avalon. The amount
by which the consideration paid exceeded the predecessor cost of the acquired
assets less the assumed liabilities and forgiveness of debt, $482,496, was
recognized as a reduction of additional paid-in capital.
 
2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of consolidation
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries, consisting of BI-1 and BI-2. The financial statements
include the accounts of Cedar Care and Sherwood since December 24, 1992.
Although the Company has no ownership interest in Cedar Care or Sherwood, these
companies are consolidated because the Company has unilateral and perpetual
control over the assets and operations of these companies due to the management
agreements. Under these management agreements, managerial control and operating
proceeds have been transferred directly to BI-1. Fees under the management
agreements are based upon the revenues of Cedar Care and Sherwood from the
facilities, such that all net income of Cedar Care and Sherwood is paid to BI-1.
All significant intercompany accounts and transactions have been eliminated.
 
                                      F-35
<PAGE>   99
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Use of estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
 
  Cash and cash equivalents
 
     Cash and cash equivalents include amounts held in demand deposits at
financial institutions and all highly liquid investments that have an original
maturity of three months or less.
 
  Restricted cash
 
     As of June 30, 1995, restricted cash consists of the $45,000 certificate of
deposit assigned to a third party as security for payment of insurance claims.
 
  Revenue and accounts receivable
 
     Revenues are derived from patient care services and management fees of
nursing homes not owned or leased by the Company. Credit risk exists to the
extent that the most significant source of revenue is reimbursement for patient
care from state sponsored Medicaid programs in Texas and Indiana and from
Medicare. However, management does not believe that there are any significant
credit risks associated with these governmental agencies. Payments from such
programs are based on cost as defined under the programs, and associated
revenues are presented net of provisions to reduce customary charges to amounts
receivable from such programs. Revenues from private sources are recognized
based upon established charges. Reserves are provided for receivables estimated
to be uncollectible and are adjusted periodically based on the Company's
evaluation of industry conditions, historical collection experience and other
relevant factors.
 
     The following table summarizes the approximate percent of net patient
revenues and accounts receivable from such payors:
 
<TABLE>
<CAPTION>
                                                         NET REVENUE
                                        ----------------------------------------------        ACCOUNTS
                                                           SIX MONTHS       ONE MONTH        RECEIVABLE
                                                           ----------       ----------       ----------
                                        DECEMBER 31,        JUNE 30,         JULY 31,         JUNE 30,
                                            1994              1995             1995             1995
                                        ------------       ----------       ----------       ----------
<S>                                     <C>                <C>              <C>              <C>
Medicaid............................        60.5%             53.7%             53.9%           62.8%
Medicare............................        17.6              28.6              28.6            25.4
Private.............................        20.1              16.0              15.9             7.9
Other...............................         1.8               1.7               1.6             3.9
                                            ----              ----              ----            ----
                                             100%              100%              100%            100%
                                            ====              ====              ====            ====
</TABLE>
 
  Inventories
 
     Inventories consist of medical and other supplies necessary for delivering
resident care at the facilities. Inventories are recorded at the lower of cost
(determined by the first-in, first-out method) or market.
 
  Furniture, fixtures and equipment
 
     Furniture, fixtures and equipment are carried at cost. Depreciation is
recognized using the straight-line method over the estimated useful lives of the
assets, which range from five to ten years. Leasehold improvements are amortized
over the lesser of the estimated useful life or lease term. Maintenance cost and
repairs are expensed as incurred; betterments and leasehold improvements are
capitalized.
 
                                      F-36
<PAGE>   100
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Deferred charges
 
     Deferred charges consist of costs incurred to acquire leases to the
long-term care facilities, which are amortized on the straight-line method over
the term of the lease. Amortization expense was $77,186, $38,366 and $6,436 for
the year ended December 31, 1994, the six months ended June 30, 1995 and the one
month ended July 31, 1995, respectively.
 
  Income taxes
 
     Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109). The
cumulative effect of the adoption of SFAS 109 was immaterial to the Company's
financial position. Under SFAS 109, the liability method is used to account for
income taxes. Under this method, the deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial reporting of existing assets and liabilities and their respective tax
basis. The Company's principal differences relate to the availability of tax net
operating loss carry forwards, certain reserves, accrued vacation, and
depreciation.
 
  Interim financial data
 
     The following table sets forth summarized results of operations for
BritWill for the periods indicated:
 
<TABLE>
<CAPTION>
                                                                   SEVEN MONTHS
                                                                       ENDED
                                                                     JULY 31,
                                                            ---------------------------
                                                               1995            1994
                                                            -----------     -----------
                                                                    (UNAUDITED)
        <S>                                                 <C>             <C>
        Total revenues....................................  $38,854,000     $29,857,000
        Income (loss) from operations.....................      836,000      (1,365,000)
        Income (loss) before income taxes.................       44,000      (1,886,000)
        Net income (loss).................................       13,000      (1,912,000)
</TABLE>
 
3.  FURNITURE, FIXTURES AND EQUIPMENT
 
     Furniture, fixtures and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                         AT DECEMBER 31,        JUNE 30,
                                                              1994                1995
                                                         ---------------       ----------
        <S>                                              <C>                   <C>
        Furniture and fixtures.......................      $ 1,202,684         $1,476,780
        Leasehold improvements.......................          349,943            504,952
        Construction in progress.....................          213,596            649,765
        Land.........................................               --             55,904
                                                            ----------         ----------
                                                             1,766,223          2,687,401
        Less accumulated depreciation................         (367,007)          (476,719)
                                                            ----------         ----------
                                                           $ 1,399,216         $2,210,682
                                                            ==========         ==========
</TABLE>
 
     Depreciation expense was $162,143, $109,712 and $23,468 for the year ended
December 31, 1994, the six months ended June 30, 1995 and the one month ended
July 31, 1995, respectively.
 
                                      F-37
<PAGE>   101
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  OTHER ASSETS
 
     Other assets consist of the following:
 
<TABLE>
<CAPTION>
                                                                           JUNE 30,
                                                                             1995
                                                                          -----------
        <S>                                                               <C>
        Leasehold rights -- BI-Indy...................................    $ 4,103,338
        Leasehold rights -- BI-TX.....................................      3,331,547
        Deferred financing costs......................................      1,131,224
                                                                          -----------
                                                                            8,566,109
        Less accumulated amortization.................................     (1,738,983)
                                                                          -----------
                                                                          $ 6,827,126
                                                                          ===========
</TABLE>
 
     The leasehold rights -- BI-Indy were recorded at the cost of the
predecessor and are being amortized to rent expense over ten years, the term of
the lease.
 
     The leasehold rights -- BI-TX were recorded at the amount of the obligation
entered into to obtain the right to operate nursing homes acquired by BI-TX in
June and December 1993 and are being amortized to rent expense over ten years,
the term of the lease. See Note 10.
 
     Other deferred financing costs include additional acquisition costs and
debt closing costs which are being amortized to interest expense over periods of
three to ten years. The total amount charged to interest expense was $73,838,
$83,483 and $13,446 for the year ended December 31, 1994, the six months ended
June 30, 1995 and the one month ended July 31, 1995, respectively.
 
     Total amortization expense relating to these assets was $747,483, $352,604
and $60,934 for the year ended December 31, 1994, the six months ended June 30,
1995 and the one month ended July 31, 1995, respectively.
 
5.  SECURITY DEPOSIT
 
     Security deposits consist of the following:
 
<TABLE>
<CAPTION>
                                                                            JUNE 30,
                                                                              1995
                                                                           ----------
        <S>                                                                <C>
        Lease deposit -- BI-Indy.......................................    $1,335,000
        Liquidity deposit -- BI-TX.....................................     1,400,000
        Other deposits.................................................       140,461
                                                                           ----------
                                                                            2,875,461
        Less current portion...........................................      (637,517)
                                                                           ----------
                                                                           $2,237,944
                                                                           ==========
</TABLE>
 
     In connection with the Indiana transaction discussed in Note 1, the Company
is required to maintain a security deposit equal to seven months minimum lease
obligation. These funds are held in escrow and restricted until certain
financial covenants have been met, including but not limited to net worth and
net operating cash flow requirements. These funds are currently invested by the
lessor in a mutual fund on behalf of the Company and bear interest at 5.5% on
June 30, 1995. Accrued interest receivable on these funds is $72,389 at June 30,
1995. This deposit has been classified as noncurrent.
 
     In connection with the Texas transaction discussed in Note 1, BI-TX
advanced BI-2 $1,400,000. This advance, as described in Note 7, matures in
December 2003 and is classified as a long-term liability. These funds were used
as a liquidity deposit with OMEGA (the "lessor") and are currently invested by
the lessor on
 
                                      F-38
<PAGE>   102
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
behalf of the Company and bear interest at 5.25% to 6.0%. The underlying note
between BI-2 and BI-TX has interest payable at the same term as the interest
earned on the security deposit. A portion of this deposit, $500,000, has been
classified as current as the terms of the Texas master lease allow for the use
of a letter of credit in place of a security deposit. The Company has a $500,000
letter of credit available through a third party.
 
     Other deposits, primarily lease and utility, have been classified as
current at June 30, 1995. Due to the subsequent event described in Note 12, the
Dallas, Texas operations of the Company will be relocated to Phoenix, Arizona by
March 1996.
 
6.  ACCRUED EXPENSES
 
     Accrued expenses consists of the following:
 
<TABLE>
<CAPTION>
                                                                            JUNE 30,
                                                                              1995
                                                                           ----------
        <S>                                                                <C>
        Amounts due Medicaid -- Indiana..................................  $3,741,188
        Accrued salaries and benefits....................................   1,205,922
        Payroll withholding taxes........................................     481,522
        Ancillary expense................................................     620,142
        Property taxes...................................................     396,700
        Rent.............................................................     245,547
        Financing costs..................................................
        Other............................................................     311,326
                                                                           ----------
                                                                           $7,002,347
                                                                           ==========
</TABLE>
 
     In March 1995, the Company received an erroneous Medicaid reimbursement
payment of approximately $4,300,000 related to one of its Indiana facilities.
Negotiations with the state of Indiana's agent regarding such overpayment
resulted in the Company retaining the money paid subject to the Company's
payment of interest thereon to the state of Indiana. Future amounts due the
Company by the state will be offset against the interest-bearing obligation
until March 25, 1996 at which time the Company must reimburse the state for the
unused portion. The unreimbursed Medicaid payment accrues interest at prime plus
3.25% or 12% per annum, whichever is higher. The Company recorded $72,000 of
interest expense during the six-month period ended June 30, 1995 and $74,440 of
interest expense during the one-month period ended July 31, 1995.
 
                                      F-39
<PAGE>   103
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
7.  NOTES PAYABLE AND LONG-TERM DEBT
 
     Subordinated notes payable and long-term debt consist of the following:
 
<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                                     1995
                                                                                  -----------
<S>                                                                               <C>
Subordinated notes payable to an affiliate, secured by a $1,400,000 liquidity
  deposit bearing interest at 5.2% to 12.0%, due January 1995 through December
  2003 payable quarterly......................................................    $ 8,776,782
Note payable to bank, bearing interest at prime plus 2.0% payable monthly, due
  October 1998................................................................         48,183
Subordinated notes payable to third party, bearing interest at 10.0% payable
  monthly, due August 1998....................................................        239,913
Revolving line of credit advances bearing interest at the commercial paper 30
  day weighted average rate plus 4.25% payable monthly........................      1,672,577
                                                                                  -----------
                                                                                   10,737,455
Less current portion..........................................................       (528,230)
                                                                                  -----------
                                                                                  $10,209,225
                                                                                  ===========
</TABLE>
 
     The maturities of long-term debt are as follows:
 
<TABLE>
                <S>                                               <C>
                Year ending December 31,
                     1995.......................................  $ 1,280,741
                     1996.......................................      831,918
                     1997.......................................      254,049
                     1998.......................................    2,496,647
                     1999.......................................      286,349
                     Thereafter.................................    5,670,051
                                                                  -----------
                                                                  $10,819,755
                                                                  ===========
</TABLE>
 
     The stated interest rate for the line of credit and note payable to bank
bear interest at 2.0% over prime (9.0% at June 30, 1995).
 
     On January 31, 1995, the Company completed a three-year revolving credit
line for $6,000,000. The credit line is collateralized by existing and future
accounts receivable of the Company. The credit line requires the Company to
maintain quarterly financial covenants including fixed charge ratio
requirements, cash velocity test requirements, accounts receivable
day-sales-outstanding requirements and positive earnings test requirements. As
of June 30, 1995, the Company was in compliance with all such quarterly
covenants.
 
                                      F-40
<PAGE>   104
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  INCOME TAXES
 
     The components of the provision for income taxes is as follows:
 
<TABLE>
<CAPTION>
                                                                       SIX MONTHS     ONE MONTH
                                                                       ----------     ---------
                                                      DECEMBER 31,      JUNE 30,      JULY 31,
                                                          1994            1995          1995
                                                      ------------     ----------     ---------
    <S>                                               <C>              <C>            <C>
    Current:
      Federal.....................................
      State and local.............................      $ 52,896        $ 26,000       $ 4,500
                                                         -------         -------       -------
                                                          52,896          26,000         4,500
    Deferred:
      Federal.....................................
                                                         -------         -------       -------
                                                        $ 52,896        $ 26,000       $ 4,500
                                                         =======         =======       =======
</TABLE>
 
     A reconciliation of the provision for income taxes to the amount computed
by applying the statutory income tax rate to income before income taxes is as
follows:
 
<TABLE>
<CAPTION>
                                                                       SIX MONTHS     ONE MONTH
                                                                       ----------     ---------
                                                      DECEMBER 31,      JUNE 30,      JULY 31,
                                                          1994            1995          1995
                                                      ------------     ----------     ---------
    <S>                                               <C>              <C>            <C>
    Income taxes computed at statutory U.S.
      federal income tax rates....................     $ (533,067)     $   70,005     $(55,080) 
    Limitation on (utilization of) NOL............        473,479        (101,239)      50,080
    State and local income taxes..................         52,896          26,000        4,500
    Permanent differences.........................         59,588          31,234        5,000
                                                        ---------       ---------     ---------
                                                       $   52,896      $   26,000     $  4,500
                                                        =========       =========     =========
</TABLE>
 
     At June 30, 1995 and July 31, 1995, the Company has federal tax net
operating loss carry forwards of approximately $2,100,000 and $2,100,000,
respectively, which expire at various dates through 2008. Under section 382 of
the Internal Revenue Code of 1986, as amended, the utilization of net operating
loss carry forwards may be delayed or permanently lost if there has been a
cumulative change in ownership during the past three years of more than 50%.
Such a change occurred in August 1995 as described in Note 12. Therefore, the
annual limitation on the Company's net operating loss carry forward is
approximately $1,500,000.
 
     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
 
                                      F-41
<PAGE>   105
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of the Company's net deferred tax assets and liabilities
were as follows:
 
<TABLE>
<CAPTION>
                                                                                   JUNE 30,
                                                                                     1995
                                                                                  -----------
<S>                                                                               <C>
Deferred tax assets:
  Vacation accrual............................................................    $  (107,086)
  Net operating loss carry forward............................................     (1,034,568)
  Capital leases..............................................................       (880,088)
  Leasehold rights............................................................        (55,191)
  Allowance for bad debts.....................................................       (292,621)
                                                                                  -----------
     Gross deferred tax assets................................................     (2,369,554)
Valuation allowance...........................................................      2,369,554
                                                                                  -----------
Net deferred tax assets.......................................................             --
Deferred tax liabilities......................................................             --
                                                                                  -----------
Net deferred tax liabilities..................................................    $        --
                                                                                  ===========
</TABLE>
 
9.  LEASES
 
     The Company has noncancelable operating leases on substantially all of its
buildings and equipment which expire at various dates through the year 2003.
BI-1 and BI-2 lease sixteen facilities from Omega under the "Master Lease" and
"Texas Master Lease" Agreements.
 
     The approximate future minimum rental commitments at December 31, 1994
under the operating leases are as follows:
 
<TABLE>
            <S>                                                       <C>
            1995....................................................  $  8,098,047
            1996....................................................     7,804,644
            1997....................................................     7,886,491
            1998....................................................     7,901,301
            1999....................................................     7,910,753
            Thereafter..............................................    35,869,739
                                                                       -----------
                                                                      $ 75,470,975
                                                                       ===========
</TABLE>
 
     Rent expense under operating leases was $8,263,642, $4,448,134 and $750,636
during the year ended December 31, 1994, the six months ended June 30, 1995 and
the one month ended July 31, 1995, respectively.
 
     The lease terms are generally from eight to ten years with two or three
five-year renewal options. Minimum rentals increase annually based upon the
greater of 5.0% of incremental revenues or the Consumer Price Index, but limited
to a maximum annual increase of 3.5%. Upon exercise of a renewal option, the
rental payments continue in the same fashion as the original lease. The Company
and certain affiliated entities have options to purchase certain properties at
various times at prices determined by a specified formula. The Company and its
subsidiaries have guaranteed performance on the mortgages and lease payments to
Omega as discussed in Note 1 totaling $35,500,000 at December 31, 1994.
 
     The lease payments are personally guaranteed to $13,500,000 by the chairman
of the board whose family trust is a majority shareholder of the Company, as
well as secured by substantially all the personal property and equity of the
Company. Lease rental payments are senior to all unsecured debt. The Company is
responsible for all taxes, maintenance and other executory costs.
 
                                      F-42
<PAGE>   106
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Covenants to the Master Lease and Texas Master Lease include, but are not
limited to, current ratio requirements, cash flow to rent and debt service
requirements, minimum net worth requirements, and minimum cash requirements. In
March 1994, Omega consolidated and amended certain financial covenants related
to the Indiana and Texas Master Leases and the participating mortgages. Certain
payments to affiliates are subordinate to the lease payments made to Omega. As
of June 30, 1995, the Company was in compliance with these covenants.
 
10.  RELATED PARTY TRANSACTIONS
 
     BritWill HealthCare Company is a member of a group of affiliated companies
and has extensive transactions and relationships with members of the group.
Management of the Company believes that the terms of these transactions are not
materially different than those which would result from transactions among
wholly unrelated parties.
 
     In December 1992, the Company entered into a transaction with BI-Indy in
which the Company exchanged 75% of its common stock for leasehold rights with a
value of $4,100,000. BI-Indy contributed furniture and equipment and $623,466 of
other costs incurred and capitalized as part of the transaction.
 
     In December 1992, certain affiliates of a director of the Company loaned
the Company $400,000; and Whitehead Family Investments (WFI), a related party,
loaned the Company $2,075,000 which, combined with the director loan, is
recorded as subordinated long-term debt. The loans are subordinate to the lease
obligations on the Company's Indiana facilities. Interest expense on the loans
totaled $297,000 for 1994 and $148,500 and $28,875 for the six months ended June
30, 1995 and one month ended July 31, 1995, respectively. In addition, the
lenders are entitled to a minimum quarterly bonus. The expense for this bonus
agreement totaled $40,000 for 1994 and $20,000 for the six months ended June 30,
1995 and $3,333 for the one month ended July 31, 1995.
 
     On December 23, 1993, an officer of the Company, loaned the Company
$70,000, at 12.0% annual interest, for working capital. The loan renewed a
$60,000 loan issued on October 23, 1993. At December 31, 1994, the outstanding
principal balance amounted to $49,000. Such principal balance was repaid in
1995. Interest expense on these loans amounted to approximately $5,880 in 1994.
 
     In December 1993, the Company entered into a transaction with BI-TX in
which BI-TX contributed $2,800,000 of leasehold rights and $510,000 of working
capital to the Company in exchange for a note payable of $3,310,000. The
outstanding principal balance totaled $2,901,782 at June 30, 1995. Interest
expense on this loan amounted to approximately $226,476, $121,365 and $31,943 in
1994, for the six months ended June 30, 1995 and for the one month ended July
31, 1995, respectively.
 
     In December 1994, certain affiliates of a director of the Company loaned
the Company $1,500,000 at 12.0% annual interest. A portion of the loan,
$500,000, represents a renewal of a $250,000 loan issued on December 1, 1994.
Interest expense on these loans amounted to approximately $1,500 in 1994,
$85,562 for the six months ended June 30, 1995 and $15,068 for the one month
ended July 31, 1995.
 
     On June 1, 1994, the Company renewed a $600,000 note payable (in addition
to the above mentioned note) to WFI for working capital at an annual interest
rate of 12.0%. The note was renewed from a loan of the same amount issued on
June 1, 1993. Interest expense on these loans amounted to $72,000, $36,000 and
$6,000 for the year ended December 31, 1994, the six months ended June 30, 1995
and the one month ended July 31, 1995, respectively.
 
     The Company manages nursing homes owned by an affiliate. Management fee
revenues charged the affiliate totaled $251,186, $40,430 and $0 during the year
ended December 31, 1994, the six months ended June 30, 1995 and the one month
ended July 31, 1995, respectively.
 
                                      F-43
<PAGE>   107
 
                          BRITWILL HEALTHCARE COMPANY
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11.  COMMITMENTS AND CONTINGENCIES
 
  Estimated third party settlements
 
     Final determination of amounts earned under cost-reimbursed programs is
subject to review by appropriate governmental authorities or their agents. In
the opinion of management, adequate provision has been made for any adjustments
that could result from such reviews. In addition, the state of Indiana has
reviewed the Indiana Medicaid reimbursement structure. The ultimate impact to
healthcare providers in that state has been estimated and management believes
there will not be a material adverse effect on the financial position or results
of operations of the Company.
 
  Medical malpractice and self-insured risks
 
     The Company has obtained medical malpractice coverage with liability limits
of $5,000,000 per claim and in the aggregate. The Company has also obtained
workers' compensation coverage in Indiana but is uninsured with respect to
certain facilities located in Texas. The Company believes that the provision of
$20,550 recorded at June 30, 1995 for asserted and/or unasserted claims is
adequate based on historical results.
 
12.  SUBSEQUENT EVENT
 
     On August 10, 1995, Sunquest HealthCare Corporation, another long-term care
company operating approximately 21 facilities in eleven states, acquired the
Company's outstanding stock for a fixed payment of $26,000,000, plus contingent
amounts of up to approximately $9.8 million if the company achieves specified
revenue targets. The purchase price was comprised of two promissory notes
amounting to $19,000,000, in total, and a $7,000,000 noninterest bearing
convertible subordinated debenture.
 
     In November 1995, a retroactive restatement and correction of the purchase
agreement reduced the fixed purchase price by $6,000,000. The purchase agreement
includes a related contingent purchase price obligation of up to $9,800,000
depending upon future revenues.
 
                                      F-44
<PAGE>   108
 
                                                                     SCHEDULE II
 
                         UNISON HEALTHCARE CORPORATION
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                       ADDITIONS
                                                 ---------------------
                                                  CHARGED
                                    BALANCE AT    TO COST     CHARGED                     BALANCE AT
                                    BEGINNING       AND       TO OTHER                      END OF
DESCRIPTION                         OF PERIOD     EXPENSES    ACCOUNTS     DEDUCTIONS       PERIOD
                                    ----------   ----------   --------     ---------      ----------
<S>                                 <C>          <C>          <C>          <C>            <C>
Year ended December 31, 1994
  Allowance for doubtful
  accounts........................    $164,000   $  128,000   $            $  (2,000)(1)  $  290,000
Year ended December 31, 1995
  Allowance for doubtful
  accounts........................    $290,000   $   29,000   $801,000(2)  $(337,000)(1)  $  783,000
Year ended December 31,1996
  Allowance for doubtful
  accounts........................    $783,000   $2,742,000   $672,000(3)  $(420,000)(1)  $3,776,000
</TABLE>
 
---------------
 
(1) Uncollectible accounts written off, net of recoveries.
 
(2) Represents the allowance for doubtful accounts recorded by BritWill at July
    31, 1995.
 
(3) Represents the allowance for doubtful accounts recorded by Signature at
    October 31, 1996.
 
                                       S-1
<PAGE>   109
 
                                                                     SCHEDULE II
 
                          BRITWILL HEALTHCARE COMPANY
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                       ADDITIONS
                                                -----------------------
                                                 CHARGED
                                   BALANCE AT    TO COST      CHARGED                      BALANCE AT
                                   BEGINNING       AND        TO OTHER                       END OF
           DESCRIPTION             OF PERIOD     EXPENSES     ACCOUNTS      DEDUCTIONS       PERIOD
                                   ----------   ----------   ----------     ---------      ----------
<S>                                <C>          <C>          <C>            <C>            <C>
Year ended December 31, 1994
  Allowance for uncollectible
  accounts........................ $ (480,039)   $(644,471)                  $127,264(2)    $(997,246)
Six Months ended June 30, 1995
  Allowance for uncollectible
  accounts........................ $ (997,246)   $ (21,442)                  $227,821(2)    $(790,867)
One Month ended July 31, 1995
  Allowance for uncollectible
  accounts........................ $ (790,867)   $ (48,631)                  $ 38,724(2)    $(800,774)
</TABLE>
 
---------------
 
(1) Adjustment related to increasing accounts receivable and the allowance to
    reconcile to accounts receivable agings.
 
(2) Uncollectible accounts written off, net of recoveries.
 
                                       S-2