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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                   FORM 10-K
(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, 1998
                                       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
 
                        RAINTREE 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>
 
                        15300 N. 90TH STREET, SUITE 100
                         SCOTTSDALE, ARIZONA 85260-2768
                                 (480) 423-1954
         (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 [X] No [ ]
 
     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 April 9, 1999, there were 7,593,697 shares of Common Stock, par value
$0.001 per share, outstanding. The aggregate market value of the shares of
Common Stock held by nonaffiliates of the registrant on April 9, 1999 was
approximately $21 million. For purposes of the foregoing calculation only, all
directors and executive officers of the registrant have been deemed affiliates.
 
       APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEEDINGS
                        DURING THE PRECEDING FIVE YEARS
 
     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
 
     Yes [X]  No [ ]
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                                      None
 
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<PAGE>   2
 
                               TABLE OF CONTENTS
 
                        1998 ANNUAL REPORT ON FORM 10-K
 
                        RAINTREE HEALTHCARE CORPORATION
 
<TABLE>
<CAPTION>
                                                                        PAGE
                                                                        ----
<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   15
Item 3.   Legal Proceedings...........................................   17
Item 4.   Submission of Matters to a Vote of Security Holders.........   19
 
                                  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.................   34
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   34
 
                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........   34
Item 11.  Executive Compensation......................................   37
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   39
Item 13.  Certain Relationships and Related Transactions..............   40
 
                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   40
</TABLE>
 
                                        i
<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, among others: delays in or inability
to conclude transactions; unsuccessful implementation of its new business
strategy; general economic and business conditions; competition; loss of
customers; changes in applicable laws and regulations; availability, terms and
deployment of capital in light of recent losses and cash flow shortfalls;
cancellation of leases or contracts; demand fluctuations; adverse uninsured
determinations in any existing or future litigation or regulatory proceedings;
health care statutory or regulatory changes which disfavor the types of care
delivered by the Company; reversal of the current limitations in the supply of
long-term care facilities; and Year 2000 issues. 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
 
INTRODUCTION
 
     The Company is a Delaware corporation founded in 1992. The Company and its
consolidated subsidiaries are referred to herein as "RainTree" or the "Company."
The Company's principal executive offices are located at 15300 N. 90th Street,
Suite 100, Scottsdale, Arizona, 85260.
 
     RainTree provides comprehensive long-term and specialty healthcare
services. RainTree ranks as one of the 30 largest long-term care operators in
the United States, operating facilities in six states clustered in the Midwest,
Southwest and Southeast regions. These facilities include 32 long-term and
specialty care facilities with 3,400 licensed beds and three independent or
assisted living facilities with 214 units. In addition, RainTree currently
manages six facilities for a third party. RainTree seeks to operate its
businesses as an interrelated network of services to provide cost-effective
long-term and specialty healthcare.
 
     RainTree's healthcare services include both traditional long-term care
services and more specialized healthcare, such as rehabilitation, infusion and
respiratory therapy. RainTree also provides, either directly or through
third-party contracts, pharmaceutical services, medical supplies and laboratory
testing, both to its facilities and to nonaffiliated entities.
 
     The Company operated under the protection of chapter 11 ("Chapter 11") of
the U.S. Bankruptcy Code (the "Bankruptcy Code") from May 28, 1998 until January
31, 1999 (the "Effective Date"). The Company is refocusing its business strategy
in order to revitalize, reposition and restore the Company's core business. See
"-- Business Strategy." The restructuring began on January 7, 1998, when three
of RainTree's subsidiaries, BritWill Investments -- I, Inc., BritWill
Investments -- II, Inc. and BritWill Indiana Partnership (the "BritWill
Debtors"), with operations in Texas and Indiana, filed for protection under
Chapter 11 with the United States Bankruptcy Court for the District of Arizona
(the "Bankruptcy Court"). The Chapter 11 filings were necessitated by actions
taken by Omega Healthcare Investors, Inc. ("Omega") to terminate or otherwise
enforce the terms of its lease agreements with the Company. RainTree, through
its subsidiaries, leased 14 long-term care facilities from Omega under three
master lease agreements. In addition, RainTree leased six facilities from
BritWill Investments Texas, Ltd. ("BritWill Texas") which were subject to a
mortgage in favor of Omega (the "BritWill Texas Leases"). BritWill Texas is an
affiliate of Bruce H. Whitehead, a major stockholder and creditor of RainTree
and formerly chairman of its Board of Directors.
 
     RainTree initiated negotiations to reach a consensual restructuring of its
debt and lease obligations with Omega, representatives of certain of the holders
of its $100.0 million 12 1/4% Senior Notes due 2006 (the "12 1/4% Senior Notes")
and $20.0 million 13% Senior Notes due 1999 (the "13% Senior Notes") (the "Ad
 
                                        1
<PAGE>   4
 
Hoc Committee"), and certain entities related to Mr. Whitehead (the "Whitehead
Affiliates") and David A. Kremser (the "Kremser Affiliates"). On June 15, 1998,
RainTree concluded an agreement in principle with respect to a consensual
restructuring with some, but not all, of its creditor constituencies. The
agreement in principle formed the basis of the plan of reorganization filed with
the Bankruptcy Court on August 10, 1998. On October 16, 1998, an amended plan of
reorganization (the "Plan") was filed. The significant elements of the Plan are
described in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Reorganization". Under Bankruptcy Court
supervision, the Company continued to manage and operate its business as a
debtor in possession and, as described above, developed the Plan to restructure
its financial affairs, including assuming or rejecting executory contracts and
leases. The Plan was confirmed by the Bankruptcy Court effective January 31,
1999 (the "Effective Date").
 
EMERGENCE FROM CHAPTER 11 AND PLAN OF REORGANIZATION
 
     The Plan set forth a plan for repaying or otherwise compensating the
Company's creditors in order of the relative seniority of their respective
claims while seeking to maintain the Company as a going concern. The Plan
provided, among other things, for: (i) the conversion of substantially all of
the Company's prepetition liabilities into equity interests in the Company and
approximately $26 million of Senior Secured Notes due 2003; (ii) cancellation of
all of the prepetition equity interests in the Company, including the old common
stock; and (iii) restructuring of the Company's master lease for certain
facilities with Omega. The Plan became effective and the Company emerged from
Chapter 11 on the Effective Date. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
 
PRIOR TO THE CHAPTER 11 REORGANIZATION
 
     As described in greater detail elsewhere herein, the operating results and
financial condition of the Company have been negatively impacted by a number of
factors, including cash flow difficulties, increased costs due to acquisitions
and rising litigation costs. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
 
     Throughout 1997 and 1998, the Company's cash flows from operations and its
available capital were insufficient to meet its operating expenses, lease
obligations and debt service requirements. Consequently, when RainTree filed for
bankruptcy, it was in breach and in default of the terms of material operating
leases and indebtedness. As discussed below, the Company is in the process of
implementing a new business strategy in an attempt to deal with these issues.
See Item 2, "Properties" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Reorganization".
 
     The Company's historic acquisition strategy negatively impacted RainTree's
financial performance. A key element of RainTree's business strategy was to
expand through the acquisition of new or existing long-term and specialty
healthcare facilities and the acquisition or development of ancillary health
care businesses or services. As a result of various acquisitions, the Company
was faced with unforeseen contingencies affecting its new businesses including
increased costs due to integrating the acquired operations into the overall
enterprise. For example, difficulties in integrating acquired facilities within
RainTree's financial reporting and management information systems were a
substantial factor contributing to the need to restate RainTree's financial
statements for the nine months ended September 30, 1996. Its financial reporting
and management information systems were not adequate for the larger and more
complex needs of the Company. Those system difficulties then contributed to the
operating inefficiencies that led to the unexpected losses for that period and
subsequent periods.
 
     Additionally, the number of lawsuits initiated against the Company grew as
its financial difficulties worsened, including suits with vendors, landlords and
several class action lawsuits (which also involved certain of the Company's
current and former directors and officers (among others) as named defendants).
Such class action complaints generally asserted that the defendants knew, or
were reckless in not knowing, that RainTree's results for the first nine months
of 1996 were materially overstated, or misrepresented the capability of
RainTree's internal accounting systems to reliably record and reflect its
financial condition, among other things. See Item 3, "Legal Proceedings."
 
                                        2
<PAGE>   5
 
     As part of RainTree's reorganization, the Company has divested
underperforming facilities that were unlikely to contribute to the Company's
profitability. In connection with these divestitures, the Company terminated the
leases of twelve long-term care facilities in 1998 and seven facilities in the
1999 first quarter (the "Disposition Facilities"). Most of the facilities were
underperforming because of inadequate Medicaid reimbursement, low occupancy
rates or adverse local market conditions. Of the Disposition Facilities, six
were leased from Omega and, as part of the Plan, Omega released the Company from
its obligations related to these facilities. RainTree currently manages these
facilities on Omega's behalf.
 
     RainTree has also agreed to sell certain assets of Sunbelt Therapy
Management Services, Inc. ("Sunbelt") and its subsidiaries. Sunbelt provides
rehabilitation therapy services to certain RainTree facilities and third
parties. The parties agreed to enter into definitive documentation as soon as
practicable. It is anticipated that under the definitive agreement Paul
Henderson and Paige Plash will purchase the therapy services contracts of
Sunbelt's outpatient clinics, hospitals, home health, and other business not
related to long-term care facilities. Messrs. Henderson and Plash, who were the
president and vice president, respectively, of Sunbelt until April 1, 1999, will
also acquire the therapy services contracts of two RainTree nursing facilities.
As consideration for the purchase, it is anticipated that Messrs. Henderson and
Plash will pay approximately $1.1 million in cash and assume certain Sunbelt
liabilities. The terms of the proposed sale are subject to the negotiation of
definitive documentation and are subject to change. In connection with the sale,
RainTree expects to enter into an agreement with a third party to manage
Sunbelt's remaining long-term care therapy operations.
 
INDUSTRY OVERVIEW
 
     RainTree believes there will continue to be significant business
opportunities to provide healthcare services to long-term care residents in
non-hospital settings, including both nursing facilities and assisted or
independent living facilities. Certain factors that contribute to this growth
potential are described below.
 
     Aging Population.  The overwhelming majority of the patients in nursing
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 33.2 million
in 1994, or 13% of the population, and is projected to increase to approximately
69 million, or 20% of the population, by 2030. The number of people age 85 and
older is expected to double from 3.5 million in 1994 to 7 million in 2020,
making this age group the fastest growing segment of the population. As the
United States population ages, the demand for the types of services that
RainTree provides is expected to increase.
 
     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 RainTree. The Balanced Budget Act
of 1997 (the "Balanced Budget Act") mandates that, beginning with cost reporting
periods on or after July 1, 1998, skilled nursing facilities will receive a
fixed payment for services to Medicare patients. 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.  Innovations in medical equipment and new
treatment methodologies have lengthened life expectancies, increasing the number
of individuals requiring specialized care and supervision. The incidence of
chronic illness increases with age, particularly certain degenerative
conditions. 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 RainTree 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 to patients less
expensively than 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 demand in
recent years. Many states (but not all of the states in which RainTree operates)
have enacted certificate of need or similar legislation which generally limits
the
 
                                        3
<PAGE>   6
 
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".
 
     Industry Consolidation.  The long-term care industry is highly fragmented.
There are approximately 17,000 long-term care facilities in the United States,
which contain a total of approximately 1.8 million licensed beds. The 50 largest
long-term care providers operate approximately 5,000 facilities comprising
approximately 500,000 licensed beds, or 28% of the industry total. In recent
years, 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 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. The Company believes, however, that
the pace of consolidation has slowed substantially during the past year. In
response to the negative financial impact of the new Medicare prospective
payment system, increased government regulatory activity, and high levels of
debt resulting from acquisitions, many of the industry's larger companies have
suspended their acquisition programs and, in some cases, are divesting of
non-strategic assets. See "-- Business Strategy " and "-- Government
Regulation".
 
BUSINESS STRATEGY
 
     As discussed elsewhere herein, RainTree restructured its debt and certain
lease obligations, disposed of underperforming business operations, and is in
the process of settling significant lawsuits. After emerging from Chapter 11,
RainTree has changed its operating strategy in order to focus on patient care.
By divesting itself of less productive facilities, the Company is now in a
position to concentrate on its core business of caregiving. The Company is
currently working to implement the business strategy set forth below, while
striving to regain the confidence of its employees, regulators, vendors and
investors by proving it is a viable and competitive concern. RainTree also is in
the process of redirecting its efforts in identifying, recruiting and training
top quality employees who will be instrumental in implementing the Company's
business strategy.
 
     RainTree's overall business strategy is to become a preferred provider of
long-term and specialty healthcare services in its markets by offering high
quality, cost competitive, long-term healthcare services. The key components of
the Company's strategy are as follows.
 
     Improve Payor Quality, Occupancy Levels and Operating Margins.  RainTree 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. RainTree'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.
 
     RainTree 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 the Company's directors of admissions 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. See "-- Government Regulation -- The
Balanced Budget Act".
 
     Provide High Quality Care on an Economic Basis.  RainTree 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. RainTree believes that it provides quality
patient care and is generally successful in maintaining regulatory compliance.
See "-- Operations -- Quality Management".
 
                                        4
<PAGE>   7
 
     Contain Costs.  RainTree believes that the increasing penetration of
managed care and the new Medicare prospective payment system will intensify the
focus on containing costs. RainTree 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 RainTree to control operating costs. See "-- Government
Regulation -- The Balanced Budget Act".
 
     Concentrate Healthcare Facilities in Geographic "Clusters."  RainTree has
in the past sought to acquire facilities that 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 RainTree to leverage management across a
larger base of patient revenue and efficiently monitor individual facilities,
ensuring high quality patient care. The clustering strategy was to enable
RainTree to leverage the addition of ancillary services over a larger patient
base. The acquisition of Signature Health Care Corporation and affiliates
("Signature") in 1996, which included the acquisition of five long-term care
facilities in the Denver, Colorado area, is an example of this strategy.
Although RainTree's acquisition program has been curtailed for the indefinite
future, the Company has maintained its cluster strategy by divesting of
facilities that were in isolated areas.
 
PATIENT SERVICES
 
     RainTree provides long-term care services, including independent living
services and 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. Assisted living facilities provide nutritional, housekeeping,
and limited medical services. 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 provision 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
RainTree's long-term care facilities. RainTree 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.  RainTree'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 nursing facilities dispense medications and otherwise
follow care plans prescribed by the patient's physician. RainTree's nursing
facilities are licensed by state licensing agencies and are extensively
regulated at the federal, state, and local level.
 
     Subacute and Other Specialty Care Services.  RainTree'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) orthopedic
rehabilitation; and (vii) other specialized subacute services. RainTree provides
care to certain types of patients with specialized needs through designated
units such as those for the treatment of Alzheimer's disease and other
conditions. These units are located in specially designed sections within
selected facilities and are staffed by specially trained personnel. 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.
 
                                        5
<PAGE>   8
 
The daily cost to patients for RainTree's specialty services are generally
significantly less than the cost charged for similar services by acute care
hospitals. See "-- Government Regulation -- The Balanced Budget Act".
 
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. The following
table sets forth RainTree's mix of payor sources throughout the periods
presented.
 
<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------
                 SOURCE OF REVENUES                    1998      1997      1996
                 ------------------                   ------    ------    ------
<S>                                                   <C>       <C>       <C>
Medicare............................................   28.5%     32.1%     29.5%
Private and other...................................   16.3      16.2      17.0
                                                      -----     -----     -----
          Quality mix...............................   44.8      48.3      46.5
Medicaid............................................   55.2      51.7      53.5
                                                      -----     -----     -----
          Total.....................................  100.0%    100.0%    100.0%
                                                      =====     =====     =====
</TABLE>
 
OPERATION OF LONG-TERM CARE FACILITIES
 
     RainTree is responsible for the day-to-day operation of both leased and
managed facilities. These responsibilities include recruiting, hiring and
training all nursing and other personnel and directing the full scope of
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, cash management, debt management, quality
assurance, risk management, legal services, marketing and regulatory compliance.
RainTree provides additional support by providing liability, workers
compensation, and casualty insurance for all of its facilities and ancillary
companies.
 
     Organization.  With respect to its long-term and specialty care facilities,
RainTree maintains four regions, each of which is supervised by a regional
director. The regional director is supported by a clinical operations specialist
and a financial consultant who are employed by RainTree. Daily operations of
each facility are supervised by an on-site licensed administrator. The
administrator at each facility is primarily responsible for adherence to
RainTree'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. The
administrator of each facility is supported by other professional personnel,
including a medical director, who assists in the medical management of the
facility, and a director of nursing who supervises a staff of registered nurses,
licensed practical nurses and nurse aides. Other personnel include dietary
staff, activities and social service staff, housekeeping, laundry and
maintenance staff and a business office staff.
 
     Quality Management.  RainTree 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 caregivers. Reporting is
monitored by RainTree's clinical operations specialists under the direction of
the Vice President of Clinical Services. Monthly reports are used to monitor
adherence to the standards of care established by RainTree'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.
 
     Company-wide, RainTree's facilities had 204 on-site visits from government
agencies during the period from January 1, 1998 through December 31, 1998. The
average number of deficiencies cited during these reviews was 5.9, compared to a
national average of 8.0 in the states in which RainTree operates. The Company
 
                                        6
<PAGE>   9
 
has reduced substandard quality of care deficiencies from 5.7% of total surveys
in 1996 to 1.3% in 1998, compared to a national average of 11.9% in the states
in which RainTree operates. As of April 13, 1999, RainTree had no outstanding
deficiencies for substandard quality of care.
 
     Marketing.  RainTree's marketing efforts are designed to promote higher
occupancy levels and improved payor quality mix. Quality mix improved from
approximately 41.5% in 1994 to approximately 48.3% in 1997 but declined in 1998
to approximately 44.8%. Average occupancy in the nursing facilities was 78.3% in
1996, 83.5% in 1997 and 80.4% in 1998. The decrease in quality mix and occupancy
in 1998 is due primarily to the negative perception of RainTree as a result of
the bankruptcy. Management believes that RainTree's average occupancy rate
should improve as consumer confidence grows. Quality mix, however, may be
adversely affected by the new Medicare prospective payment system. See
"-- Government Regulation -- The Balanced Budget Act".
 
     RainTree 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. RainTree's marketing strategy emphasizes the role and
performance of the administrator and director of admissions in marketing and
promoting the services offered by RainTree facilities to each local community.
 
     RainTree'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
operations. Market specific information, along with weekly and monthly
reporting, is used to monitor adherence to the standards established by
RainTree. The hub of this strategy is the local facility administrator and the
director of case management. These individuals 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. RainTree 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
public awareness of their services.
 
ANCILLARY SERVICES
 
     RainTree provides ancillary services, either directly or through
third-party contracts, to the residents of 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.
 
     Management of each of the ancillary services companies described below
reports to RainTree's chief executive officer. RainTree's corporate management
team provides oversight in the areas of cash management, budgeting, accounting
controls, staffing and detailed review of financial results. RainTree also (i)
directs the ancillary companies' growth and marketing strategies and accounts
receivable management and (ii) implements the integration of the companies and
oversees the quality of services to RainTree facilities. RainTree provides
additional support to its ancillary companies in the areas of risk management,
legal services, regulatory compliance, government reimbursement, management
information systems and purchasing. A number of the ancillary companies' supply
contracts with major vendors are in the name of RainTree. In addition, bank
loans and equipment leases provided to the ancillary companies are negotiated by
RainTree's senior management, and general liability, workers compensation and
casualty insurance for all of RainTree's subsidiaries is provided under
RainTree's policy.
 
     Laboratory.  American Professional Holding, Inc. ("Ampro") operates three
medical reference laboratories located in Dallas, Texas, Poplar Bluff, Missouri
and Memphis, Tennessee, and three satellite offices located in Austin, Texas and
Fort Worth, Texas. As of February 28, 1999, Ampro provided laboratory services
to 10 RainTree-affiliated and 110 non-affiliated nursing facilities in Texas, 20
non-affiliated nursing facilities in Tennessee, 185 non-affiliated medical
facilities in Missouri and five RainTree-affiliated nursing facilities in
Colorado.
 
                                        7
<PAGE>   10
 
     The laboratories provide bodily fluid testing services to assist in
detecting, diagnosing and monitoring diseases. These tests, performed as ordered
by each patient's attending physician, include testing for complete blood count,
blood chemistry testing, coagulation studies, urinalysis, microbiology tests and
therapeutic drug level tests. Upon completion of these tests, the laboratories
communicate the results of each test to the applicable facility for inclusion on
each patient's medical chart for review by the attending physician.
 
     Pharmacy.  Quest Pharmacies, Inc. ("Quest") is a comprehensive,
full-service long-term care pharmacy and medical supply company that provides
services through two institutional pharmacies located in Longview, Texas and
Bloomington, Indiana. Quest has grown from a pharmacy servicing 15 long-term
care facilities in September 1995 to a highly diversified organization that
services, as of February 28, 1999, 10 RainTree-affiliated and 23 non-affiliated
skilled nursing facilities in East Texas; seven RainTree-affiliated and 16
non-affiliated skilled nursing facilities in Indiana; and 14 other
RainTree-affiliated nursing facilities in Alabama, Arizona and Colorado. Quest's
specialized services include pharmacy, wound care, medical supplies, enteral
therapies, infusion management, IV nurse consultants and Medicare Part B
services. Quest's clinical pharmacists provide consulting, medical records
services, educational seminars and continuing education programs. Quest seeks to
provide services that assist its clients in controlling costs and complying with
regulatory and medical standards.
 
     Quest provides pharmaceutical dispensing services to approximately 4,000
patients and clients in various settings, including nursing facilities,
transitional care facilities, assisted living communities, rehabilitation
centers and correctional facilities. Additionally, Quest provides a variety of
pharmaceutical consulting services, including training of facility staff,
designed to assist nursing facilities in program administration.
 
     Therapy.  Sunbelt provides physical therapy, occupational therapy and
speech language pathology services through RainTree-affiliated facilities and
non-affiliated long-term care facilities. It is anticipated that a portion of
the assets of Sunbelt will be sold pending the negotiation of definitive
documentation. See "-- Prior to the Chapter 11 Reorganization." As of February
28, 1999, Sunbelt provided services through 177 contracts, which included 31
RainTree-affiliated facilities.
 
     For financial reporting purposes, RainTree has four reportable segments:
(i) long-term and specialty care, including assisted and independent living;
(ii) pharmacy operations, including Medicare Part B billing and supply; (iii)
rehabilitation therapy services; and (iv) laboratory services. See Note 23 of
Notes to Consolidated Financial Statements for financial information about
RainTree's reportable segments.
 
COMPETITION
 
     RainTree'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 RainTree and some are nonprofit or
charitable organizations. No assurance can be given that RainTree 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 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.
 
                                        8
<PAGE>   11
 
     RainTree's pharmacy and laboratory businesses compete with national,
regional and local pharmacies and medical reference laboratories, some of which
have significantly greater financial and other resources than RainTree. No
assurance can be given that RainTree will have the resources to compete
successfully with such companies. 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 IV therapy services, antibiotic
and hydration therapies, pain management and chemotherapy. RainTree believes
that the primary factors in competing for pharmacy business is prompt service
and the primary factor in competing for laboratory business is prompt and
accurate test results.
 
INSURANCE
 
     RainTree carries general liability, comprehensive property damage,
malpractice, workers' compensation, directors and officers and other insurance
coverage 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 RainTree on commercially
reasonable terms in the future. A successful claim against RainTree in excess of
its insurance coverage could have a material adverse effect on RainTree and its
financial condition and results of operations. Claims against RainTree,
regardless of their merit or outcome, may also have an adverse effect on
RainTree's reputation and business. As of December 31, 1998, the Company is not
aware of any claims against RainTree that would have a material adverse effect
on RainTree's results of operations.
 
GOVERNMENT REGULATION
 
     Introduction.  The federal government and all states in which RainTree
operates regulate various aspects of RainTree's business. All of RainTree'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
RainTree. The Federal Social Security 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 Medicaid surveys are used by
the Health Care Financing Administration ("HCFA") and Medicaid state agencies as
the basis for decisions to execute, deny or terminate provider agreements with
facilities.
 
     Payment For Services.  RainTree 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 RainTree's services. Any
significant decrease in Medicare or Medicaid reimbursement amounts could have a
material adverse effect on RainTree. RainTree also obtains payment from private
insurers, including managed care organizations, and private pay patients.
RainTree's facilities also have contracts with health maintenance organizations
and other managed care organizations to provide certain healthcare services to
patients for a set per diem payment for each patient. There can be no assurance
that the rates paid to RainTree by these payors will remain at current levels or
be adequate to reimburse RainTree for the cost of providing services to covered
beneficiaries. In addition, cost increases due to inflation without
corresponding increases in reimbursement could adversely affect RainTree's
business.
 
     The Balanced Budget Act.  The Balanced Budget Act, signed into law on
August 5, 1997, makes numerous changes to the Medicare and Medicaid programs.
The Balanced Budget Act mandates the establishment of a prospective payment
system ("PPS") for Medicare skilled nursing facility services, under which
facilities will be paid a fixed fee for virtually all covered services. PPS is
being phased in over a four-year period, effective for RainTree's facilities
since January 1, 1999. During the first three years, payments will be based on a
blend of the facility's historical costs and federal costs. Thereafter, the per
diem rates will be
 
                                        9
<PAGE>   12
 
based 100% on federal costs. Under PPS, each patient's clinical status is
evaluated and placed into a payment category. The patient's payment category
dictates the amount that the provider will receive to care for the patient on a
daily basis. The per diem rate will cover (i) all routine inpatient costs
currently paid under Medicare Part A, (ii) certain ancillary and other items and
services currently covered separately under Medicare Part B on a "pass-through"
basis, and (iii) certain capital costs.
 
     For Medicare patients receiving services on an outpatient basis under
Medicare Part B, reimbursement for ancillary services such as rehabilitation
therapy, drugs, medical supplies and other items is based on a fee schedule. In
addition, effective January 1, 1999, there is an annual per-patient cap of
$1,500 on reimbursement for combined Part B and outpatient physical and speech
therapy services and an annual per-patient cap of $1,500 on reimbursement for
combined Part B and outpatient occupational therapy services.
 
     RainTree estimates that its average daily Medicare rate in 1999 under PPS
will be approximately 18% lower than its average daily Medicare rate in 1998.
The Company anticipates that these revenue decreases may be substantially
mitigated by reduced costs negotiated with therapy and pharmacy suppliers, as
well as increased lengths of stay resulting from less intensive levels of
therapy services provided.
 
     PPS is expected to negatively impact RainTree's pharmacy revenues as a
result of lower rates negotiated with its nonaffiliated nursing facility
customers. The Company has taken steps to reduce its pharmacy cost of goods sold
through the use of "formularies", which are standard menus of drugs and other
pharmacy products. By reducing the number of different products offered,
RainTree expects that it can negotiate better pricing with its suppliers.
Additionally, the formulary will include more generic drugs that can be obtained
at lower prices than name brand drugs. While the Company will continue to supply
any drug required, it expects that most physicians will cooperate in an effort
to reduce costs.
 
     RainTree's success under PPS will depend upon its ability to manage the
costs of caring for high acuity Medicare patients. However, although the Company
believes that PPS will provide opportunities for efficiently operated, low cost
providers, there can be no assurance that RainTree will be successful in keeping
its costs of services below the PPS rates.
 
     The Balanced Budget Act also contains changes to the Medicaid program, the
most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and services in compliance with applicable standards. Since
October 1, 1997, states have had more flexibility in establishing payment rates.
Indiana adopted a case-mix prospective payment system on October 1, 1998 and
Colorado is expected to follow in 1999. The Company does not believe that the
change in Indiana's reimbursement system will materially negatively impact
RainTree's results of operations or financial condition, and RainTree has not
determined the impact the change in Colorado's system will have on its results
of operations. RainTree is unable to predict whether any other states will
change their reimbursement policies and, if so, what effect such changes would
have on the Company. There can be no assurance that any changes to the Medicaid
program will not have a material adverse impact on the Company.
 
     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. 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.
 
     Until the implementation of PPS, Medicare reimbursed the skilled nursing
facility based on a reasonable cost standard. With certain exceptions, payment
for skilled nursing facility services was made prospectively with each facility
receiving an interim payment during the year for its expected reimbursable
costs. The interim payment was later adjusted to reflect actual allowable direct
and indirect costs of services based on the submission of an annual cost report.
Each facility was also subject to limits on reimbursement for routine costs.
Exceptions to these limits were available for, among other things, the provision
of atypical services. Due in part to the provision of subacute services,
RainTree's costs for care delivered to Medicare patients in certain of its
long-term and specialty healthcare facilities have exceeded the routine cost
limits. RainTree has
 
                                       10
<PAGE>   13
 
submitted to HCFA various requests for exceptions to the Medicare routine cost
limits for reimbursement ("RCLs"). As of December 31, 1998, approximately $5.0
million of receivables related to RCL exception revenues remain subject to audit
and final approval by the fiscal intermediary. Although RainTree believes that
it will recover these routine cost limit exception requests, failure to recover
excess costs or to obtain such exceptions could materially adversely affect
RainTree's results of operations.
 
     Effective April 10, 1998, HCFA issued its new salary equivalency
guidelines, which changed Medicare reimbursement rates for contracted therapy
services. Under salary equivalency, the Company was reimbursed for contracted
therapy services based on the time spent on the premises by the contract
therapist times a fixed rate, depending on the service provided. While the new
rates for physical therapy represented an increase over what the Company
previously received for such services, the new rates for occupational therapy
and speech language pathology represented decreases from what the Company
previously received. The salary equivalency guidelines remained in effect until
the facility at which such services were provided, including the Company's
facilities and other facilities serviced by the Company's therapy subsidiaries,
started billing under PPS. The Company believes that while salary equivalency
had an adverse effect on its therapy revenue, the Company does not believe that
salary equivalency had a material adverse effect on the Company's consolidated
revenues in 1998.
 
     Prior to PPS, Medicare regulations that applied to transactions between
related parties were relevant to the amount of Medicare reimbursement that the
Company was entitled to receive for the rehabilitation and respiratory therapy
and pharmaceutical services that it provides to RainTree facilities. These
related party regulations required that, among other things: (i) the Company's
therapy and pharmacy subsidiaries must each be a bona fide separate
organization; (ii) a substantial part of the services of each subsidiary is
transacted with nonaffiliated entities, and there is an open, competitive market
for such services; (iii) the services provided by such subsidiary commonly are
obtained by long-term and subacute care facilities from other organizations and
are not a basic element of patient care provided by such facilities; and (iv)
the prices charged to the Company's long-term and subacute care facilities by
such subsidiaries are in line with the charges for such services in the open
market and no more than the prices charged by its therapy and pharmacy
subsidiaries under comparable circumstances to nonaffiliated entities in order
to satisfy the "substantial part" requirement of such regulations. In instances
where this issue has been litigated by others, no consensus has emerged as to
the appropriate threshold necessary to satisfy the "substantial part"
requirement.
 
     In the fourth quarter of 1997, RainTree was informed by its Medicare fiscal
intermediary that it is challenging the Company's reimbursement for certain
services provided at RainTree facilities by Sunbelt. Although the Company
intends to vigorously pursue reimbursement of the challenged items, in the
fourth quarter of 1997 it recorded a $4.6 million reduction in Medicare revenues
in connection with this related party issue. Under PPS, the Medicare impact of
the related party rule is eliminated.
 
     The Medicaid Program.  All of RainTree'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. 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. Alabama, Colorado and Michigan, three of the states in which RainTree
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 retrospective basis. 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.
 
                                       11
<PAGE>   14
 
     Currently several states, including Texas and Indiana, utilize case-mix
payment systems, pursuant to which payment levels increase based on a patient's
acuity level and need for services. Colorado is expected to adopt a case-mix
prospective payment system in 1999. Arizona utilizes a managed care program for
its Medicaid beneficiaries, whereby subcontractors, usually county health
departments, receive negotiated capped rates from the state. The subcontractors
then negotiate contracts with nursing facilities to provide patient care.
RainTree is unable to predict whether any other states will change their
reimbursement policies and, if so, what effect such changes would have on the
Company. There can be no assurance that any changes to the Medicaid program will
not have a material adverse impact on the Company.
 
     Enforcement Proceedings and Sanctions; Certification Requirements.  Under
the Omnibus Reconciliation Act of 1987 ("OBRA"), HCFA promulgated survey,
certification and enforcement rules governing skilled nursing facilities and
nursing facilities participating in the Medicare and Medicaid programs. The
rules require states to enact state plans to incorporate the provisions of the
rules.
 
     Unannounced standard surveys must be conducted at least every 15 months
with a statewide 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 that 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. Available remedies include 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 employee 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 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.
 
     RainTree 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, RainTree receives notices of
alleged deficiencies for failure to comply with regulatory requirements.
RainTree reviews such notices and attempts to take corrective action. RainTree's
facilities receive notices from state agencies that result in fines and/or the
agencies taking steps to decertify the facilities from participation in Medicare
and Medicaid programs. In February 1998, RainTree closed its Oaks at Boise
facility in Boise, Idaho after voluntarily terminating its participation in the
Medicare program and relocating the patients. RainTree had been negotiating with
the owners to dispose of the facility when it encountered regulatory problems.
Negotiations deteriorated and RainTree closed the facility. Subsequently,
RainTree was assessed a penalty amounting to $25,875 for alleged violations of
Medicare regulations, payment of which has not yet been demanded due to the
bankruptcy filing. Currently, RainTree has outstanding civil money penalties
related to various facilities in the aggregate amount of approximately $340,000.
Of this amount, approximately $280,000
 
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<PAGE>   15
 
is subject to appeal or negotiated settlement. The Company believes, based on
historical experience, that these fines will ultimately be settled for amounts
substantially less than the amounts assessed.
 
     Certificates of Need.  Many states (although not every state in which
RainTree operates) have adopted certificate of need or similar health planning
laws, which generally require prior state agency approval of certain
acquisitions, new bed additions or services or capital expenditures. To the
extent that such approvals are required for RainTree to expand its operations,
RainTree 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 Michigan and Alabama. In addition, Colorado and
Texas have placed moratoriums on bed additions.
 
     Patient Referral Regulations.  RainTree 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,
RainTree, 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 RainTree, and RainTree 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. To
the Company's knowledge, none of its patients were referred under practices that
are in violation of HR 3103. Although RainTree 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 RainTree's practices.
 
     Other laws prohibit 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 RainTree to modify its contractual arrangements in order to satisfy an
available exception, or limit the ability of physicians with whom RainTree has
compensation arrangements to refer patients to RainTree.
 
     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 RainTree 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 is focused on
 
                                       13
<PAGE>   16
 
problems with 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.
 
     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, RainTree operates pharmacies only in Texas and
Indiana. As required by Texas and Indiana law, RainTree 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 record keeping requirements with respect to the handling and dispensing
of controlled substances, small quantities of which are maintained in RainTree's
pharmacy for use in filling prescriptions. RainTree is subject to regular audits
by governmental authorities to monitor compliance with record keeping 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.
 
     Laboratory.  Companies providing laboratory services in the United States
are regulated by state statutes and the rules and regulations of the Clinical
Laboratory Improvement Act of 1998 ("CLIA"). All laboratories must have a
certificate of compliance or a certificate of accreditation for laboratory
testing. Laboratories that have certificates must permit HCFA or a HCFA agent to
conduct an inspection to assess the laboratory's compliance with the
requirements of CLIA. The most recent inspection of Ampro's three laboratories
revealed no deficiencies.
 
     Health Care Reform.  The Balanced Budget Act contains extensive changes to
the Medicare and Medicaid programs intended to reduce the projected amount of
increase in payments under those programs by $115 billion and $13 billion,
respectively, over the next five years. There also continue to be state
legislative proposals that would impose more limitations on government and
private payments to providers of healthcare services such as RainTree. Many
states have enacted or are considering enacting measures that are designed to
reduce their Medicaid expenditures and to make certain changes to private
healthcare insurance. There are also a number of legislative proposals including
cost caps and the establishment of Medicaid prospective payment systems for
nursing facilities. Moreover, by repealing the Boren Amendment, the Balanced
Budget Act eases impediments on the states' ability to reduce their Medicaid
reimbursement levels. In July 1998, President Clinton announced several new
initiatives to toughen survey and enforcement policies with respect to nursing
facilities. These initiatives include imposing sanctions immediately against
facilities with repeat violations that cause resident harm, imposing penalties
for each instance of harm, surveying repeat offenders more frequently, and
focusing enforcement efforts on chains with problems in multiple facilities.
HCFA has issued a schedule for implementing these initiatives in 1999. Due to
uncertainties regarding the ultimate features of reform or budget initiatives
and their enactment and implementation, RainTree cannot predict which, if any,
reform proposals will be adopted, when they may be adopted or what impact they
may have on RainTree. No assurance can be given that such measures will not have
a material adverse effect on RainTree.
 
EMPLOYEES
 
     As of February 28, 1999, RainTree employed approximately 3,700 individuals,
including full-time and part-time employees. RainTree has two collective
bargaining agreements covering approximately 209 nursing facility employees.
RainTree believes that its overall relations with its employees declined
somewhat in 1998 due to concerns related to its bankruptcy proceedings, but are
improving.
 
IMPACT OF THE YEAR 2000 ISSUE
 
     Some of RainTree's information systems have time-sensitive software that
will not properly recognize the year 2000. Based on an on-going assessment, the
Company has determined that it will be required to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. RainTree believes that
with modifications to existing software and conversions to new software, the
Company will be year 2000 ready by the end of 1999 and the year 2000 issue will
not pose significant operational problems for its computer systems.
 
                                       14
<PAGE>   17
 
     RainTree is in the process of completing a detailed inventory and analysis
of computer hardware, software and operating systems. The Company will utilize
both internal and external resources to reprogram, or replace, and test the
hardware and software for year 2000 readiness. The scope of the year 2000
project also encompasses consideration of potential impacts on the Company's
business operations. The Company is reviewing internal business operations and
relationships with external business partners to assess the current level of
compliance. The next step is to perform testing and develop contingency plans
with the goal of achieving year 2000 readiness by September 1999.
 
     During 1998 and the first quarter of 1999, RainTree replaced substantially
all of its computer equipment in connection with implementation of the Plan. The
Company believes the new equipment is year 2000 compliant. The Company estimates
that the incremental cost to upgrade existing software to make it year 2000
compliant will not exceed $150,000.
 
     RainTree has initiated formal communications with significant suppliers and
payors to determine the extent to which the Company's systems and operations are
vulnerable to those third parties' failure to remediate their own year 2000
issues. Examples of such issues include, but are not limited to, electronic
interfaces with external agents such as payors, suppliers and banks. The ability
of third parties with which RainTree transacts business to adequately address
their year 2000 issues is outside the Company's control. Although RainTree will
seek to replace any of its current vendors who are unable to become year 2000
ready in a timely manner, there can be no assurance that the Company's
operations will not be adversely affected by the ability of third parties,
including the federal and state governments on which RainTree's operations rely,
to also manage the year 2000 issue.
 
     The Company will continue to assess each of its systems and their year 2000
readiness. At this time, the Company believes that appropriate actions are being
taken and expects to complete its overall year 2000 remediation prior to any
anticipated impact on its operations. However, there can be no assurance that
these assumptions will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, third party modification plans and similar uncertainties.
 
ITEM 2.  PROPERTIES
 
     The following table lists the nursing facilities and assisted and
independent living centers operated by the Company as of April 13, 1999. Except
as indicated all of these facilities are leased.
 
<TABLE>
<CAPTION>
                                                                                     NUMBER OF
                                                                                     LICENSED
                                                                                      BEDS OR
FACILITY NAME                                                     LOCATION             UNITS
-------------                                                     --------           ---------
<S>                                                         <C>                      <C>
Marshall Manor............................................  Guntersville, Alabama         91
Ridgewood Health Care Center..............................  Jasper, Alabama               98
Terrace Lake Village(1)...................................  Guntersville, Alabama         90
The Arbors Health Care Center.............................  Camp Verde, Arizona          118
Douglas Manor.............................................  Douglas, Arizona              64
Los Arcos Health Care Center..............................  Flagstaff, Arizona            80
Peppertree Square(1)......................................  Safford, Arizona              62
Pueblo Norte Nursing Center...............................  Show Low, Arizona            100
Rio Verde Health Care Center..............................  Cottonwood, Arizona           80
Safford Care Center.......................................  Safford, Arizona             128
SunCrest Healthcare Center................................  Phoenix, Arizona             115
Village Catered Care(1)...................................  Douglas, Arizona              62
Amberwood Court Care Center...............................  Denver, Colorado              75
Arkansas Manor............................................  Denver, Colorado             116
Brookshire House..........................................  Denver, Colorado              67
</TABLE>
 
                                       15
<PAGE>   18
 
<TABLE>
<CAPTION>
                                                                                     NUMBER OF
                                                                                     LICENSED
                                                                                      BEDS OR
FACILITY NAME                                                     LOCATION             UNITS
-------------                                                     --------           ---------
<S>                                                         <C>                      <C>
Christopher House.........................................  Wheat Ridge, Colorado         78
Cornerstone Care Center...................................  Lakewood, Colorado           140
Boonville Convalescent Center.............................  Boonville, Indiana           108
Capital Care Healthcare Center(2).........................  Indianapolis, Indiana         60
Cloverleaf of Knightsville................................  Knightsville, Indiana         86
English Estates(2)........................................  Lebanon, Indiana             130
English Senior Living(1)(2)...............................  Lebanon, Indiana              19
Holiday Manor.............................................  Princeton, Indiana            91
Kendallville Manor........................................  Kendallville, Indiana         60
Lockerbie Healthcare Center(2)............................  Indianapolis, Indiana         79
Owensville Convalescent Center............................  Owensville, Indiana           68
Parkview Manor(2).........................................  Indianapolis, Indiana         39
Sunset Manor(2)...........................................  Greencastle, Indiana          79
Wellington Manor..........................................  Indianapolis, Indiana        132
Willow Manor Convalescent Center..........................  Vincennes, Indiana           142
Nightingale West..........................................  Westland, Michigan           236
Colonial Pines............................................  San Augustine, Texas         107
Hemphill Care Center......................................  Hemphill, Texas               90
Heritage Plaza............................................  Texarkana, Texas              90
Homestead of McKinney.....................................  McKinney, Texas              138
Pine Grove Nursing Center.................................  Center, Texas                120
Pine Haven Care Center....................................  Texarkana, Texas             120
Pleasant Manor Living Center..............................  Waxahachie, Texas            120
Reunion Plaza.............................................  Texarkana, Texas             102
South Place Nursing Center................................  Athens, Texas                120
West Place Nursing Center.................................  Athens, Texas                120
                                                                                       -----
Total beds................................................                             4,020
                                                                                       =====
</TABLE>
 
---------------
(1) Assisted living and independent living facilities.
 
(2) RainTree manages these facilities for Omega.
 
     RainTree leases approximately 14,000 square feet of office space in
Scottsdale, Arizona. The Scottsdale office houses the executive offices of
RainTree, and the lease for that space expires in the year 2003. 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 leases an aggregate of
approximately 35,800 square feet of space for outpatient clinics and fitness
centers in Mississippi and Alabama. Ampro leases an aggregate of approximately
12,000 square feet for office and laboratory space in Texas, Tennessee and
Missouri 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 RainTree's leased
properties are adequate for its present needs and that suitable additional or
replacement space will be available as required.
 
     RainTree leases 35 long-term and specialty healthcare facilities and
assisted or independent living centers. RainTree's leases typically are triple
net obligations, have initial terms of 5-15 years with renewal options for up to
10 to 20 years and are classified as operating leases within the meaning of
Statement of Financial Accounting Standards No. 13. RainTree's leases typically
provide for automatic rent increases or repricing. RainTree typically grants its
lessor a security interest in RainTree's personal property at the leased
 
                                       16
<PAGE>   19
 
facility. RainTree's leases are typically entered into by its subsidiaries and
guaranteed by RainTree. Some of the leases require RainTree to maintain a
minimum net worth, expend specified sums per bed for capital expenditures,
maintain certain current ratios and coverage ratios and prohibit RainTree from
operating any additional facilities within a certain radius of the leased
facility. In addition, RainTree is 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, RainTree's interest in the premises is subordinated to that of the
lessor's mortgage lenders.
 
     RainTree's most significant lessors are Omega from which RainTree leases 18
long-term care facilities and American Health Properties from which RainTree
leases six long-term care facilities. The leases typically include cross default
provisions. Covenants in the Omega lease require maintenance of specified
operating ratios, levels of working capital and net worth. The Company was not,
at December 31, 1998, in compliance with the Omega master lease financial
covenants and did not obtain a waiver of the covenant violations. The Company
was in arrears with respect to its obligations under these leases in the
approximate amount of $1.5 million. Under the terms of the Plan, RainTree, on
the Effective Date, paid the past due rent amount and returned six facilities
located in Indiana to Omega. RainTree entered into a new master lease agreement
with Omega related to: (i) the remaining eight facilities currently leased from
Omega; (ii) the three facilities previously leased from BritWill Texas; and
(iii) seven other RainTree facilities pursuant to a sale leaseback transaction.
See "-- Recent Developments" and Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Reorganization."
 
ITEM 3.  LEGAL PROCEEDINGS
 
     RainTree 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
RainTree'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 RainTree's
business. As of December 31, 1998, the Company is not aware of any claims
against RainTree that would have a material adverse effect on RainTree's results
of operations.
 
     On May 28, 1998, RainTree, together with 29 of its subsidiaries, filed
petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy
Court for the District of Arizona (collectively, the "RainTree Debtors"). On
January 7, 1998, the BritWill Debtors (together with the RainTree Debtors, the
"Debtors") filed voluntary petitions for relief under Chapter 11 with the
Bankruptcy Court in the District of Arizona. All 33 cases were procedurally
consolidated for administrative purposes and have been jointly administered
under Case No. 98-06583-PHX-GBN. In November 1998, the Plan was accepted by
RainTree's creditors. Effective January 31, 1999, the Bankruptcy Court confirmed
RainTree's Plan and the Company emerged from bankruptcy.
 
     RainTree is a defendant in seven consolidated securities class action
lawsuits pending in the United States District Court in Phoenix, Arizona (the
"Federal Action"), and a securities class action lawsuit pending in California
Superior Court (the "State Action") (collectively, the "Securities Class
Actions"). The Securities Class Actions arise from the Company's announcement on
March 11, 1997 that it would be restating its financial results for the
nine-month period ended September 30, 1996. A consolidated amended class action
complaint in the Federal Action was filed on January 6, 1998 under the caption
Martin Grossman, et al. v. Unison HealthCare Corporation, et al., USDC No. CIV
97-0583 PHX SMM. The State Action is captioned Jeffrey D. VanDyke v. Cruttenden
Roth, Inc., Wheat First Butcher Singer, Individually and as Representatives of a
Defendant Underwriter Class, and Bruce H. Whitehead, RainTree Healthcare Corp.,
John T. Lynch, Jr., Trouver Capital Partners, L.P., Jerry M. Walker, Phillip R.
Rollins, Craig R. Clark, and Paul J. Contris, Case No. 779111 (Orange County
Sup. Ct.) (filed May 13, 1997). The Federal Action seeks damages for alleged
violations of federal and Arizona state securities laws; the State Action seeks
damages for alleged violations of the California state securities laws. The
broadest class period is that alleged in the Federal Action from December 18,
1995 (the date of the Company's initial public offering) to May 30, 1997.
 
                                       17
<PAGE>   20
 
     The parties in the Federal Action have reached a settlement in principle
that is expected to resolve both the Federal and State Actions in their
entirety, assuming appropriate court approval and acceptance by members of the
class. The settlement includes a cash payment by the Company's primary insurer
amounting to $4.25 million and 1,000,000 shares of old Common Stock. Under the
Plan, old Common Stock was converted into warrants; under the proposed
settlement, class members who are to receive RainTree shares will receive a pro
rata share of such warrants. The settlement was approved by the Bankruptcy Court
on December 30, 1998 and preliminary approval of the settlement was granted by
the district court in the Federal Action on February 24, 1999. A final
settlement approval hearing is scheduled for April 28, 1999.
 
     The Company and certain of its current and former officers and/or directors
were named as defendants in an action styled John D. Filkoski, et al. v. Unison
HealthCare Corporation, et al., filed in Colorado Superior Court on May 27, 1998
(the "Colorado Action"). The Colorado Action alleges causes of action under
Colorado common and statutory law in connection with the Signature Acquisition.
The Colorado Action arises out of the same general nexus of facts as alleged in
the Securities Class Actions described above. The plaintiffs are four former
shareholders of Signature whose Signature shares were acquired in exchange for
cash, notes and common stock on October 31, 1996. Essentially, plaintiffs allege
that the Company's financial statements for the second and third quarters of
1996 contained false and misleading statements that fraudulently induced
plaintiffs into entering into a merger agreement with the Company. Plaintiffs
further allege that the Company failed to perform on certain promissory notes
made in connection with the Signature Acquisition. Plaintiffs seek damages of
approximately $3.2 million in purported actual damages as well as punitive
damages, interest and costs. Plaintiffs were advised that all proceedings
against the Company, including the Colorado Action, were stayed as a result of
the Chapter 11 filing.
 
     On June 24, 1998, plaintiffs voluntarily dismissed the Company from the
Colorado Action. Plaintiffs subsequently filed a second amended complaint, which
did not name the Company but which did charge certain individual defendants with
acts of fraud, negligent misrepresentation and breach of fiduciary duty in their
capacities as current or former officers and/or directors of the Company. The
Company may be required to indemnify and/or advance defense costs to the
individual defendants. The Company has an applicable insurance policy covering
the Colorado Action. Motions to dismiss the Colorado Action for lack of personal
jurisdiction have been filed by the individual defendants (except Jerry M.
Walker) and are pending before the court. Mr. Walker filed a motion to stay the
Colorado Action pending plaintiffs' decision as to whether they will participate
in the settlement of the Securities Class Actions.
 
     On April 24, 1998, an action styled Franciscan Eldercare Corporation, Inc.
v. Sunquest SPC, Inc., Unison HealthCare Corporation, Inc. [sic], Jerry Walker,
Phillip Rollins and Paul Contris was filed in the Circuit Court of the State of
Oregon (County of Multnomah) (Case No. 9801-00050). This action relates to four
nursing facilities that the Company previously leased from Franciscan Eldercare
Corporation ("FEC"). These leases were rejected by RainTree in the Bankruptcy
Court. The action alleges breach of contract, conversion and breach of
promissory note against RainTree and Sunquest SPC, Inc., a RainTree subsidiary,
and breach of guaranty against Messrs. Walker, Rollins and Contris. FEC is
seeking damages from the Company in the amount of at least $1.2 million plus
attorney's fees, interest and costs.
 
     On May 4, 1998, an action styled Healthprime, Inc., HP/Healthcare
Acquirors, Inc., Markleysburg Healthcare Investors, L.P., Marshall Manor
Healthcare Services, Inc., and Lake City Nursing Homes, Inc. v. Unison
HealthCare Corporation and Sunquest SPC, Inc. was filed in the Superior Court of
Fulton County, Georgia (Case No. E.68081). The action alleges breach of contract
related to a nursing facility that the Company previously leased from
Markleysburg Healthcare Investors, Inc. and four nursing facilities that the
Company previously managed on behalf of the plaintiff. The facility lease was
rejected by RainTree in the Bankruptcy Court. Plaintiffs are seeking a judgment
holding that the Company is entitled to no additional management fees relating
to the managed facilities and other unspecified damages. On November 11, 1998,
the Company filed an action in Bankruptcy Court (Unison v. HealthPrime, Inc. et
al., Adversary Proceeding No. 98-808-GBN) seeking to recover management fees
related to these facilities totaling $1.6 million plus interest and attorneys'
fees.
 
                                       18
<PAGE>   21
 
     On December 10, 1998, an action styled American Professional Holdings, Inc.
[sic] v. John L. Maguire, W. Jerome McGee, and Harold N. McKinney was filed in
the Bankruptcy Court (Adversary No. 98-861). American Professional Holding, Inc.
("Ampro"), a wholly owned subsidiary of RainTree, was acquired on October 31,
1996. Messrs. Maguire, McGee and McKinney are former officers, directors and
stockholders of Ampro. The complaint alleges breach of contract related to loans
made by Ampro in June 1996 to the Defendants in the aggregate amount of
$250,000. These loans were due and payable in full on December 15, 1997. The
Company is seeking damages in the amount of $292,674, which represents the
aggregate principal amount of the loans plus accrued interest, and attorneys'
fees and costs. Also on December 10, 1998, an action styled American
Professional Holding, Inc. v. Associated Solutions, Inc. was filed in the
Bankruptcy Court (Adversary No. 98-862). Associated Solutions, Inc. ("ASI") is
an affiliate of Messrs. Maguire, McGee and McKinney. The complaint alleges
breach of contract related to a loan made by Ampro to ASI in March 1996 in the
amount of $600,000. This loan was due and payable in full on December 15, 1997.
The Company is seeking damages in the amount of $781,106, which represents the
principal amount of the loan plus accrued interest, and attorneys' fees and
costs.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
     None.
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's old common stock was 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, Nasdaq moved RainTree's old common stock to
The Nasdaq SmallCap Market, and on April 15, 1998, Nasdaq delisted the old
common stock. The Company did not pay dividends on its old common stock.
 
     On the Effective Date of the Plan, all shares of the Company's old common
stock were cancelled. As of April 9, 1999, approximately 7,593,697 shares of
RainTree new common stock have been issued. As of April 9, 1999 there were
approximately 28 record holders of its Common Stock. As of April 9, 1999, there
was no established public trading market for the new common stock.
 
     RainTree has not paid a common dividend and does not anticipate declaring a
common dividend in the near future. Moreover, the Company's ability to pay
dividends is limited by the Indenture relating to the new Senior Secured Notes,
the Amendment to the Omega Master Lease and the Loan and Security Agreements
with HCFP Funding, Inc.
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The selected financial data presented below is derived from RainTree's
audited financial statements. The Company's historical financial data is not
indicative of future results of operations or financial condition due to the
implementation of fresh start reporting on the Effective Date of the Plan. The
selected financial data set forth below should be read in conjunction with the
Consolidated Financial Statements and notes thereto and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
                                       19
<PAGE>   22
 
<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                        ---------------------------------------------------------
                                         1998(1)     1997(1)     1996(1)      1995        1994
                                        ---------   ---------   ---------   ---------   ---------
                                                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
<S>                                     <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................  $ 184,031   $ 224,366   $ 148,674   $  68,488   $  18,406
Expenses:
  Wages and related...................     99,668     116,137      85,789      35,047       9,593
  Other operating.....................     73,528      84,566      64,771      24,032       6,462
  Rent................................     14,644      16,119      15,658       6,673       1,406
  Interest............................     12,140      20,076       5,824       1,176         147
  Depreciation and amortization.......      8,970       9,974       4,561       1,311         286
  Impairment losses and other
     charges..........................     23,385      27,185       3,865          --          --
                                        ---------   ---------   ---------   ---------   ---------
     Total expenses...................    232,335     274,057     180,468      68,239      17,894
                                        ---------   ---------   ---------   ---------   ---------
Income (loss) from operations.........    (48,304)    (49,691)    (31,794)        249         512
Reorganization expenses...............      5,487          --          --          --          --
                                        ---------   ---------   ---------   ---------   ---------
Income (loss) before income taxes and
  extraordinary charges...............    (53,791)    (49,691)    (31,794)        249         512
Income tax expense (benefit)..........     (9,842)     (2,480)     (8,356)        132         172
                                        ---------   ---------   ---------   ---------   ---------
Income (loss) before extraordinary
  charges.............................    (43,949)    (47,211)    (23,438)        117         340
Extraordinary charge -- early
  extinguishment of debt..............      1,094          --          --          --          --
                                        ---------   ---------   ---------   ---------   ---------
Net income (loss).....................  $ (45,043)  $ (47,211)  $ (23,438)  $     117   $     340
                                        =========   =========   =========   =========   =========
Net income (loss) per share...........  $   (7.01)  $   (7.41)  $   (5.01)  $    0.05   $    0.19
Shares used in per share
  calculation.........................  6,422,096   6,370,834   4,676,037   2,280,213   1,806,164
</TABLE>
 
<TABLE>
<CAPTION>
                                                             AT DECEMBER 31,
                                            --------------------------------------------------
                                              1998       1997        1996      1995      1994
                                            --------   ---------   --------   -------   ------
<S>                                         <C>        <C>         <C>        <C>       <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................  $ 16,863   $   5,295   $ 17,409   $ 6,169   $  306
Working capital (deficit).................    21,152    (151,068)   (13,955)     (927)   1,691
Total assets..............................   170,540     192,167    230,921    81,301    7,468
Total debt................................     8,144     172,797    157,138    26,737    2,623
Liabilities subject to compromise.........   166,870          --         --        --       --
Stockholders' equity (deficit)............   (79,077)    (34,034)    11,689    20,903      736
</TABLE>
 
                                       20
<PAGE>   23
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                           -----------------------------------------------------
                                             1998       1997(1)     1996(1)     1995      1994
                                           ---------   ---------   ---------   -------   -------
<S>                                        <C>         <C>         <C>         <C>       <C>
OTHER DATA:
Skilled nursing facilities(2):
  Number of facilities...................         38          49          54        45        16
  Number of licensed beds................      3,907       4,839       5,455     4,629     1,621
  Patient days...........................  1,282,728   1,524,025   1,203,655   581,410   112,727
Assisted living facilities(2):
  Number of facilities...................          4           6           6         3         2
  Number of units........................        233         325         325       229       104
Sources of patient revenues:
  Medicare...............................       28.5%       32.1%       29.5%     26.9%      9.1%
  Private pay............................       16.3        16.2        17.0      17.2      32.4
                                           ---------   ---------   ---------   -------   -------
     Quality mix.........................       44.8        48.3        46.5      44.1      41.5
  Medicaid...............................       55.2        51.7        53.5      55.9      58.5
                                           ---------   ---------   ---------   -------   -------
     Total...............................      100.0%      100.0%      100.0%    100.0%    100.0%
                                           =========   =========   =========   =======   =======
</TABLE>
 
---------------
(1) All acquisitions that occurred in 1995 and 1996, except for the merger with
    Ampro, are reflected from the date of each acquisition in the historical
    operating results of the Company.
 
(2) Number of facilities, beds and units are expressed at end of period.
 
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", "-- Reorganization" and
"-- Risks and Uncertainties."
 
     The following material should be read in conjunction with RainTree's
Consolidated Financial Statements and related notes thereto for the years ended
December 31, 1998, 1997 and 1996. All references in this discussion and analysis
to years are to fiscal years ended December 31 of such year.
 
SIGNIFICANT EVENTS
 
     - In 1998, RainTree and its subsidiaries filed for reorganization under
       Chapter 11 of the federal bankruptcy laws. RainTree's Plan of
       Reorganization was confirmed and the Company emerged from bankruptcy on
       January 31, 1999. See "-- Reorganization".
 
     - RainTree disposed of 12 long-term care facilities in 1998 and an
       additional seven facilities in January 1999 in connection with the
       Company's restructuring.
 
     - For the year ended December 31, 1998, RainTree recorded a net loss of
       $45.0 million compared to net losses of $47.2 million in 1997 and $23.4
       million in 1996. See "-- Results of Operations".
 
REORGANIZATION
 
     In 1998, RainTree's operating results and financial condition continued to
be negatively impacted by a number of factors, including cash flow difficulties,
increased costs due to acquisitions and rising litigation costs. Throughout 1997
and 1998, the Company's cash flows from operations and its available capital
were insufficient to meet its operating expenses, lease obligations and debt
service requirements. These problems culminated in Chapter 11 bankruptcy
proceedings in 1998. When RainTree filed for bankruptcy, it was in breach and in
default of the terms of material operating leases and indebtedness.
 
                                       21
<PAGE>   24
 
     The risks associated with the Company's historic acquisition strategy
negatively impacted RainTree's financial performance. A key element of
RainTree's business strategy during 1995 and 1996 was to expand through the
acquisition of new or existing long-term and specialty healthcare facilities and
the acquisition or development of ancillary healthcare businesses or services.
As a result of acquisitions, the Company was faced with unforeseen contingencies
affecting its new businesses including increased costs due to integrating the
acquired operations into the overall enterprise. For example, difficulties in
integrating acquired facilities with RainTree's financial reporting and
management information systems were a substantial factor contributing to the
need to restate RainTree's financial statements for the nine months ended
September 30, 1996. The Company's financial reporting and management information
systems were not adequate for its increased and more complex needs. Those system
difficulties then contributed to the operating inefficiencies that led to the
unexpected losses for that period and subsequent periods.
 
     Additionally, the number of lawsuits initiated against the Company grew as
its financial difficulties worsened, including suits with vendors, landlords and
several class action lawsuits (which also involved certain of the Company's
former directors and officers (among others) as named defendants). Such class
action complaints generally asserted that the defendants knew, or were reckless
in not knowing, that RainTree's results for the first nine months of 1996 were
materially overstated, or misrepresented the capability of RainTree's internal
accounting systems to reliably record and reflect its financial condition, among
other things. See Item 3, "Legal Proceedings".
 
     In 1997, RainTree began work on a plan designed to: (i) reduce its costs of
capital and operating expenses in order to improve operating results and cash
flows; (ii) provide short-term and long-term liquidity; and (iii) restructure
its balance sheet. The Company sought to: (a) reduce controllable costs; (b)
refinance the mortgage on six facilities owned and operated by the Company (the
"Mortgage Note"), the proceeds of which would be used for debt service and
working capital; and (c) obtain a new asset-backed revolving line of credit.
RainTree also attempted to restructure its lease agreements with Omega related
to 26 nursing facilities operated by the Company in Texas and Indiana. As a
result of the Company's continuing losses, it was not in compliance with certain
financial covenants contained in the Omega leases.
 
     In November 1997, RainTree announced that it had been unable to complete a
refinancing of the Mortgage Note, and was therefore unable to make the scheduled
$6.7 million interest payment on its 12 1/4% Senior Notes. On December 1, 1997,
RainTree completed the private placement of its $20.0 million 13% Senior Notes.
The proceeds from the sale were used to make the interest payment on the 12 1/4%
Senior Notes and for working capital.
 
     Despite the sale of the 13% Senior Notes, the Company lacked sufficient
liquidity to meet all of its short-term and long-term debt service and capital
requirements. The Company was also unable to reach an agreement with Omega with
respect to a restructuring of the terms of the Omega leases. On January 7, 1998,
the BritWill Debtors, with operations in Texas and Indiana, filed for protection
under Chapter 11 of the federal bankruptcy laws. The Chapter 11 filings were
necessitated by actions taken by Omega to terminate or otherwise enforce the
terms of its lease agreements with the Company.
 
     In 1998, the Company continued to work to develop a plan to achieve a
viable capital structure, including a consensual restructuring of its debt and
lease obligations and the disposition of unprofitable facilities. On May 28,
1998, RainTree and 29 of its subsidiaries filed petitions for reorganization
under Chapter 11 of the federal bankruptcy laws.
 
     In June 1998, RainTree reached an agreement in principle (the "Term Sheet")
with respect to a restructuring of the Company's debt and equity with Omega and
the Ad Hoc Committee. The Company also obtained a continuation of its accounts
receivable-backed line of credit with HealthCare Financial Partners ("HCFP") in
the amount of $11.0 million (the "HCFP DIP Facility"), which was used by
RainTree for working capital needs during the Chapter 11 process. RainTree did
not at that time reach an agreement with Messrs. Kremser and Whitehead,
shareholders and former directors to whom the Company has various debt
obligations. The Term Sheet formed the basis for the Company's Plan of
Reorganization, which was filed with the Bankruptcy Court on August 10, 1998.
The Term Sheet expired on September 30, 1998. On October 16, 1998, RainTree
filed an amended Plan of Reorganization with the Bankruptcy Court. The Plan was
supported
 
                                       22
<PAGE>   25
 
by Omega and the Official Committee of Unsecured Creditors but not the Ad Hoc
Committee. Nevertheless, in November 1998, RainTree obtained the requisite
number of votes from its creditors to approve the Plan. Effective January 31,
1999, the Bankruptcy Court confirmed the Plan, as modified, and RainTree emerged
from bankruptcy. The significant provisions of the Plan are as follows.
 
     - All of RainTree's common stock was cancelled on the Effective Date. As
       described below, RainTree will issue up to 8,000,000 new common shares
       (the "New Common Stock"). As of April 9, 1999, RainTree had issued
       7,593,697 shares of New Common Stock. RainTree will also issue up to $26
       million of new debt securities (the "Senior Secured Notes") in
       satisfaction of bankruptcy claims. The Senior Secured Notes bear interest
       at 11.0%, will mature four years from the Effective Date, and are secured
       by the stock and personal property of certain RainTree subsidiaries.
 
     - On December 31, 1998, Omega purchased seven facilities owned and operated
       by RainTree for a purchase price of $38.2 million. The facilities were
       then leased back to RainTree (the "Sale Leaseback"). A portion of the
       proceeds were used to (i) repay the Mortgage Note amounting to
       approximately $19,335, including a prepayment penalty and (ii) exercise
       the Company's option to purchase The Arbors Health Care Center for
       approximately $3.2 million. The Arbors facility was included in the Sale
       Leaseback. The remaining proceeds from the sale were held in escrow until
       the Effective Date, when they were used to settle bankruptcy claims as
       provided for in the Plan and described below. Omega received closing
       costs, financing fees and reimbursement of expenses in the amount of $1.0
       million. These seven facilities and eleven other facilities leased from
       Omega and BritWill Texas were combined into a single master lease (the
       "Omega Master Lease"). RainTree realized no gain or loss on the Sale
       Leaseback, which was accounted for as a financing transaction.
 
     - Six leased facilities were returned to Omega and three BritWill Texas
       facilities that RainTree disposed of in March 1997 via a sublease
       agreement are excluded from the Master Lease. In return, Omega received
       $2.0 million in cash, a seven-year, $3.0 million promissory note bearing
       interest at 7.0%, and a guarantee by RainTree that supersedes and
       replaces all previous guarantees of BritWill Texas obligations. RainTree
       also paid to Omega, in cash, prepetition rent payments and other
       obligations in the amount of approximately $2.1 million.
 
     - In settlement of approximately $15.8 million of allowed claims, the
       Whitehead Affiliates received $541,000 in cash, unsecured promissory
       notes amounting to $1.5 million, Senior Secured Notes amounting to
       approximately $292,000 and approximately 729,000 shares of New Common
       Stock. The promissory note bears interest at 9.0%, payable quarterly, and
       the principal amount will be due and payable at the end of four years.
 
     - In settlement of approximately $5.4 million of allowed claims, the
       Kremser Affiliates received $541,000 in cash and a promissory note
       amounting to approximately $1.4 million. The promissory note bears
       interest at 9.0%, payable quarterly, and the principal amount will be due
       and payable at the end of five years.
 
     - Convenience Claims, defined in the Plan as payables due to general
       unsecured creditors amounting to $1,000 or less (or $2,000 or less whose
       holders elect to reduce their claims to $1,000), were paid in cash.
       RainTree paid approximately $520,000 to settle Convenience Claims.
       Essential Vendor Claims, defined in the Plan as payable to vendors deemed
       essential to the continued operation of RainTree's business, were paid in
       cash in the aggregate amount of approximately $2.5 million.
 
     - Trade Unsecured Claims are defined in the Plan as payables to other trade
       vendors. As of the date of this Report, RainTree was in the process of
       settling or objecting to Trade Unsecured Claims and other general
       unsecured claims. Each holder of a Trade Unsecured Claim will receive, in
       cash, the lesser of 35% of the allowed amount of the claim or a pro rata
       portion of $1.4 million, plus shares of New Common Stock. The total
       amount of Trade Unsecured Claims was approximately $3.4 million.
 
     - All other general unsecured creditors will share pro rata in
       approximately 91% of the New Common Stock and the Senior Secured Notes. A
       subordination agreement related to the 13% Senior Notes resulted in a
       reallocation among the holders of the 13% Senior Notes and those holders
       of the 12 1/4%
 
                                       23
<PAGE>   26
 
Senior Notes who had consented to the subordination agreement (the "Consenting
Noteholders"). As a result of this reallocation, the holders of the 13% Senior
Notes received Senior Secured Notes equal to 100% of their allowed claims ($22.1
      million) and the Consenting Noteholders received only New Common Stock
      totaling 6.3 million shares. The holders of 12 1/4% Senior Notes who did
      not consent to the subordination agreement received Senior Secured Notes
      totaling $1.8 million and approximately 522,000 shares of New Common
      Stock. The aggregate amount of these general unsecured claims was
      approximately $137.5 million.
 
     - Secured claims included the Mortgage Note, the HCFP DIP Facility, claims
       of Omega, property tax liabilities and other secured loans. Secured
       claims were either: (i) paid in cash on the Effective Date; (ii) the
       liability was continued in accordance with its original terms after
       defaults, if any, were cured; or (iii) the collateral securing such
       liability was returned to the creditor in full satisfaction of the claim.
       The aggregate amount of secured claims was approximately $34.7 million.
 
     - RainTree's former stockholders will share pro rata in the issuance of
       warrants to purchase approximately 400,000 shares of New Common Stock.
 
     - On the Effective Date, RainTree obtained a new $12.0 million line of
       credit from Health Partners that replaced the HCFP DIP Facility. See
       "-- Liquidity and Capital Resources."
 
IMPACT OF FRESH START REPORTING
 
     When RainTree emerged from bankruptcy, it adopted fresh start reporting in
accordance with Statement of Position 90-7 of the American Institute of
Certified Public Accountants ("SOP 90-7"). Under fresh start reporting, the
reorganization value of RainTree has been allocated to its assets and
liabilities on a basis substantially consistent with purchase accounting. The
portion of reorganization value not attributable to specific intangible assets
has been recorded as "Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets". Certain fresh start adjustments, primarily related to the
adjustment of the Company's assets and liabilities to fair market values, will
have a significant effect on RainTree's future results of operations. The more
significant adjustments relate to increased depreciation expense on property and
equipment and reduced amortization expense on intangible assets.
 
     As of the Effective Date, Reorganized RainTree recorded total assets of
$135.6 million, total debt and lease financing obligations of $71.4 million and
stockholders' equity of $21.0 million. See Note 2 of Notes to Consolidated
Financial Statements for further detail regarding fresh start reporting.
 
RISKS AND UNCERTAINTIES
 
     The restructuring of RainTree involves a degree of risk, and this
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. Reorganized RainTree's actual results could differ materially
from those anticipated in such forward-looking statements as a result of a
variety of factors, including those set forth in the following risk factors and
elsewhere in this Report.
 
     Successful Implementation of Turnaround.  As part of RainTree's turnaround
plan, the Company is focusing on its core business of providing patient care
while controlling costs. However, RainTree's occupancy levels at its facilities
were adversely affected by negative perceptions due to the Company's bankruptcy
and the associated uncertainty regarding the Company's future viability as a
going concern. Therefore, average occupancy for the Company's nursing facilities
decreased from approximately 83.5% in 1997 to 80.4% in 1998. The successful
implementation of the Company's business strategy includes improving its image
with patients, vendors and other parties.
 
     The Company has continued to experience losses while operating in Chapter
11. If the Company is not successful in attracting new patients and reversing
this trend, it will not be able to implement its strategies without additional
financing (which may not be available) and any improvement in the Company's
results of operations would not materialize. If the Company is not successful in
fully implementing its business strategy, it is less likely that the trends of
negative earnings will be reversed which, in turn, would have an adverse affect
                                       24
<PAGE>   27
 
on the availability of cash and other financial resources necessary for the
implementation of the Company's business strategy. Further, if the
implementation of the strategy is not successful and the Company is unable to
generate sufficient operating funds to pay the interest on the Senior Secured
Notes and fund its other capital requirements, there can be no assurance that
alternative sources of financing would be available to the Company or, if
available, that such financing would be on commercially reasonable terms. If it
becomes necessary for the Company to raise capital in addition to the amounts
permitted to be raised by the Indenture, the Company would be limited in such
efforts by the terms of the Indenture.
 
     Noncomparability of Financial Information.  Information reflecting the
results of operations and financial condition of the Company since the Effective
Date is not comparable to prior periods due to: (i) the disposition of certain
facilities; (ii) the costs and expenses relating to the Company's bankruptcy
case and the impact of the restructuring or extinguishment of certain interests
and liabilities; and (iii) the application of Fresh Start Reporting. Under Fresh
Start Reporting, the Company's assets have been stated at "reorganization
value," which is defined as the value of the entity (before considering
liabilities) on a going -- concern basis following the reorganization and
approximates the amount a willing buyer would pay for the assets of the Company
immediately after the reorganization. Accordingly, there is only limited
financial and operating history of the Company to evaluate.
 
     Dependence on Management and Skilled Personnel.  RainTree depends upon the
active involvement of its senior managers, including its executive officers. The
loss of one or more of such officers could have a material adverse effect on the
Company's results of operations and its efforts to rebuild its financial health.
RainTree's business strategy also depends on its ability to attract and retain
qualified clinical management and other personnel. RainTree competes with
general acute care hospitals, rehabilitation facilities, nursing homes,
ambulatory care facilities and other healthcare providers for the services of
physicians, registered nurses, therapists and other clinical personnel. Such
clinical personnel are in high demand and are often subject to competing offers.
There can be no assurance that RainTree will be able to attract and retain the
qualified personnel necessary for its business. See Item 10, "Directors and
Executive Officers".
 
     Reliance on Reimbursement from Government Sources.  In 1998 and years
prior, RainTree was 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 was 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, RainTree's costs for the care delivered to Medicare patients
in certain of its nursing facilities have exceeded the routine cost limits.
RainTree has submitted to HCFA various requests for exceptions to the Medicare
routine cost limit for reimbursement. As of December 31, 1998, approximately
$5.0 million of receivables related to RCL exception revenues remain subject to
audit and final approval by the fiscal intermediary. Although RainTree believes
that it will recover these routine cost limit exceptions, failure to recover
excess costs could adversely affect the Company's results of operations.
 
     Governmental payors and their paying agencies and private third-party payor
sources have instituted cost containment measures of various kinds designed to
limit payments made for long-term care and ancillary services, and there can be
no assurance that future measures will not materially and adversely affect
reimbursement to the Company. Revenues received from the Medicare program for
services provided in RainTree's facilities represented approximately 28.5% of
RainTree's 1998 long-term care revenues. The Medicare program is subject to
statutory and regulatory changes, retroactive and prospective rate adjustments,
complex reimbursement audits, paying agency discretion and interpretations,
administrative rulings and funding restrictions, all of which could have the
effect of limiting or reducing reimbursement levels for RainTree's services. Any
significant decrease in Medicare reimbursement levels, or imposition of
significant restrictions on participation in the Medicare program, could have a
material adverse effect on RainTree. There can be no assurance that the
Company's facilities will continue to satisfy the requirements for participation
in the Medicare program.
 
     Revenues received from state Medicaid programs for services provided in
RainTree's facilities represented approximately 55.2% of the Company's 1998
long-term care revenues. RainTree's facilities are subject
 
                                       25
<PAGE>   28
 
to risks of changes in Medicaid reimbursement and payment delays resulting from
budgetary shortfalls of state Medicaid programs. Many states have enacted or are
considering enacting measures that are designed to reduce their Medicaid
expenditures and to make certain changes to private healthcare insurance. There
are also a number of legislative proposals including cost caps and the
establishment of Medicaid prospective payment systems for nursing facilities.
See "-- Risks and Uncertainties -- Health Care Reform".
 
     Health Care Reform.  The Balanced Budget Act, signed into law on August 5,
1997, is intended to reduce Medicare payments by $115 billion over the next five
years and makes numerous changes to Medicare and Medicaid programs. The Balanced
Budget Act mandates the establishment of the prospective payment system for
Medicare skilled nursing facility services, under which facilities will be paid
a fixed fee for virtually all covered services. PPS will be phased in over a
four-year period, effective for the Company's facilities beginning January 1,
1999. During the first three years, payments will be based on a blend of the
facility's historical costs and calculated federal rates. Thereafter, the per
diem rates will be based 100% on federal rates, adjusted for inflation and
geographical data. In addition, effective January 1, 1999, there will be an
annual per-patient cap of $1,500 on reimbursement for combined Part B and
outpatient physical and speech therapy services and an annual cap of $1,500 on
reimbursement for combined Part B and outpatient occupational therapy services.
RainTree estimates that its average daily Medicare rate in 1999 under PPS will
be approximately 18% lower than its average daily Medicare rate in 1998. The
Company anticipates that these revenue decreases may be substantially mitigated
by reduced costs negotiated with therapy and pharmacy suppliers, as well as
increased lengths of stay resulting from less intensive levels of therapy
services provided.
 
     PPS is expected to negatively impact RainTree's pharmacy revenues as a
result of lower rates negotiated with its nonaffiliated nursing facility
customers. The Company has taken steps to reduce its pharmacy cost of goods sold
through the use of "formularies", which are standard menus of drugs and other
pharmacy products. By reducing the number of different products offered,
RainTree expects that it can negotiate better pricing with its suppliers.
Additionally, the formulary will include more generic drugs that can be obtained
at lower prices than name brand drugs. While the Company will continue to supply
any drug required, it expects that most physicians will cooperate in an effort
to reduce costs.
 
     RainTree's success under PPS will depend upon its ability to manage the
costs of caring for high acuity Medicare patients. However, although the Company
believes that PPS will provide opportunities for efficiently operated, low cost
providers, there can be no assurance that RainTree will be successful in keeping
its costs of services below the PPS rates.
 
     The Balanced Budget Act also contains changes to the Medicaid program, the
most significant of which is the repeal of the Boren Amendment. The Boren
Amendment required state Medicaid programs to pay rates that are reasonable and
adequate to meet the costs that must be incurred by a nursing facility in order
to provide care and services in compliance with applicable standards. Since
October 1, 1997, states have had more flexibility in establishing payment rates.
Indiana changed its Medicaid program to a prospective payment system effective
October 1, 1998 and Colorado is expected to follow in 1999. The Company does not
believe that the change in Indiana's reimbursement system will materially
negatively impact RainTree's results of operations or financial condition, and
RainTree has not determined the impact the change in Colorado's system will have
on its results of operations. RainTree is unable to predict whether any other
states will change their reimbursement policies and, if so, what effects such
changes would have on the Company. There can be no assurance that any changes to
the Medicaid program will not have a material adverse impact on the Company.
 
     In an attempt to limit the federal budget deficit, there have been, and
RainTree expects that there will continue to be, a number of other proposals to
limit Medicare and Medicaid payments for services. RainTree cannot predict
whether any of these proposals will be adequate to reimburse RainTree for the
cost of providing services. In addition, cost increases due to inflation without
corresponding increases in reimbursement would adversely affect the Company's
business.
 
     Extensive Government Regulations.  The operation of skilled nursing
facilities is subject to federal, state and local laws relating to, among other
things, the number of beds, the provision of ancillary services, the adequacy of
medical care, distribution of pharmaceuticals, equipment, personnel, operating
policies, fire
 
                                       26
<PAGE>   29
 
prevention and compliance with building codes, as well as those relating to
other business, such as those mandating fair employment practices and
prohibiting damage to the environment. Skilled nursing facilities are also
subject to periodic inspection by governmental and other authorities to assure
compliance with various standards and to maintain continued licensing under
state law and certification under the Medicare and Medicaid programs. Although
the Company generally has been able to secure necessary approvals or licenses in
the past, it voluntarily closed one facility in 1996 and one in 1997 due to
violations of Medicare regulations. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect RainTree's ability to
offer existing or additional services, to receive Medicaid or Medicare payments,
and to expand the scope of its operations, any of which could materially
adversely affect the Company's business. See Item 1,
"Business -- Operations -- Quality Management".
 
     In May 1996, HCFA announced the first year results of its "Operation
Restore Trust" initiative, designed to combat Medicare and Medicaid fraud, waste
and abuse by home health agencies, nursing homes and durable medical equipment
suppliers. Operation Restore Trust originally focused on five states and is now
extended to all states and is focused on problems with claims for services not
rendered or not provided as claimed and claims falsified to circumvent coverage
limitations on medical supplies. In addition, HCFA certification, survey and
enforcement regulations impose significant burdens on long-term care facilities.
The regulations may require state survey agencies to take aggressive enforcement
actions, such as imposing fines, decertifying facilities, banning admissions or
revoking necessary licenses and closing facilities. Additional remedies are
available. There can be no assurance that these rules, or future rules or
legislation, will not have a material adverse affect on the Company.
 
     Competition for Patients and Employees.  The industries in which RainTree
operates are highly competitive. RainTree competes 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, both for patients and for nurses and other key
personnel. Many of these companies have greater financial and other resources
than RainTree. A number of states in which RainTree operates do not have
"certificate of need" or similar laws restricting the construction of competing
facilities. No assurance can be given that RainTree will have the resources to
compete successfully with such companies.
 
     Impact of the Year 2000 Issue.  Some of RainTree's information systems have
time-sensitive software that will not properly recognize the year 2000. Based on
an on-going assessment, the Company has determined that it will be required to
modify or replace significant portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. RainTree believes that with modifications to existing software and
conversions to new software, the Company will be year 2000 ready by the end of
1999 and the year 2000 issue will not pose significant operational problems for
its computer systems.
 
     RainTree is in the process of completing a detailed inventory and analysis
of computer hardware, software and operating systems. The Company will utilize
both internal and external resources to reprogram, or replace, and test the
hardware and software for year 2000 readiness. The scope of the year 2000
project also encompasses consideration of potential impacts on the Company's
business operations. The Company is reviewing internal business operations and
relationships with external business partners to assess the current level of
compliance. The next step is to perform testing and develop contingency plans
with the goal of achieving year 2000 readiness by September 1999.
 
     During 1998 and the first quarter of 1999, RainTree replaced substantially
all of its computer equipment in connection with implementation of the Plan. The
Company believes the new equipment is year 2000 compliant. The Company estimates
that the incremental cost to upgrade existing software to make it year 2000
compliant will not exceed $150,000.
 
     RainTree has initiated formal communications with significant suppliers and
payors to determine the extent to which the Company's systems and operations are
vulnerable to those third parties' failure to remediate their own year 2000
issues. Examples of such issues include, but are not limited to, electronic
interfaces with external agents such as payors, suppliers and banks. The ability
of third parties with which RainTree transacts business to adequately address
their year 2000 issues is outside the Company's control. Although RainTree will
seek to replace any of its current vendors who are unable to become year 2000
ready
 
                                       27
<PAGE>   30
 
in a timely manner, there can be no assurance that the Company's operations will
not be adversely affected by the ability of third parties, including the federal
and state governments on which RainTree's operations rely, to also manage the
year 2000 issue.
 
     The Company will continue to assess each of its systems and their year 2000
readiness. At this time, the Company believes that appropriate actions are being
taken and expects to complete its overall year 2000 remediation prior to any
anticipated impact on its operations. However, there can be no assurance that
these assumptions will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, third party modification plans and similar uncertainties.
 
RESULTS OF OPERATIONS
 
     The following table summarizes selected operating statistics.
 
<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,
                                                              -----------------------
                                                              1998     1997     1996
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Leased/Owned Facilities:
  Number of facilities......................................     42       54       57
  Number of licensed beds:
     Long-term care.........................................  3,907    4,768    5,145
     Assisted and independent living........................    233      325      325
Managed facilities:
  Number of facilities......................................     --        1        3
  Number of licensed beds...................................     --       71      310
Institutional Pharmacies:
  Number of outlets.........................................      2        2        2
  Nonaffiliated entities served.............................     34       58       42
Laboratory Services:
  Number of laboratories....................................      3        3        3
  Nonaffiliated entities served.............................    300      275      295
Therapy Services:
  Nonaffiliated entities served.............................    145      115       55
</TABLE>
 
     The following table identifies RainTree's sources of revenues.
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                               1998      1997      1996
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Operating revenues:
  Long-term care............................................   76.4%     77.0%     81.0%
  Therapy services..........................................   12.5      13.9       8.9
  Pharmacy services.........................................    8.2       6.3       5.7
  Laboratory services.......................................    2.9       2.8       4.4
                                                              -----     -----     -----
          Total.............................................  100.0%    100.0%    100.0%
                                                              =====     =====     =====
</TABLE>
 
     RainTree'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 the
Company's ancillary services. Medicare patients have historically generated 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 the
Company than governmental reimbursement sources. RainTree generally derives a
higher profit margin from ancillary services than from basic nursing services.
 
                                       28
<PAGE>   31
 
     Data for nursing center operations with respect to sources of net patient
revenues by payor type and average occupancy are set forth below (long-term care
only).
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                              --------------------------
                                                               1998      1997      1996
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
SOURCE OF REVENUES
Medicare....................................................   28.5%     32.1%     29.5%
Private and other...........................................   16.3      16.2      17.0
                                                              -----     -----     -----
          Quality mix.......................................   44.8      48.3      46.5
Medicaid....................................................   55.2      51.7      53.5
                                                              -----     -----     -----
          Total.............................................  100.0%    100.0%    100.0%
                                                              =====     =====     =====
AVERAGE OCCUPANCY
Nursing facilities..........................................   80.4%     83.5%     78.3%
Independent and assisted living facilities..................   59.8      49.6      69.4
</TABLE>
 
  Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
 
     For the year ended December 31, 1998, RainTree recorded a net loss of $45.0
million, or $7.01 per share, compared to a net loss of $47.2 million, or $7.41
per share, for 1997. Loss from operations amounted to $48.3 million in 1998
compared to $49.7 million in 1997. In 1998, the Company recorded impairment
losses and other charges in the amount of $23.4 million compared to $27.2
million in 1997.
 
     Revenues.  Total operating revenues decreased by 18.0% to $184.0 million in
1998 from $224.4 million in 1997. The decrease is primarily due to revenues from
patient services, which decreased from $221.1 million in 1997 to $182.5 million
in 1998. Patient days decreased from 1.5 million in 1997 to 1.3 million in 1998.
Of the decrease in net patient service revenues, approximately $21.4 million is
attributable to the disposition of long-term care facilities. Therapy company
revenues decreased by approximately $8.1 million due to a decrease in management
fee revenue and the impact of the new Medicare salary equivalency rules. See
Item 1, "Business -- Government Regulation -- The Medicare Program." Pharmacy
revenues increased by approximately $815,000. The balance of the decrease in
patient service revenues was due to nursing and assisted living facility
operations, which experienced declines in occupancy and quality mix (the
percentage of revenues from Medicare and private pay sources) in 1998. The
decrease in quality mix and occupancy in 1998 was due primarily to the negative
perception of RainTree as a result of the bankruptcy filings. See "-- Risks and
Uncertainties -- Successful Implementation of Turnaround."
 
     RainTree recorded reductions to 1998 fourth quarter revenues in the
aggregate amount of $5.0 million. These adjustments followed the routine audit
of RainTree's 1996 and 1997 Medicare cost reports by the fiscal intermediary.
Although RainTree intends to appeal the decision by the intermediary to disallow
certain costs for reimbursement purposes, the Company recorded adjustments to
its third-party receivables.
 
     Wages and related.  Wages and related expenses decreased 14.2% from $116.1
million in 1997 to $99.7 million in 1998. Of this decrease, approximately $11.6
million is due to the disposition of facilities. Wages and related expenses of
the corporate and regional offices decreased by approximately $3.0 million from
1997 to 1998. The balance of the decrease is due primarily to cost controls at
the long-term care facilities and the ancillary companies. Wages and related
expense as a percentage of revenues amounted to 51.8% in 1997 and 54.2% in 1998.
 
     Other operating.  Other operating expenses decreased 13.1% from $84.6
million in 1997 to $73.5 million in 1998. Of this decrease, approximately $8.2
million is due to the disposition of facilities. Other operating expenses of the
corporate and regional offices decreased by $3.5 million. The provision for
doubtful accounts increased from $2.0 million in the 1997 period to $6.2 million
in the current period. The increase is due primarily to: (i) increased scrutiny
of Medicare claims by the Company's fiscal intermediaries, resulting in payment
delays and increase in the age of these receivables; (ii) accounts receivable of
acquired companies that have been determined to be uncollectible; (iii) an
increase in other patient accounts receivable that have
 
                                       29
<PAGE>   32
 
been determined to be uncollectible; and (iv) a reserve for notes receivable
from former affiliates of Ampro. See Item 3, "Legal Proceedings". The balance of
the decrease in other operating expenses is due primarily to cost controls in
the long-term care facilities. Other operating expenses as a percentage of
revenues amounted to 40.0% in 1998 and 37.7% in 1997.
 
     Rent.  Rent expense decreased 9.2% from $16.1 million in 1997 to $14.6
million in 1998. The decrease is due to the disposition of facilities. Rent
expense as a percentage of revenues was 8.0% in the current period compared to
7.2% in the prior year period.
 
     Interest.  Interest expense amounted to $12.1 million in 1998 compared to
$20.1 million in 1997. In accordance with SOP 90-7, the Company did not accrue
interest on unsecured, prepetition debt during the Chapter 11 proceedings. Had
RainTree accrued all contractual interest, its interest expense for 1998 would
have been $23.1 million.
 
     Depreciation and amortization.  Depreciation and amortization expense
decreased from $10.0 million in 1997 to $9.0 million in 1998. The decrease is
due primarily to the disposition of facilities, net of depreciation on 1998
capital expenditures. Depreciation and amortization expense as a percentage of
revenues was 4.4% in 1997 and 4.9% in 1998.
 
     Impairment losses and other charges.  For the years ended December 31, 1997
and 1998, RainTree evaluated its long-lived assets, including property and
equipment, goodwill, lease operating rights and other intangible assets, for
impairment in accordance with 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"). These tests were triggered by the
Company's facility disposition plans and the bankruptcy. RainTree estimated the
undiscounted net cash flows from all business units and determined that the
carrying value of certain the Company's long-lived assets exceeded such
undiscounted cash flows. Accordingly, RainTree then compared the fair value of
the assets based on the present value of the estimated future cash flows for the
facilities with the carrying value. The future cash flows were estimated based
on: (i) the remaining weighted average useful lives of the assets; (ii) earnings
history; (iii) a discount rate commensurate with the risks involved and market
conditions; and (iv) assumptions reflecting internal operating plans and
strategies. RainTree 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 $27.2 million in 1997 and $23.4 million in 1998.
 
     Reorganization expenses.  Reorganization expenses amounted to approximately
$5.5 million in 1998. Reorganization expenses are comprised primarily of
professional fees related to the bankruptcy proceedings and the Company's
restructuring.
 
     Income tax benefit.  RainTree recorded income tax benefits of $9.8 million
in 1998 and $2.5 million in 1997. The effective rates of 17.9% in 1998 and 5.0%
in 1997 are lower than the federal statutory rate of 34% as a result of a
valuation allowance established against the Company's deferred tax benefits.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), requires a "more likely than not" criterion be applied
when evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes and certain other factors, the Company
has established a valuation allowance principally for the portion of its
deductible temporary differences, including net operating loss carryforwards
that may not be available due to expirations or other limitations after
consideration of net reversals of future taxable and deductible amounts. After
application of the valuation allowance, RainTree's net deferred tax assets and
liabilities are zero as of December 31, 1998.
 
     Management has determined that its net operating loss carryforwards
amounting to $51.9 million will be subject to substantial reduction in
realizability in future periods. Specifically, the Internal Revenue Service Code
provides that in a Chapter 11 bankruptcy case, income normally arising from the
discharge of indebtedness is excluded from taxable income. However, to the
extent that income from discharge of indebtedness is excluded from income,
taxpayers must reduce specified tax attributes, which include net operating
losses. The Company anticipates that, in connection with the implementation of
the Plan, its net operating losses will be substantially reduced as a result of
the restructuring of its debt obligations. In addition,
 
                                       30
<PAGE>   33
 
the Company may have had a statutory ownership change (as defined for purposes
of Section 382 of the Internal Revenue Code) as a result of the effectiveness of
the Plan. Accordingly, those net operating losses that may remain available as a
result of the income tax implications of the attribute reduction may be
restricted.
 
     If the Company, in future tax periods, were to recognize tax benefits
attributable to tax attributes of the Company prior to the Effective Date of the
Plan (such as net operating loss carryforwards), any such benefit would be
applied to reduce the balance of reorganization value in excess of amounts
allocable to identifiable assets rather than income tax expense.
 
     Extraordinary charge -- early extinguishment of debt.  The extraordinary
charge recorded in 1998 represents a prepayment penalty related to the Mortgage
Note that was repaid in connection with the Sale Leaseback transaction.
 
  Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
 
     For the year ended December 31, 1997, RainTree recorded a net loss of $47.2
million, or $7.41 per share, compared to a net loss of $23.4 million, or $5.01
per share, for 1996. Loss before income taxes amounted to $49.7 million in 1997
compared to $31.8 million in 1996. In 1997, the Company recorded impairment
losses and other charges related to the planned disposition of facilities in the
amount of $27.2 million compared to $3.9 million in 1996. The increased loss in
1997 is also attributable to interest expense, which increased from $5.8 million
in 1996 to $20.1 million in 1997, and depreciation and amortization expense,
which increased from $4.6 million in 1996 to $10.0 million in 1997.
 
     Revenues.  Total operating revenues increased by 50.9% to $224.4 million in
1997 from $148.7 million in 1996. The increase is primarily due to revenues from
patient services, which increased from $146.4 million in 1996 to $222.1 million
in 1997. Patient days increased from 1.2 million in 1996 to 1.5 million in 1997.
Of the increase in net patient service revenues, approximately $44.9 million is
attributable to 1996 long-term care facility acquisitions, including the
Signature acquisition on October 31, 1996, net of a $5.9 million decrease
attributable to the disposition of three nursing facilities on March 1, 1997.
The growth of the pharmacy and therapy companies accounted for an increase in
revenues of approximately $23.3 million. The balance of the increase in revenues
was produced by nursing and assisted living facility operations, which achieved
increases in quality mix and average occupancy in 1997 compared to 1996.
 
     In the 1997 fourth quarter, RainTree was informed by its Medicare fiscal
intermediary that it is challenging RainTree's reimbursement for certain therapy
services provided at RainTree nursing facilities by Sunbelt. Although RainTree
intends to vigorously pursue reimbursement of the challenged items, the Company
recorded a reduction of $4.6 million in revenues in the 1997 fourth quarter due
to this related-party issue. The Company also recorded other potential Medicare
audit adjustments of $1.2 million in the fourth quarter. See
"Business -- Government Regulation -- The Medicare Program" and "-- Risks and
Uncertainties -- Reliance on Reimbursement from Government Sources".
 
     Wages and related.  Wages and related expenses increased 35.3% from $85.8
million in 1996 to $116.1 million in 1997. As a percentage of revenues, wages
and related expenses decreased from 57.7% in 1996 to 51.8% in 1997. The dollar
increase is due primarily to the increase in the number of facilities operated
and the growth of RainTree's ancillary companies. The percentage decrease is due
primarily to cost controls in the nursing facilities.
 
     Other operating.  Other operating expenses increased 30.6% from $64.8
million in 1996 to $84.6 million in 1997. The increase is due primarily to an
increase in the number of facilities operated. Other operating expenses as a
percentage of revenues decreased to 37.7% in 1997 from 43.6% in 1996 due in part
to the Company's cost containment efforts. In addition, the 1996 period included
the following expenses which did not recur in 1997, resulting in decreases from
1996 to 1997 in: (i) legal and accounting fees, $1.1 million; (ii) fines and
penalties, $1.6 million; (iii) gross receipts taxes, $3.6 million; and (iv) loan
fees and bond issue costs, $840,000. Bad debt expense decreased by $703,000 in
1997.
 
                                       31
<PAGE>   34
 
     Rent.  Rent expense increased 2.9% from $15.7 million in 1996 to $16.1
million in 1997. Rent expense decreased as a percentage of revenues from 10.5%
in 1996 to 7.2% in 1997. The dollar increase is due primarily to the increase in
the number of leased facilities operated and rent escalations, offset in part by
the disposition of four facilities in March 1997. The percentage decrease is due
to (i) a higher percentage of owned facilities to total facilities in 1997 than
in 1996 and (ii) the revenue growth of the Company's therapy, laboratory and
pharmacy companies which, in the aggregate, recorded rent expense amounting to
less than 1% of revenues in the 1997 period.
 
     Interest.  Interest expense amounted to $20.1 million in 1997 compared to
$5.8 million in 1996. The increase is primarily the result of debt incurred and
assumed in connection with acquisitions, including the $100.0 million of 12 1/4%
Senior Notes issued on October 31, 1996 and the $20.0 million of 13% Senior
Notes on December 1, 1997, as well as increases in borrowings for working
capital. Interest expense as a percentage of revenues increased to 8.9% in 1997
from 3.9% in 1996.
 
     Depreciation and amortization.  Depreciation and amortization expense
increased from $4.6 million in 1996 to $10.0 million in 1997. These increases
are 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 from
Signature on October 31, 1996. Depreciation and amortization expense as a
percentage of revenues was 3.1% in 1996 and 4.4% in 1997.
 
     Impairment losses and other charges.  In the third quarter of 1996,
RainTree announced the planned disposition of eight nursing facilities. Of
these, 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. As of December 31, 1997, additional facilities were
identified for disposition, and in 1998 the Company filed for bankruptcy.
Consequently, as of December 31, 1996 and 1997, RainTree 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.
RainTree estimated the undiscounted net cash flows from all business units and
determined that the carrying value of certain the Company's long-lived assets
exceeded such undiscounted cash flows. Accordingly, RainTree then compared the
fair value of the assets based on the present value of the estimated future cash
flows for the facilities with the carrying value. The future cash flows were
estimated based on: (i) the remaining weighted average useful lives of the
assets; (ii) earnings history; (iii) a discount rate commensurate with the risks
involved and market conditions; and (iv) assumptions reflecting internal
operating plans and strategies. RainTree 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 $3.9 million in 1996 and $27.2
million in 1997
 
     Income tax benefit.  RainTree recorded income tax benefits of $2.5 million
in 1997 and $8.4 million in 1996. The effective rate of 5.0% in 1997 is the
result of a valuation allowance established against the Company's net operating
loss carryforward benefits. SFAS No. 109, requires that a valuation allowance be
recorded against tax assets that are not likely to be realized. The Company has
determined that its net operating loss carryforwards amounting to $46.5 million
are not likely to be realized in future periods. Specifically, the Internal
Revenue Service Code provides that, in a Chapter 11 bankruptcy case, income
normally arising from the discharge of indebtedness is excluded from taxable
income. However, to the extent that income from discharge of indebtedness is
excluded from income, taxpayers must reduce specified tax attributes, which
include net operating losses. The Company anticipates that, in connection with
the implementation of the Plan, its net operating losses will be substantially
reduced as a result of the restructuring of its debt obligations. Therefore, a
valuation allowance has been established against the full amount of the
Company's net operating loss carryforward benefits.
 
     The effective tax rate of 26.3% in 1996 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 purposes; and (iii) the
valuation allowance established against deferred tax assets. The Company
recorded a valuation allowance at December 31, 1996 amounting to $1.5 million
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 arose prior to the
 
                                       32
<PAGE>   35
 
subsidiaries' acquisition by RainTree, 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.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Cash Flow Provided by Operating Activities
 
     Net cash provided by the Company's long-term care and ancillary company
operations amounted to approximately $2.0 million in 1998. This cash was
generated in spite of the operating loss recorded by RainTree and is due
primarily to an increase in accounts payable and accrued expenses, including
those subject to compromise.
 
     Gross accounts receivable decreased approximately $8.0 million from
December 31, 1997 to December 31, 1998, primarily in connection with facility
dispositions. During this same period, the allowance for doubtful accounts
increased by $2.2 million. See "-- Results of Operations". RainTree anticipates
that its allowance for doubtful accounts may continue to fluctuate in the future
and will depend, in large part, on the mix of revenues, as well as the timing of
payments by private, third party and governmental payors. While the Company
believes that the allowance for doubtful accounts is adequate at December 31,
1998, if the Company is not successful in collecting its accounts receivable on
a timely basis, the Company will be required to further increase its provision
for doubtful accounts.
 
  Cash Flows from Investing and Financing Activities
 
     During the bankruptcy proceedings, RainTree financed its working capital
needs out of its operating cash flows and under the HCFP DIP Facility, an $11
million accounts receivable-backed revolving credit facility. Interest on the
HCFP DIP Facility accrued at the prime rate plus 3.0% (10.75% at December 31,
1998). As of December 31, 1998, borrowings under the HCFP DIP Facility amounted
to approximately $7.0 million. On the Effective Date, the HCFP DIP Facility was
replaced partially with a new $7 million revolving line of credit from Health
Partners (the "First Line"). Interest on amounts outstanding under the First
Line accrues at the prime rate plus 0.85%. As of March 31, 1999, borrowings
outstanding under the First Line totaled approximately $3.0 million, which based
on the level of eligible accounts receivable, was the maximum amount which could
be borrowed at that time. As the level of eligible accounts receivable
increases, the Company anticipates the amount available for borrowing under the
First Line to increase. The Company is in the process of negotiating with Health
Partners with respect to another $7 million line of credit (the "Second Line").
Total combined borrowings under the First Line and Second Line cannot exceed $12
million. Availability under the Second Line will be subject to the Company
having met certain requirements, including sufficient eligible accounts
receivable and certain financial covenants contained in the Omega Master Lease.
Although the Company believes that the Second Line will close shortly, there can
be no assurance that the Second Line will be obtained on terms acceptable to the
Company. The failure of the Company to obtain the Second Line could have a
material adverse effect on the Company.
 
     At December 31, 1998, RainTree had cash and cash equivalents amounting to
$16.9 million compared to $5.3 million at December 31, 1997. The cash balance at
December 31, 1998 includes proceeds from the Sale Leaseback in the amount of
$13.0 million, which was held in escrow until the Effective Date. This cash was
used to settle bankruptcy claims and for working capital. See
"-- Reorganization".
 
     Net cash used in investing activities in 1998 amounted to $7.8 million in
1998. In connection with the Sale Leaseback, RainTree exercised its option to
purchase The Arbors Health Care Center for $3.2 million. Routine capital
expenditures amounted to approximately $3.0 million and approximately $1.6
million was expended for lease and insurance deposits.
 
     Net cash provided by financing activities amounted to approximately $17.4
million in 1998, primarily as a result of the Sale Leaseback. The Sale Leaseback
was accounted for as a financing transaction. Accordingly, RainTree recorded a
lease financing obligation amounting to $38.2 million, which represents the
price of the facilities sold to Omega.
 
                                       33
<PAGE>   36
 
     At December 31, 1998, RainTree had approximately $190.8 million in total
debt and lease financing obligations. When RainTree completes the implementation
of the Plan, its debt and lease financing obligations are estimated to be
approximately $71.4 million, in addition to borrowings under its revolving line
of credit. The Company also has aggregate minimum rent obligations of
approximately $137.9 million (subject to certain increases) during the remainder
of the initial terms and first renewal periods under its operating leases.
 
     The terms of certain of RainTree's debt and lease obligations require the
Company to meet certain financial and reporting covenants. The terms of the
Omega Master Lease require that RainTree maintain specified operating ratios,
levels of working capital and net worth. The Indenture for the Senior Secured
Notes includes 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, should RainTree sell collateral
securing the Senior Secured Notes, any cash proceeds from such sale must be used
to redeem Senior Secured Notes. Any cash proceeds received from the proposed
sale of Sunbelt assets would be used for this purpose.
 
     The Company's future cash requirements and cash flow expectations are
closely related to the implementation of its restructuring. The Company
generally expects to meet its near future financing needs for the coming fiscal
year principally through its revolving line of credit, although the failure to
enter into the Second Line could have a material adverse effect on the Company.
 
     Inflation.  RainTree 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 lags behind such increases.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     Financial statements are presented beginning on page F-1 of this Report and
are incorporated herein by reference.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
 
     None.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     In March 1997, RainTree's board of directors created a three-person
executive committee (the "Executive Committee") comprised of Messrs. Whitehead,
Lynch and Kremser (acting as Chair of the Executive Committee). The Executive
Committee exercised all of the functions of the board of directors until
February 1998, at which time a Special Restructuring Committee of the board was
created to deal solely with restructuring issues facing RainTree. The Special
Restructuring Committee consisted of Michael A. Jeffries, Clayton Kloehr and Nir
E. Margalit and was terminated when RainTree filed for bankruptcy in May 1998.
Messrs. Whitehead and Kremser remained as directors and members of the Executive
Committee until their resignations from all such positions on May 29, 1998. The
duties of the Executive Committee and the Special Restructuring Committee have
been assumed by the board of directors.
 
     Tyrrell L. Garth was a director of RainTree from August 1995 until his
resignation on August 6, 1998. John T. Casey served as a director from August
1995 until his resignation on August 8, 1998. John T. Lynch, Jr. was a director
from June 1992 until his resignation on December 22, 1998. Mark W. White served
as a director from August 1995 until his resignation on February 16, 1999. Jock
Patton was a director from August 14, 1998 until his resignation on March 1,
1999. Donald D. Finney served as a director from September 1, 1998 until
December 2, 1998, when he resigned. James A. Brown was a director from September
25, 1998 until his resignation on March 1, 1999.
                                       34
<PAGE>   37
 
     The following table sets forth certain information with respect to the
directors and executive officers of the Company as of April 9, 1999.
 
<TABLE>
<CAPTION>
NAME                                   AGE                           POSITION
----                                   ---                           --------
<S>                                    <C>    <C>
Michael A. Jeffries..................  48     President and Chief Executive Officer, Director
Jimmy L. Fields......................  48     Executive Vice President and Chief Financial Officer
Nir E. Margalit......................  41     Executive Vice President, General Counsel and
                                              Secretary
Terry Troxell........................  48     Executive Vice President, Operations
Clayton Kloehr.......................  42     Senior Vice President and Treasurer
John S. Belisle(1)...................  51     Director
Martin Fenton(1).....................  63     Director
A. Whitman Marchand(1)...............  62     Director
Mark Penn(1).........................  45     Director
</TABLE>
 
---------------
(1) Member of the Audit Committee and the Compensation Committee.
 
     Michael A. Jeffries has served as President and Chief Executive Officer of
RainTree since September 8, 1997 and has been a director since October 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.
 
     Jimmy L. Fields has served as Executive Vice President and Chief Financial
Officer since April 1, 1998. From 1995 to March 1998, he was the Chief Financial
Officer and Director of Health Care Operations for Fountains Retirement
Communities, Inc., a senior housing and long-term care company. From 1993 to
1995, Mr. Fields was the Chief Operating Officer of Retirement Management
Corporation, an operator of long-term care facilities. From 1983 to 1993, Mr.
Fields was an executive with various long-term care companies including The
Multicare Companies, Inc., where he served as Chief Financial Officer and Chief
Operations Officer. Mr. Fields is a certified public accountant.
 
     Nir E. Margalit has served as Executive Vice President, General Counsel and
Secretary of RainTree since February 15, 1998. Mr. Margalit also served as a
director of RainTree from February 15, 1998 until March 4, 1999. From 1995 to
February 1998, when he joined RainTree, Mr. Margalit was Vice President, General
Counsel and Secretary of Starwood Hotels and Resorts Worldwide, Inc., a publicly
traded hotel paired share real estate investment trust. From 1993 to 1995, Mr.
Margalit was Vice President, Development and Special Counsel of Capstar Hotels.
Prior thereto Mr. Margalit was an attorney in private practice.
 
     Terry Troxell has served as Executive Vice President, Operations since
October 1, 1998. Ms. Troxell joined RainTree when it commenced operations in
July 1992, as Director of Professional Services. In November 1994, she became
Vice President of Clinical Operations and in September 1996 she became Senior
Vice President of Clinical Operations. From July 1991 until July 1992, Ms.
Troxell served as Director of Professional Services of Samaritan Senior
Services, Inc. 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 Gerontological Clinical Specialist.
She sits on the American Health Care Association's National Board as Regional
Vice President and serves on its Advocacy Panel 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.
 
     Clayton Kloehr has served as Senior Vice President and Treasurer since July
1, 1997 and was a director from February 1998 until March 4, 1999. From August
1995 through June 30, 1997, Mr. Kloehr was an independent financial consultant.
From February 1995 until August 1995, Mr. Kloehr was Treasurer of BritWill
Healthcare Company. During the 14 years prior thereto Mr. Kloehr was employed by
Placid Oil
 
                                       35
<PAGE>   38
 
Company, a privately held oil exploration and production company based in
Dallas, Texas, most recently as Manager of Treasury Operations.
 
     John S. Belisle has served as a director of RainTree since March 3, 1999.
Mr. Belisle heads Belisle & Associates, LLC, a consulting firm specializing in
corporate reorganization issues. From 1979 to 1996, Mr. Belisle was employed by
Chemical Bank, most recently as Managing Director and Chief Workout Officer. In
this capacity, Mr. Belisle managed Chemical Bank's problem loan portfolio, which
involved resolution of problem credits through debt restructuring, business
turnaround initiatives, bankruptcy plan negotiations, owning and operating
nonmonetary assets, and other activities.
 
     Martin Fenton has served as a director of RainTree since March 3, 1999. Mr.
Fenton founded Senior Resource Group in 1988. Senior Resource Group builds,
markets and manages full service retirement communities in Arizona, California,
Nevada and Oregon. From 1958 to 1988, Mr. Fenton was employed by The Christiana
Companies, Inc., serving as president since 1968. Christiana was a publicly held
company primarily engaged in the planning and development of master planned
residential communities. Mr. Fenton is a director of American Mutual Fund and
AMCAP Fund. He is also a director/trustee of the Fixed Income Funds of the
American Funds Group as well as the funds that make up the American Variable
Insurance Series.
 
     A. Whitman Marchand has served as a director of RainTree since March 3,
1999. Mr. Marchand retired from Bankers Trust Company in 1998 after serving the
bank for 38 years. Most recently, Mr. Marchand was the Managing Director and
Group Head of the bank's Special Loan Group. In this capacity, Mr. Marchand was
responsible for the bank's problem assets in North America. Mr. Marchand oversaw
the development and implementation of workout strategies related to the bank's
problem loans. He also served as President and Director of approximately 33
Bankers Trust special purpose corporations. Mr. Marchand is a Director of
Coleman Company, Inc., a publicly-held manufacturer and marketer of consumer
products for outdoor recreation and home hardware.
 
     Mark Penn has served as a director of RainTree since March 3, 1999. In
1975, Mr. Penn founded Penn + Schoen Associates, Inc. (now Penn, Schoen &
Berland Associates, Inc.), a strategic research and analysis firm active in the
public, private and international sectors. Currently, Mr. Penn serves as the
pollster and strategist to the President and Vice President of the United
States. Mr. Penn's clients have also included numerous U.S. Senators,
Representatives, governors and other state and local officials. Mr. Penn is also
the President of Neuro Group, a retail site location analysis firm.
 
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 10% 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, 1997, except that Messrs. Brown, Finney and Patton each filed a
delinquent Form 3 in 1998.
 
                                       36
<PAGE>   39
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The following table sets forth, with respect to the years ended December
31, 1998, 1997 and 1996, compensation awarded to, earned by or paid to
RainTree's Chief Executive Officer and the four other most highly compensated
executive officers who were serving as executive officers at December 31, 1998.
 
                         SUMMARY COMPENSATION TABLE(1)
 
<TABLE>
<CAPTION>
                                                                      LONG-TERM
                                                                     COMPENSATION
                                                    ANNUAL           ------------
                                                 COMPENSATION         SECURITIES
                                              -------------------     UNDERLYING
                                               SALARY      BONUS       OPTIONS        ALL OTHER
NAME AND PRINCIPAL POSITION           YEAR      ($)         ($)         (#)(2)       COMPENSATION
---------------------------           ----    --------    -------    ------------    ------------
<S>                                   <C>     <C>         <C>        <C>             <C>
Michael A. Jeffries.................  1998    $315,000    $    --           --         $    --
  President, Chief Executive Officer  1997      99,148         --      320,000              --
Paul G. Henderson(3)................  1998     175,000         --           --              --
  President, Sunbelt Therapy          1997     175,000         --        4,000              --
  Management Services, Inc.           1996     160,417         --       10,000              --
L. Robert Oberfield(4)..............  1998     172,000         --           --              --
  President, Quest Pharmacies, Inc.   1997     136,800     20,550       24,046              --
                                      1996     136,800         --       16,185              --
Clayton Kloehr......................  1998     154,000         --           --              --
  Senior Vice President and
     Treasurer                        1997      77,225         --       25,000          28,998
Nir E. Margalit.....................  1998     148,750         --      105,000              --
  Executive Vice President, General
  Counsel and Secretary
</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. All options were cancelled on the Effective Date of the Plan.
 
(3) Mr. Henderson resigned as President of Sunbelt and as an employee of the
    Company effective April 1, 1999.
 
(4) Effective March 29, 1999, Mr. Oberfield is no longer an executive officer of
    the Company.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
     The following table sets forth information about stock option grants during
the last fiscal year to the executive officers named in the Summary Compensation
Table.
 
<TABLE>
<CAPTION>
                                                         INDIVIDUAL GRANTS
                           ------------------------------------------------------------------------------
                                                                                     POTENTIAL REALIZABLE
                                         PERCENT OF                                    VALUE AT ASSUMED
                           NUMBER OF        TOTAL                                      ANNUAL RATES OF
                           SECURITIES      OPTIONS                                       STOCK PRICE
                           UNDERLYING    GRANTED TO                                    APPRECIATION FOR
                            OPTIONS       EMPLOYEES     EXERCISE OR                     OPTION TERM(3)
                            GRANTED       IN FISCAL     BASE PRICE     EXPIRATION    --------------------
NAME                         (#)(1)        YEAR(2)        ($/SH)          DATE          5%         10%
----                       ----------    -----------    -----------    ----------    --------    --------
<S>                        <C>           <C>            <C>            <C>           <C>         <C>
Nir E. Margalit(4).......   105,000         100.0%        $0.531        02/15/01     $35,064     $88,859
</TABLE>
 
---------------
(1) Consists entirely of stock options.
 
(2) Based on total grants during the year of 105,000.
 
(3) 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%
 
                                       37
<PAGE>   40
 
    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 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.
 
(4) All stock options were cancelled on the Effective Date of the Plan.
 
                     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 in 1998.
 
<TABLE>
<CAPTION>
                                                                   NUMBER OF
                                                                  SECURITIES
                                                                  UNDERLYING
                                                              UNEXERCISED OPTIONS
                                                              AT FISCAL YEAR-END
                                                               (#) EXERCISABLE/
NAME                                                           UNEXERCISABLE(1)
----                                                          -------------------
<S>                                                           <C>
Michael A. Jeffries.........................................    128,000/192,000
Paul G. Henderson...........................................      7,600/  6,400
L. Robert Oberfield.........................................      9,619/ 14,427
Clayton Kloehr..............................................     48,000/ 12,000
Nir E. Margalit.............................................          0/105,000
</TABLE>
 
---------------
(1) None of the options were in the money as of December 31, 1998, based upon
    the closing bid price on that date of $0.01 as reported by Bloomberg. All
    stock options were cancelled on the Effective Date of the Plan.
 
COMPENSATION OF DIRECTORS
 
     The nonemployee directors of RainTree receive an annual retainer of
$25,000, plus $2,000 for each Board meeting and $1,500 for each Committee
meeting attended (in person or by telephone), and reimbursement of expenses. Mr.
Jeffries receives no additional compensation for serving on the Board of
Directors.
 
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS
 
     In October 1998, RainTree obtained Bankruptcy Court approval to adopt and
implement severance benefit packages for its key management personnel. Under the
terms of the severance agreements, Messrs. Jeffries, Margalit, Fields, Kloehr
and Ms. Troxell (together, "Senior Management") may each receive, subject to the
conditions set forth below, a severance package comprised of one year's salary
payable in the event of an involuntary termination without cause on or before
three months after the Effective Date of the Plan (the "Senior Severance
Packages"). The Board of Directors of RainTree will evaluate Senior Management
within three months after the Effective Date to determine: (i) which members of
Senior Management will be given employment contracts ("New Contracts") after the
Effective Date; (ii) the terms of those New Contracts; and (iii) the terms of
participation in post-Effective Date stock options and cash bonuses. The New
Contracts must be substantially the same form as the previously existing
employment contracts between RainTree and Senior Management, at substantially
similar compensation terms and contain not less than 18 months severance.
 
     Under the terms of the Plan, the Board of Directors of RainTree, within
three months of the Effective Date, will allocate to Senior Management retained
under New Contracts options to purchase or otherwise receive up to 5% of the New
Common Stock (on a fully diluted basis). In addition, within six months of the
Effective Date, Senior Management retained under New Contracts will be paid an
aggregate cash bonus of $250,000, with terms and conditions for such bonuses to
be set by the Board of Directors of RainTree. In
 
                                       38
<PAGE>   41
 
addition to their Senior Severance Packages, RainTree will reimburse Mr.
Jeffries and Mr. Fields the closing costs for their homes in Albuquerque, New
Mexico and Tucson, Arizona, respectively, not to exceed $25,000 for Mr. Jeffries
and $30,000 for Mr. Fields (the "Closing Costs Reimbursement").
 
     If any member of Senior Management declines to accept an offered New
Contract, that member may be terminated without a Senior Severance Package. Each
member of Senior Management has waived and released all other claims for
severance or other termination payments as may have existed before May 28, 1998
other than the Closing Costs Reimbursement. The terms of the Senior Severance
Packages supercede and replace, in their entirety, any pre-bankruptcy severance
or termination agreements or arrangements.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
 
     None.
 
     The Compensation Committee currently consists of Messrs. Belisle, Marchand,
Penn and Fenton.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth information regarding the beneficial
ownership of RainTree Common Stock at April 9, 1999 with respect to each person
known to RainTree to own beneficially more than five percent of the outstanding
shares of RainTree Common Stock. As of April 9, 1999, none of RainTree's
directors or executive officers were beneficial owners of the Company's stock.
 
<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY
                                                                    OWNED(1)
                                                              --------------------
IDENTITY OF STOCKHOLDER OR GROUP                               NUMBER      PERCENT
--------------------------------                              ---------    -------
<S>                                                           <C>          <C>
BritWill Investments Company, Ltd.(2).......................    659,369      8.7%
  25 Highland Park Village Suite 100-372
  Dallas, Texas 75205
Saulkeld & Co...............................................    515,940      6.8%
  c/o Bankers Trust Company
  16 Wall Street, 4th Floor, Window #41
  New York, New York 10015
Bank of New York............................................  2,721,311     35.8%
  925 Patterson Plank Road
  Secaucus, NJ 07094
Chase Manhattan Bank........................................  2,413,669     31.8%
  4 New York Plaza, 13th Floor
  New York, NY 10004
Bear, Stearns Securities Corp...............................    593,106      7.8%
  One Metrotech Center North Fourth Floor
  Brooklyn, NY 11201-3862
State Street Bank and Trust Co..............................    505,885      6.7%
  Global Corp Action Department JAB5W
  P.O. Box 1631
  Boston, MA 02105-1631
</TABLE>
 
---------------
(1) Beneficial ownership is determined in accordance with the rules of the
    Commission and generally includes voting or investment power with respect to
    securities. 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.
 
(2) Includes 92,354 shares issued to UNHC Real Estate Holdings, Inc. and 567,015
    shares issued to BritWill Investments Company, Ltd. These entities are
    affiliates of Mr. Whitehead.
 
                                       39
<PAGE>   42
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     When RainTree filed for bankruptcy, it had significant debt obligations
payable to Messrs. Kremser, Whitehead and Henderson and their affiliates. The
settlement of the claims under the terms of the Plan are as described in Item 7,
"Management Discussion and Analysis of Financial Condition and Results of
Operations".
 
     Mr. Oberfield serves as the president and is the minority shareholder of
RainTree's Quest subsidiary. The Shareholders Agreement between Mr. Oberfield
and the Company contains a put and call feature annually whereby, beginning May
1, 1998 and each May thereafter, RainTree may require Mr. Oberfield to sell his
stock in the subsidiary (the "Quest Stock") to RainTree, or Mr. Oberfield may
require RainTree to purchase his Quest Stock based on a defined formula.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (a) The following consolidated financial statements of RainTree Healthcare
Corporation and subsidiaries are included in Item 8:
 
1.  FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of December 31, 1998 and
  1997......................................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996..........................  F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 1998, 1997 and 1996......  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>
 
2.  FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<S>                                                           <C>
Schedule II Valuation and Qualifying Accounts...............  S-1
</TABLE>
 
     All other schedules are omitted because they are not applicable or
required.
 
3.  EXHIBITS
 
<TABLE>
<C>    <S>
 2.1   Disclosure Statement in Support of Debtors' Joint Plan of
       Reorganization Dated August 10, 1998 and Debtors' Joint Plan
       of Reorganization Dated August 10 (incorporated by reference
       to Exhibit 99.1 to Form 8-K filed on August 13, 1998)
 2.2   Disclosure Statement in Support of Debtors' First Amended
       Joint Plan of Reorganization Dated October 15, 1998 and
       Debtors' First Amended Joint Plan of Reorganization Dated
       October 15, 1998 (incorporated by reference to Exhibit 2.1
       to Form 10-K filed on November 4, 1998)
 3.1   Certificate of Incorporation of RainTree Healthcare
       Corporation, as amended and restated (incorporated by
       reference to Exhibit 2 of Amendment No. 1 to the Form 8-A
       filed on April 8, 1999)
 3.2   Bylaws of RainTree Healthcare Corporation, as amended and
       restated (incorporated by reference to Exhibit 3 to
       Amendment No. 1 to the Form 8-A filed on April 8, 1999)
 4.1   Indenture dated as of January 31, 1999, among RainTree
       Healthcare Corporation, the Guarantors and Norwest Bank
       Minnesota, National Association, as Trustee
</TABLE>
 
                                       40
<PAGE>   43
<TABLE>
<C>    <S>
10.1   Omega New Master Lease dated December 31, 1998 among Omega
       Healthcare Investors, Inc. and Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.2   First Amendment to Omega New Master Lease, dated as of
       February 1, 1999, among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments I, Inc.,
       BritWill Investments-II, Inc., Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.3   Revolving Credit Note dated February 8, 1999, among RainTree
       Healthcare Corporation, Sunquest SPC, Inc., Safford Care,
       Inc. Douglas Manor, Inc., Cornerstone Care, Inc. and
       Arkansas, Inc., and HCFP Funding, Inc.
10.4   Loan and Security Agreement dated February 8, 1999, among
       RainTree Healthcare Corporation, Sunquest SPC, Inc., Safford
       Care, Inc. Douglas Manor, Inc., Cornerstone Care, Inc. and
       Arkansas, Inc., and HCFP Funding, Inc.
10.5   Second Amendment To Omega New Master Lease, dated as of
       February 2, 1999 among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments-I, Inc.,
       BritWill Investments-II, Inc., Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.6   First Amendment To Omega New Master Lease Guarantee, dated
       as of February 2, 1999 among RainTree Healthcare
       Corporation, Signature Health Care Corporation, BritWill
       HealthCare Company, BritWill Investments-I, Inc., Cedar
       Care, Inc., and Sherwood HealthCare Corporation in favor of
       Omega Healthcare Investors, Inc.
10.7   First Amendment To Security Agreement, dated as of February
       1, 1999 among Omega Healthcare Investors, Inc. and BritWill
       Indiana Partnership as successor in interest to BritWill
       Investments-I, Inc.
10.8   Amended and Restated Security Agreement, dated as of
       February 2, 1999 among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments-II, Inc.,
       Amberwood Court, Inc., The Arbors Health Care Center, Inc.,
       Brookshire House, Inc., Christopher Nursing Center, Inc.,
       Los Arcos, Inc., Pueblo Norte, Inc., and Rio Verde Nursing
       Center, Inc.
10.9   Indiana Returned Facilities Agreement, dated as of February
       1, 1999 among Omega Healthcare Investors, Inc. and BritWill
       Indiana Partnership
10.10  Indiana Returned Facility Note, dated as of January 31, 1999
       among Omega Healthcare Investors, Inc. and BritWill Indiana
       Partnership
10.11  Indiana Returned Facility Note Guarantee, dated as of
       January 31, 1999 among RainTree Healthcare, BritWill
       HealthCare Company and Omega Healthcare Investors, Inc.
10.12  Indiana Returned Facilities Interim Management Agreement,
       dated as of February 1, 1999 by and between RainTree
       Healthcare Corporation and Omega Healthcare Investors, Inc.
10.13  Amended Pledge Agreement, dated as of February 2, 1999 by
       and between BritWill HealthCare Company and Omega Healthcare
       Investors, Inc.
10.14  Second Amended and Restated Pledge Agreement, dated as of
       February 2, 1999 by and between BritWill Investments-I, Inc.
       and Omega Healthcare Investors, Inc.
10.15  Promissory Note dated as of January 31, 1999 among RainTree
       Healthcare Corporation, American Professional Holding, Inc.,
       Ampro Medical Services, Inc., Gamma Laboratories, Inc.,
       Memphis Clinical Laboratory, Inc., Quest Pharmacies, Inc.,
       and David Kremser, Bernice Kremser, Holly Kremser, Michael
       Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
</TABLE>
 
                                       41
<PAGE>   44
<TABLE>
<C>    <S>
10.16  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)
10.17  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)
10.18  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)
10.19  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)
10.20  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)
10.21  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)
10.22  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)
10.23  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)
10.24  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)
10.25  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)
10.26  Lease for Homestead of McKinney dated as of July 1, 1996
       between Westminister Healthcare, Inc. and BritWill
       Investments-II, Inc. (incorporated by reference to Exhibit
       10.92 to the Company's Annual Report on Form 10-K for the
       year ended December 31, 1996)
10.27  Security Agreement effective as of February 1, 1996 by among
       RainTree 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)
10.28  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, File No. 333-30793)
10.29  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, File No. 333-30793)
10.30  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,
       File No. 333-30793)
10.31  Lease dated as of July 28, 1995, between American Health
       Properties of Arizona, Inc. and Douglas Manor, Inc.
       (incorporated by reference to Exhibit 10.124 to the
       Company's Annual Report on Form 10-K for the year ended
       December 31, 1996)
10.32  [Intentionally Omitted]
</TABLE>
 
                                       42
<PAGE>   45
 
<TABLE>
<C>        <S>
    10.33  [Intentionally Omitted]
    10.34  [Intentionally Omitted]
    10.35  [Intentionally Omitted]
    10.36  [Intentionally Omitted]
    10.37  BritWill Acquisition Promissory Note A dated as of January 31, 1999, among RainTree Healthcare Corporation
           and BritWill Investments Company, Ltd.
    10.38  BritWill Acquisition Promissory Note B dated as of January 31, 1999, among RainTree Healthcare Corporation
           and UNHC Real Estate Holdings, Ltd.
    10.39  Pledge Agreement effective January 31, 1999, among RainTree Healthcare Corporation and Norwest Bank
           Minnesota, National Association
    10.40  Registration Rights Agreement dated as of January 31, 1999, among RainTree Healthcare Corporation and
           Morgan Stanley Dean Witter High Yield Securities, Inc., Morgan Stanley Dean Witter Diversified Income
           Fund, Morgan Stanley Dean Witter Variable Investment Series--High Yield Portfolio, High Income Advantage
           Trust II, High Income Advantage Trust, High Income Advantage Trust III, Morgan Stanley Dean Witter Select
           Dimensions Investment Series--The Diversified Income Portfolio and Capital Research and Management Company
    10.41  Security Agreement effective January 31, 1999 by and between Quest Pharmacies, Inc., Sunbelt Therapy
           Management Services, Inc. (Arizona), Decatur Sports Fit & Wellness Center, Inc., Therapy Health Systems,
           Inc., Henderson & Associates Rehabilitation, Inc., Sunbelt Therapy Management Services, Inc. (Alabama),
           RainTree Healthcare Corporation and Norwest Bank Minnesota, National Association
    10.42  Security Agreement dated as of January 31, 1999 by and between American Professional Holding, Inc. and
           David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
           Investments, L.L.C.
    10.43  Stock Pledge Agreement (American Professional Holding, Inc.) dated January 31, 1999 by and between
           RainTree Healthcare Corporation and David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser,
           Stanley Kremser and Elk Meadows Investments, L.L.C.
    10.44  Security Agreement dated as of January 31, 1999 by and between Ampro Medical Services, Inc. and David
           Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows Investments,
           L.L.C.
    10.45  Stock Pledge Agreement (Ampro Medical Services, Inc.) dated January 31, 1999 by and between American
           Professional Holding, Inc. and David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
           Kremser and Elk Meadows Investments, L.L.C.
    10.46  Security Agreement dated as of January 31, 1999 by and between Gamma Laboratories, Inc. and David Kremser,
           Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
    10.47  Stock Pledge Agreement (Gamma Laboratories, Inc.) dated January 31, 1999 by and between American
           Professional Holding, Inc. and David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
           Kremser and Elk Meadows Investments, L.L.C.
    10.48  Security Agreement dated as of January 31, 1999 by and between Memphis Clinical Laboratory, Inc. and David
           Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows Investments,
           L.L.C.
    10.49  Stock Pledge Agreement (Memphis Clinical Laboratory, Inc.) dated January 31, 1999 by and between RainTree
           Healthcare Corporation and David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser
           and Elk Meadows Investments, L.L.C.
    10.50  Security Agreement dated as of January 29, 1999 by and between Quest Pharmacies, Inc. and David Kremser,
           Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
</TABLE>
 
                                       43
<PAGE>   46
 
<TABLE>
<C>    <S>
10.51  Stock Pledge Agreement (Quest Pharmacies, Inc.) dated January 31, 1999 by and between
       RainTree Healthcare Corporation and David Kremser, Bernice Kremser, Holly Kremser, Michael
       Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
10.52  Sharing Agreement dated January 31, 1999, by and between Northwest Bank Minnesota,
       National Association, RainTree Healthcare Corporation, BritWill Healthcare Company,
       BritWill Indiana Partnership and Omega Healthcare Investors, Inc.
21     List of subsidiaries (incorporated by reference to Exhibit 21 to the Company's Annual
       Report on Form 10-K for the year ended December 31, 1997)
27     Financial Data Schedule (included only in the EDGAR filing)
</TABLE>
 
     (b) Reports on Form 8-K
 
     None
 
                                       44
<PAGE>   47
 
                                   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.
 
                                          RainTree Healthcare Corporation
 
                                          By:    /s/ MICHAEL A. JEFFRIES
 
                                            ------------------------------------
                                                    Michael A. Jeffries
                                               President and Chief Executive
                                                           Officer
 
Date: April 15, 1999
 
     Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                     SIGNATURE                                      TITLE                      DATE
                     ---------                                      -----                      ----
<C>                                                  <S>                                  <C>
 
              /s/ MICHAEL A. JEFFRIES                President and Chief Executive        April 15, 1999
---------------------------------------------------    Officer, Director (principal
                Michael A. Jeffries                    executive officer)
 
                /s/ JIMMY L. FIELDS                  Executive Vice President and Chief   April 15, 1999
---------------------------------------------------    Financial Officer (principal
                  Jimmy L. Fields                      financial officer)
 
               /s/ WARREN K. JERREMS                 Vice President, Controller, Chief    April 15, 1999
---------------------------------------------------    Accounting Officer (principal
                 Warren K. Jerrems                     accounting officer)
 
                   /s/ MARK PENN                     Director                             April 15, 1999
---------------------------------------------------
                     Mark Penn
 
                /s/ JOHN S. BELISLE                  Director                             April 15, 1999
---------------------------------------------------
                  John S. Belisle
 
              /s/ A. WHITMAN MARCHAND                Director                             April 15, 1999
---------------------------------------------------
                A. Whitman Marchand
 
                 /s/ MARTIN FENTON                   Director                             April 15, 1999
---------------------------------------------------
                   Martin Fenton
</TABLE>
 
                                       45
<PAGE>   48
 
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
1.  FINANCIAL STATEMENTS
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of December 31, 1998 and
  1997......................................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 1998, 1997 and 1996..........................  F-4
Consolidated Statements of Stockholders' Equity (Deficit)
  for the years ended December 31, 1998, 1997 and 1996......  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
2.  FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts...............  S-1
</TABLE>
 
                                       F-1
<PAGE>   49
 
                         REPORT OF INDEPENDENT AUDITORS
 
The Board of Directors
RainTree Healthcare Corporation
 
     We have audited the accompanying consolidated balance sheets of RainTree
Healthcare Corporation and subsidiaries (formerly Unison HealthCare Corporation)
as of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of RainTree Healthcare Corporation and subsidiaries as of
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, based on our audits, the related financial statement schedule, as it
relates to December 31, 1998 and 1997 and each of the three years in the period
ended December 31, 1998, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
 
     The accompanying financial statements have been prepared assuming that
RainTree Healthcare Corporation and subsidiaries will continue as a going
concern. As shown in the consolidated financial statements, RainTree HealthCare
Corporation incurred substantial losses in each of the past three years. In
addition, on May 28, 1998, RainTree Healthcare Corporation filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code. These
matters raise substantial doubt about RainTree Healthcare Corporation's ability
to continue as a going concern. During 1998, RainTree Healthcare Corporation and
its subsidiaries were operating as debtors-in-possession under the jurisdiction
of the Chapter 11 Trustee appointed by the United States Bankruptcy Court. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classifications of liabilities that might result from the outcome of these
uncertainties.
 
                                          ERNST & YOUNG LLP
 
Phoenix, Arizona
March 26, 1999
 
                                       F-2
<PAGE>   50
 
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1998         1997
                                                              ---------    --------
                                                                 (IN THOUSANDS,
                                                              EXCEPT SHARE AMOUNTS)
<S>                                                           <C>          <C>
ASSETS (Note 2)
Current assets:
  Cash and cash equivalents.................................  $  16,863    $  5,295
  Accounts receivable.......................................     22,621      32,855
  Prepaid expenses and other current assets.................      8,670       7,768
                                                              ---------    --------
     Total current assets...................................     48,154      45,918
Property and equipment, net.................................     29,227      25,588
Lease operating rights and other intangible assets, net.....     58,960      84,487
Goodwill, net...............................................     24,816      28,357
Security deposits...........................................      9,383       7,817
                                                              ---------    --------
                                                              $ 170,540    $192,167
                                                              =========    ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable..........................................  $  10,815    $  7,592
  Accrued expenses..........................................     15,175      24,617
  Current portion of notes payable and long-term debt due to
     related parties........................................         --      20,500
  Current portion of other notes payable and long-term
     debt...................................................      1,012     144,277
                                                              ---------    --------
     Total current liabilities..............................     27,002     196,986
Liabilities subject to compromise...........................    166,870          --
Other notes payable and long-term debt......................      7,132       8,020
Lease financing obligation..................................     38,200          --
Deferred taxes..............................................      5,456      16,013
Leasehold liability, net....................................      4,058       4,246
Other liabilities...........................................        899         936
                                                              ---------    --------
     Total liabilities......................................    249,617     226,201
Stockholders' deficit:
  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; 6,422,096 shares issued and outstanding in 1998
     and 1997...............................................          5           5
  Additional paid-in capital................................     36,211      36,211
  Accumulated deficit.......................................   (115,293)    (70,250)
                                                              ---------    --------
     Net stockholders' deficit..............................    (79,077)    (34,034)
                                                              ---------    --------
                                                              $ 170,540    $192,167
                                                              =========    ========
</TABLE>
 
                             See accompanying notes.
                                       F-3
<PAGE>   51
 
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------
                                                                 1998          1997          1996
                                                              -----------   -----------   -----------
                                                              (IN THOUSANDS, EXCEPT COMMON SHARES AND
                                                                        PER SHARE AMOUNTS)
<S>                                                           <C>           <C>           <C>
Operating revenues:
  Net patient service revenues..............................   $ 182,537     $ 221,072     $ 146,379
  Other operating revenues..................................       1,494         3,294         2,295
                                                               ---------     ---------     ---------
     Total operating revenues...............................     184,031       224,366       148,674
Expenses:
  Wages and related.........................................      99,668       116,137        85,789
  Other operating...........................................      73,528        84,566        64,771
  Rent......................................................      14,644        16,119        15,658
  Interest (excludes contractual interest not accrued on
     prepetition debt of $10,961 in 1998)...................      12,140        20,076         5,824
  Depreciation and amortization.............................       8,970         9,974         4,561
  Impairment losses and other charges.......................      23,385        27,185         3,865
                                                               ---------     ---------     ---------
     Total expenses.........................................     232,335       274,057       180,468
                                                               ---------     ---------     ---------
Loss from operations........................................     (48,304)      (49,691)      (31,794)
Reorganization expenses.....................................       5,487            --            --
                                                               ---------     ---------     ---------
Loss before income taxes and extraordinary charge...........     (53,791)      (49,691)      (31,794)
Income tax benefit..........................................      (9,842)       (2,480)       (8,356)
                                                               ---------     ---------     ---------
Loss before extraordinary charge............................     (43,949)      (47,211)      (23,438)
Extraordinary charge -- early extinguishment of debt........       1,094            --            --
                                                               ---------     ---------     ---------
Net loss....................................................   $ (45,043)    $ (47,211)    $ (23,438)
                                                               =========     =========     =========
Net loss per share:
  Loss before extraordinary charge..........................   $   (6.84)    $   (7.41)    $   (5.01)
  Extraordinary charge -- early extinguishment of debt......       (0.17)           --            --
                                                               ---------     ---------     ---------
     Net loss...............................................   $   (7.01)    $   (7.41)    $   (5.01)
                                                               =========     =========     =========
Weighted average common shares used in per share
  calculation...............................................   6,422,096     6,370,834     4,676,037
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   52
 
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
<TABLE>
<CAPTION>
                                             COMMON STOCK                     RETAINED
                                          ------------------   ADDITIONAL     EARNINGS
                                          NUMBER OF             PAID-IN     (ACCUMULATED
                                           SHARES     AMOUNT    CAPITAL       DEFICIT)      TOTAL
                                          ---------   ------   ----------   ------------   --------
                                                    (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                       <C>         <C>      <C>          <C>            <C>
BALANCE AT DECEMBER 31, 1995............  4,213,748     $3      $20,501      $     399     $ 20,903
Costs of initial public offering........         --     --          (93)            --          (93)
Stock warrants exercised................    178,503     --           --             --           --
Conversion of debenture.................    137,564     --        1,714             --        1,714
Common stock issued for acquisitions....  1,537,376      2       12,701             --       12,703
Stock options exercised.................     11,307     --          102             --          102
Tax benefit associated with exercise of
  stock options.........................         --     --           11             --           11
Repurchase of stock warrants............         --     --         (213)            --         (213)
Net loss................................         --     --           --        (23,438)     (23,438)
                                          ---------     --      -------      ---------     --------
BALANCE AT DECEMBER 31, 1996............  6,078,498      5       34,723        (23,039)      11,689
Common stock issued for acquisition.....    238,052     --          685             --          685
Conversion of Sunbelt notes payable.....    105,196     --          800             --          800
Stock options exercised.................        350     --            3             --            3
Net loss................................         --     --           --        (47,211)     (47,211)
                                          ---------     --      -------      ---------     --------
BALANCE AT DECEMBER 31, 1997............  6,422,096      5       36,211        (70,250)     (34,034)
Net loss................................         --     --           --        (45,043)     (45,043)
                                          ---------     --      -------      ---------     --------
BALANCE AT DECEMBER 31, 1998............  6,422,096     $5      $36,211      $(115,293)    $(79,077)
                                          =========     ==      =======      =========     ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   53
 
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES:
Net loss.................................................    $(45,043)   $(47,211)   $(23,438)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Impairment losses and other charges....................      23,385      27,185       3,865
  Depreciation and amortization..........................       8,970       9,974       4,561
  Provision for doubtful accounts........................       6,210       2,039       2,742
  Change in deferred taxes...............................     (10,934)     (3,286)     (9,238)
  Minority interest expense..............................         386         299         138
  Leasehold liability amortization.......................        (188)       (188)       (188)
  Other charges and credits, net.........................          52          41         (69)
  Changes in operating assets and liabilities, net of
     acquisitions:
     Net accounts receivable.............................       4,024      (8,263)     (5,310)
     Prepaids and other current assets...................        (525)       (136)        825
     Accounts payable and accrued expenses...............      15,624       1,238       2,454
                                                             --------    --------    --------
Net cash provided by (used in) operating activities......       1,961     (18,308)    (23,658)
                                                             --------    --------    --------
INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements.........      (2,965)     (1,535)     (3,587)
Increase in intangibles and other assets.................          --        (205)     (2,707)
Increase in lease and insurance deposits.................      (1,566)     (1,840)     (1,204)
Acquisitions, net of cash acquired.......................      (3,236)       (659)    (41,225)
                                                             --------    --------    --------
Net cash used in investing activities....................      (7,767)     (4,239)    (48,723)
                                                             --------    --------    --------
FINANCING ACTIVITIES:
Net increase (decrease) in revolving line of credit......        (113)      7,117        (789)
Proceeds from sale leaseback transaction.................      38,200          --          --
Proceeds from long-term borrowings.......................          --      23,950     113,567
Payments on long-term borrowings.........................     (19,615)    (16,868)    (24,808)
Repayment of other long-term liabilities.................          --          --      (2,779)
Change in bank overdrafts................................         (19)       (780)      3,043
Repurchase of stock warrants.............................          --          --        (213)
Exercise of stock options................................          --           3         102
Increase in deferred financing costs.....................      (1,079)     (2,989)     (4,502)
                                                             --------    --------    --------
Net cash provided by financing activities................      17,374      10,433      83,621
                                                             --------    --------    --------
     Net increase (decrease) in cash.....................      11,568     (12,114)     11,240
Cash and cash equivalents at beginning of year...........       5,295      17,409       6,169
                                                             --------    --------    --------
Cash and cash equivalents at end of year.................    $ 16,863    $  5,295    $ 17,409
                                                             ========    ========    ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-6
<PAGE>   54
 
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997 AND 1996
           (IN THOUSANDS, EXCEPT COMMON SHARE AND PER SHARE AMOUNTS)
 
1.  DESCRIPTION OF BUSINESS
 
     RainTree Healthcare Corporation, ("RainTree" or the "Company") is a
provider of long-term and specialty healthcare services. At December 31, 1998,
RainTree operated 42 facilities, including long-term care and specialty care and
independent/assisted living facilities. RainTree's facilities are located in six
states, principally in the midwest and southwest regions of the United States.
RainTree also provides, either directly or through third-party contracts,
pharmaceutical services, rehabilitation therapy services, medical supplies and
laboratory testing, both to its facilities and to nonaffiliated entities.
 
     On January 31, 1999, RainTree changed its name from Unison HealthCare
Corporation.
 
2.  PLAN OF REORGANIZATION
 
  Bankruptcy Proceedings
 
     On January 7, 1998, three of RainTree's subsidiaries with operations in
Texas and Indiana filed voluntary petitions for reorganization under Chapter 11
of Title 11 ("Chapter 11") of the United States Code with the United States
Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"). On May
28, 1998, RainTree and 29 of its other subsidiaries also filed for
reorganization under Chapter 11. In January 1999, the Bankruptcy Court confirmed
the Company's Plan of Reorganization (the "Plan") and on January 31, 1999, (the
"Effective Date"), RainTree emerged from bankruptcy.
 
     During the Chapter 11 process, RainTree and its subsidiaries (the
"Debtors") operated their businesses and managed their properties as
debtors-in-possession under authority of the Bankruptcy Code. Under Chapter 11,
certain claims against the Debtors in existence prior to the filing of the
petitions for reorganization are stayed while the Debtors are in bankruptcy.
These claims are set forth in the December 31, 1998 balance sheet as
"liabilities subject to compromise". Additional claims may arise subsequent to
the filing date resulting from rejection of executory contracts, including
leases, and from the determination by the Bankruptcy Court (or agreed to by
parties in interest) of allowed claims for contingencies and other disputed
amounts. Claims secured against the Company's assets also are stayed, although
the holders of such claims have the right to move the Bankruptcy Court for
relief from the stay. Secured claims are secured primarily by liens on the
Debtors' property and equipment. In accordance with the American Institute of
Certified Public Accountants Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"),
interest on unsecured, prepetition obligations of the Debtors ceased to accrue
on the filing date.
 
     The Company received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including payables to vendors
deemed essential to the continued operation of RainTree's business ("Essential
Vendor Claims") and employee wages and benefits.
 
     Liabilities subject to compromise consist of the following:
 
<TABLE>
<S>                                                           <C>
12 1/4% Senior Notes........................................  $100,000
13% Senior Notes............................................    20,000
Notes payable and long-term debt............................    24,495
Trade payables..............................................     4,661
Accrued interest............................................    11,486
Other.......................................................     6,228
                                                              --------
                                                              $166,870
                                                              ========
</TABLE>
 
                                       F-7
<PAGE>   55
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Implementing the Plan of Reorganization
 
     The implementation of the Plan allowed RainTree to restructure its balance
sheet, significantly reduce its debt burden and dispose of unprofitable
facilities. Prior to the confirmation of the Plan, the Company reached agreement
with respect to its restructuring with its major creditors including, among
others:
 
     - Omega Healthcare Investors, Inc. ("Omega"), from whom RainTree leases
       long-term care facilities;
 
     - The holders of $100,000 of 12 1/4% Senior Notes due 2006 (the "12 1/4%
       Senior Notes") and $20,000 of 13% Senior Notes due 1999 (the "13% Senior
       Notes");
 
     - Health Care Financial Partners ("Health Partners"), who provided an
       $11,000 accounts receivable-backed line of credit facility (the "HCFP DIP
       Facility") for working capital during the Chapter 11 proceedings;
 
     - Bruce H. Whitehead, a major stockholder and creditor of the Company and,
       until May 29, 1998, the Chairman of RainTree's board of directors; and
 
     - David A. Kremser, a major stockholder and creditor of the Company and,
       until May 29, 1998, a director of RainTree.
 
     Prior to the Effective Date, the Company leased six facilities from
BritWill Investments Texas, Ltd. ("BritWill Texas"), an affiliate of Mr.
Whitehead, which were subject to a mortgage in favor of Omega (the "BritWill
Texas Leases").
 
     The major provisions of the Plan are as follows.
 
     - All of RainTree's common stock was cancelled on the Effective Date. As
       described below, RainTree will issue up to 8,000,000 new common shares
       (the "New Common Stock"). RainTree will also issue up to $26,000 of new
       debt securities (the "Senior Secured Notes") in satisfaction of
       bankruptcy claims. The Senior Secured Notes bear interest at 11.0%, will
       mature four years from the Effective Date, and are secured by the stock
       and personal property of certain RainTree subsidiaries.
 
     - On December 31, 1998, Omega purchased seven facilities owned and operated
       by RainTree for a purchase price of $38,200. The facilities were then
       leased back to RainTree (the "Sale Leaseback"). A portion of the proceeds
       were used to (i) repay the mortgage note related to six of these
       facilities amounting to approximately $19,335, including a prepayment
       penalty (the "Mortgage Note") and (ii) exercise the Company's option to
       purchase The Arbors Health Care Center for approximately $3,236. The
       Arbors facility was included in the Sale Leaseback. The remaining
       proceeds from the sale were held in escrow until the Effective Date, when
       they were used to settle bankruptcy claims as provided for in the Plan
       and described below. Omega received closing costs, financing fees and
       reimbursement of expenses in the amount of $1,000. These seven facilities
       and eleven other facilities leased from Omega and BritWill Texas were
       combined into a single master lease (the "Omega Master Lease"). RainTree
       realized no gain or loss on the Sale Leaseback, which was accounted for
       as a financing transaction (Note 15).
 
     - Six leased facilities were returned to Omega and three BritWill Texas
       facilities that RainTree disposed of in March 1997 via a sublease
       agreement are excluded from the Master Lease. In return, Omega received
       $2,000 in cash, a seven-year, $3,000 promissory note bearing interest at
       7.0% and a guarantee by RainTree that supersedes and replaces all
       previous guarantees of BritWill Texas obligations. RainTree also paid to
       Omega, in cash, prepetition rent payments and other obligations in the
       amount of approximately $2,061.
 
                                       F-8
<PAGE>   56
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     - In settlement of approximately $15,811 of allowed claims, Mr. Whitehead
       and affiliates (the "Whitehead Affiliates") received $541 in cash and
       unsecured promissory notes totaling $1,530 and will receive Senior
       Secured Notes amounting to $292 and approximately 729,000 shares of New
       Common Stock. The promissory note bears interest at 9.0%, payable
       quarterly, and the principal amount will be due and payable at the end of
       four years.
 
     - In settlement of approximately $5,370 of allowed claims, Mr. Kremser and
       affiliates (the "Kremser Affiliates") received $541 in cash and a
       promissory note amounting to $1,354. The promissory note bears interest
       at 9.0%, payable quarterly, and the principal amount will be due and
       payable at the end of five years.
 
     - Convenience Claims, defined in the Plan as payables due to general
       unsecured creditors amounting to one thousand dollars or less (or two
       thousand dollars or less whose holders elect to reduce their claims to
       one thousand dollars), were paid in cash. RainTree paid approximately
       $520 to settle Convenience Claims. Essential Vendor Claims were paid in
       cash in the aggregate amount of approximately $2,457.
 
     - Trade Unsecured Claims are defined in the Plan as payables to other trade
       vendors. RainTree is currently in the process of settling Trade Unsecured
       Claims and other general unsecured claims. Each holder of a Trade
       Unsecured Claim will receive, in cash, the lesser of 35% of the allowed
       amount of the claim or a pro rata portion of $1,400, plus shares of New
       Common Stock. The total amount of Trade Unsecured Claims was
       approximately $3,400.
 
     - All other general unsecured creditors will share pro rata in
       approximately 91% of the New Common Stock and the Senior Secured Notes. A
       subordination agreement related to the 13% Senior Notes resulted in a
       reallocation among the holders of the 13% Senior Notes and those holders
       of the 12 1/4% Senior Notes who had consented to a subordination
       agreement (the "Consenting Noteholders"). As a result of this
       reallocation, the holders of the 13% Senior Notes will receive Senior
       Secured Notes equal to 100% of their allowed claims ($22,053) and the
       Consenting Noteholders will receive only New Common Stock totaling
       approximately 6,343,000 shares. The holders of the 12 1/4% Senior Notes
       who did not consent to the subordination agreement will receive Senior
       Secured Notes totaling $1,848 and approximately 522,000 shares of New
       Common Stock. The aggregate amount of these general unsecured claims was
       approximately $137,500.
 
     - Secured claims included the Mortgage Note, the HCFP DIP Facility, claims
       of Omega, property tax liabilities and other secured loans. Secured
       claims were either: (i) paid in cash; (ii) the liability was continued in
       accordance with its original terms after defaults, if any, were cured; or
       (iii) the collateral securing such liability was returned to the creditor
       in full satisfaction of the claim. The aggregate amount of secured claims
       was approximately $34,700.
 
     - The Company's stockholders will share pro rata in the issuance of
       warrants to purchase approximately 400,000 shares of New Common Stock.
 
     - On the Effective Date, RainTree obtained a new $12,000 line of credit
       from Health Partners that replaced the HCFP DIP Facility. See Note 12.
 
  Fresh Start Reporting (Unaudited)
 
     In accordance with SOP 90-7, RainTree adopted fresh start reporting as of
the Effective Date. RainTree, with the assistance of its financial advisors,
determined its reorganization value, which represents the fair market value of
the Company before considering liabilities. Reorganization value is intended to
represent the amount a willing buyer would pay for the assets of RainTree
immediately after its emergence from Chapter 11. The reorganization value was
based on, among other things, discounted cash flows for the
 
                                       F-9
<PAGE>   57
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
reorganized Company over a 14-year period. The projected cash flows included
assumptions as to anticipated revenues, operating expenses and capital
expenditures. A discount rate of 16% was used, which reflects the uncertainty of
the cash flows, the general inherent risk of the long-term care industry, and
general business conditions.
 
     Under fresh start reporting, the reorganization value of the Company has
been allocated to RainTree's assets and liabilities on a basis substantially
consistent with purchase accounting. The excess of the reorganization value over
the value of identifiable assets is reported as "reorganization value in excess
of amounts allocable to identifiable assets". All identifiable assets were
recorded at fair value, which approximated carrying value. The new Senior
Secured Notes and all other liabilities were recorded at fair value, which
approximated carrying value.
 
     The adjustments made to give effect to the discharge of prepetition
liabilities and fresh-start reporting are as follows. The reorganized balance
sheet gives pro forma effect to New Common Stock and Senior Secured Notes yet to
be issued under the Plan.
 
<TABLE>
<CAPTION>
                                           JANUARY 31, 1999
                                           PRECONFIRMATION      DEBT        FRESH START     REORGANIZED
                                            BALANCE SHEET     DISCHARGE     ADJUSTMENTS    BALANCE SHEET
                                           ----------------   ---------     -----------    -------------
<S>                                        <C>                <C>           <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents..............     $  17,308       $ (15,684)(a)  $     --        $  1,624
  Accounts receivable, net...............        22,579              --            --          22,579
  Prepaid expenses and other current
     assets..............................         8,815              --        (5,465)(g)       3,350
                                              ---------       ---------      --------        --------
     Total current assets................        48,702         (15,684)       (5,465)         27,553
Property and equipment, net..............        29,255          (3,117)(b)    23,500(h)       49,638
Lease operating rights and other
  intangibles, net.......................        58,608          (4,728)(c)   (52,858)(h)       1,022
Goodwill, net............................        24,727              --       (24,727)(h)          --
Security deposits........................         9,675            (279)(d)        --           9,396
Reorganization value in excess of amounts
  allocable to identifiable assets.......            --              --        47,997(h)       47,997
                                              ---------       ---------      --------        --------
                                              $ 170,967       $ (23,808)     $(11,553)       $135,606
                                              =========       =========      ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.......................     $  11,087       $      --      $     --        $ 11,087
  Accrued expenses.......................        16,319           5,957(e)         --          22,276
  Current portion of long-term debt......         1,012            (311)(e)        --             701
                                              ---------       ---------      --------        --------
     Total current liabilities...........        28,418           5,646            --          34,064
Liabilities subject to compromise........       166,870        (166,870)(e)        --              --
Notes payable and long-term debt.........         8,144          24,307(a)         --          32,451
Lease financing obligation...............        38,200              --            --          38,200
Deferred taxes...........................         5,465              --         3,535(g)        9,000
Leasehold liability, net.................         4,058              --        (4,058)(h)          --
Other liabilities........................           897              --            --             897
                                              ---------       ---------      --------        --------
     Total liabilities...................       252,052        (136,917)         (523)        114,612
</TABLE>
 
                                      F-10
<PAGE>   58
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                           JANUARY 31, 1999
                                           PRECONFIRMATION      DEBT        FRESH START     REORGANIZED
                                            BALANCE SHEET     DISCHARGE     ADJUSTMENTS    BALANCE SHEET
                                           ----------------   ---------     -----------    -------------
<S>                                        <C>                <C>           <C>            <C>
Stockholders' equity (deficit):
  Common stock, Predecessor Company......             5              --            (5)(i)          --
  Common stock, Reorganized Company......            --               8(a)         --               8
  Additional paid-in capital.............        36,211          20,986(a)    (36,211)(i)      20,986
  Retained earnings (accumulated
     deficit)............................      (117,301)         92,115(f)     25,186(i)           --
                                              ---------       ---------      --------        --------
     Net stockholders' equity
       (deficit).........................       (81,085)        113,109       (11,030)         20,994
                                              ---------       ---------      --------        --------
                                              $ 170,967       $ (23,808)     $(11,553)       $135,606
                                              =========       =========      ========        ========
</TABLE>
 
---------------
(a) To record the settlement of bankruptcy claims through payment of cash,
    issuance of Senior Secured Notes and issuance of New Common Stock.
 
(b) To reflect property and equipment returned to creditors in satisfaction of
    bankruptcy claims.
 
(c) To record the write-off of deferred debt issue costs.
 
(d) To record adjustments to security deposits related to the Omega Master
    Lease.
 
(e) To record the discharge or reclassification of prepetition obligations.
 
(f) To record the estimated gain on discharge of indebtedness.
 
(g) To record adjustment to deferred tax assets and liabilities.
 
(h) To record adjustments to reflect assets and liabilities at fair market
    values and to record reorganization value in excess of amounts allocable to
    identifiable assets.
 
(i) To record the cancellation of Predecessor Company common stock and
    elimination of retained earnings.
 
     In accordance with SOP 90-7, reorganization items are reported separately
in the consolidated statement of operations. Reorganization items are comprised
primarily of professional fees related to the bankruptcy and restructuring (Note
5).
 
3.  SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
RainTree and its subsidiaries. Significant intercompany transactions and
balances have been eliminated in consolidation.
 
     Revenues and expenses related to the operations of acquired entities (Note
4) are included in RainTree's results of operations for periods subsequent to
the date of acquisition. The merger with American Professional Holding, Inc.
("Ampro") and Memphis Clinical Laboratory, Inc. ("Memphis") has been accounted
for as a pooling of interests. Accordingly, the consolidated financial
statements of RainTree include the accounts of Ampro and Memphis for all periods
presented.
 
  Basis of Presentation
 
     The accompanying consolidated financial statements have been prepared on a
going concern basis of accounting and do not reflect any adjustments that might
result should the Company be unable to continue as a going concern. The recent
losses from operations and the related bankruptcy proceedings raise substantial
doubt about the Company's ability to continue as a going concern. The
appropriateness of using the going concern basis is dependent upon, among other
things, the Company's ability to achieve profitable operations
 
                                      F-11
<PAGE>   59
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
after emerging from bankruptcy and the Company's ability to generate sufficient
cash from operations to meet its obligations.
 
  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. Estimates
are used when accounting for, among other things, the collectibility of
receivables and third party settlements, depreciation and amortization, employee
benefit plans, taxes, contingencies and evaluation of impairment of long-lived
assets.
 
  Net Operating Revenues
 
     Revenues are recognized when services are provided and products are
delivered. RainTree'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.
 
     Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. RainTree believes that it is
substantially in compliance with all applicable laws and regulations and is not
aware of any pending or threatened investigations involving allegations of
potential wrongdoing which would have a material impact on RainTree's
consolidated financial condition or results of operations. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties and exclusion from the
Medicare and Medicaid programs.
 
     The Company has submitted to the Health Care Financing Administration
("HCFA") various requests for exceptions to the Medicare established routine
cost limitations for reimbursement ("RCLs"). These exceptions are permitted
under the Medicare regulations to allow providers reimbursement for treating
higher acuity patients. As of December 31, 1998, approximately $5,048 of
receivables related to Medicare RCL exception revenues remain subject to audit
and final approval by the fiscal intermediary. Based on consultation with
outside reimbursement specialists, management believes 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
RainTree.
 
     RainTree receives fees for the management of long-term care facilities on
behalf of the owners. Other operating revenues include management fees amounting
to $395, $1,725 and $1,200 in 1998, 1997 and 1996, respectively.
 
     Provision for doubtful accounts is made when the related revenue is
recorded and is included in other operating expense. The provisions totaled
$6,210, $2,039 and $2,742 in 1998, 1997 and 1996, respectively. 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 $9,663 and $7,423 at December 31, 1998 and 1997, respectively.
 
                                      F-12
<PAGE>   60
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  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. Included in cash and cash equivalents at
December 31, 1998 is $12,996 that was held in escrow until the Effective Date of
the Plan (Note 2) and subsequently used to settle bankruptcy claims and for
working capital.
 
  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. Major renewals or improvements
are capitalized, whereas ordinary maintenance and repairs are expensed as
incurred. Depreciation and amortization is computed using the straight-line
method for the lesser of the 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 have been recorded in connection with
the acquisitions of BritWill and Signature (Note 4) and represent the difference
between the aggregate consideration given for all of the acquired companies'
assets and 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, the 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 (Note 2).
 
                                      F-13
<PAGE>   61
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Goodwill resulting from various acquisitions is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                     AMORTIZATION     ------------------
                                                    PERIOD (YEARS)     1998       1997
                                                    --------------    -------    -------
<S>                                                 <C>               <C>        <C>
BritWill..........................................        40          $ 7,000    $ 7,000
Pharmacies........................................        20            1,402      1,402
Gamma Labs........................................        15            1,087      1,087
Sunbelt...........................................        20            5,425      5,425
Signature.........................................        40            6,881      9,300
RehabWest.........................................        20            5,029      5,029
Spine Rehab.......................................        20              845        845
                                                                      -------    -------
                                                                       27,669     30,088
Amortization......................................                     (2,853)    (1,731)
                                                                      -------    -------
                                                                      $24,816    $28,357
                                                                      =======    =======
</TABLE>
 
     Costs incurred in obtaining long-term financing are amortized on a
straight-line basis, which approximates the effective interest rate method, over
the terms of the related indebtedness. RainTree 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. The Company adopted 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 121"), on January 1,
1996. Under SFAS 121, an impairment loss is recognized if the sum of the
expected long-term cash flows is less than the carrying amount of the goodwill
and other assets being evaluated (Note 21).
 
  Extraordinary Charges
 
     Extraordinary charges represent prepayment penalties incurred on the early
extinguishment of debt (Note 12). As discussed in Note 17, RainTree has
established a full valuation reserve against its net operating loss carryforward
benefits. Therefore, no tax effect has been applied to the extraordinary charge.
 
  Income Taxes
 
     RainTree accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Deferred income taxes represent the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes.
 
  Net Loss Per Share
 
     Net loss per share is calculated by dividing net loss by the weighted
average number of common and dilutive equivalent shares outstanding.
 
     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is computed
by dividing income available to common stockholders by the weighted average
number of common shares actually outstanding during the period. Diluted earnings
per share include the dilutive effect of options,
 
                                      F-14
<PAGE>   62
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
warrants and convertible securities. RainTree's options, warrants and
convertible notes are not included in the calculation of net loss per share
because they are antidilutive.
 
  Reclassifications
 
     Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.
 
4.  ACQUISITIONS AND DISPOSITIONS
 
     In August 1995, RainTree acquired BritWill Healthcare Company and
subsidiaries ("BritWill"), a long-term care company operating approximately 28
facilities located in Texas and Indiana (the "BritWill Acquisition").
Consideration for the BritWill Acquisition included: (i) a debenture that was
subsequently converted into 561,815 shares of RainTree common stock; (ii) a
combination of promissory notes and lump sum contingent payment obligations
totaling approximately $25,000; (iii) a monthly contingent payment obligation
that subsequently became a fixed obligation (the "Additional Payment
Obligation"); and (iv) indemnifications and guarantees by RainTree of certain
debts and obligations of BritWill. An affiliate of Mr. Whitehead was the
majority shareholder of BritWill. As of December 31, 1998, the remaining
obligation related to the BritWill Acquisition was the Additional Payment
Obligation amounting to $9,588, which is included in liabilities subject to
compromise in the consolidated balance sheet.
 
     The BritWill Acquisition was accounted for as a purchase. The contingent
portions of the purchase price were added to lease operating rights when paid or
accrued. At December 31, 1998 and 1997, contingent payments and accruals
amounting to $19,523 had been added to lease operating rights.
 
     Effective February 1, 1996, RainTree acquired 90% of the common stock of
Sunbelt Therapy Management Services, Inc. and subsidiaries ("Sunbelt"), paying
$800 in cash and issuing term notes and subordinated convertible debentures
totaling $2,800. The transaction was accounted for as a purchase. In November
1996, RainTree purchased the remaining 10% of Sunbelt effective February 1,
1996. The aggregate purchase price amounted to $2,127. Consideration for the
purchase was comprised of promissory notes in the aggregate amount of $1,876 and
27,942 shares of RainTree common stock (Note 13). As of December 31, 1998, the
balance of these promissory notes was $1,626, which is included in liabilities
subject to compromise in the consolidated balance sheet.
 
     On October 31, 1996, RainTree simultaneously completed mergers with Ampro
and Memphis for aggregate consideration of $4,942. The outstanding shares of
Ampro common stock were converted into the right to receive 521,000 shares of
RainTree common stock. Three shareholders who owned approximately 35% of the
outstanding shares of Memphis received pro rata portions of 19,000 shares of
RainTree common stock and the holder of the remaining shares of Memphis received
cash in the amount of $237 and a promissory note in the amount of $250. The
total amount assigned to the 540,000 shares of RainTree common stock issued was
$4,455, based on the closing market price on October 31, 1996 of $8.25. The
transaction was recorded as a pooling of interests.
 
     On October 31, 1996, RainTree acquired Signature Health Care Corporation
and subsidiaries ("Signature"), which operates 13 long-term care facilities in
Colorado and Arizona. The initial aggregate purchase price of Signature amounted
to approximately $50,653, comprised of cash and promissory notes totaling
approximately $38,200 and 1,509,434 shares of RainTree common stock. The amount
assigned to the shares of RainTree common stock issued was $12,453, 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
stockholders' equity, in March 1997 the former shareholders of Signature
received additional consideration of $2,511, paid in convertible promissory
notes of $1,827 (the "Convertible Notes") and 238,052 shares of RainTree common
 
                                      F-15
<PAGE>   63
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
stock with a market value of $2.875 per share or $685 (Note 13). 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, RainTree
also acquired all of the outstanding stock of RehabWest, Inc. ("RehabWest"), a
related rehabilitation services company, for a cash purchase price of $6,100.
These acquisitions were accounted for as purchases. Mr. Kremser was Signature's
majority shareholder. The Convertible Notes are included in liabilities subject
to compromise in the consolidated balance sheet.
 
     Effective January 1, 1997, RainTree, through its Sunbelt subsidiary,
purchased the assets of Spine Rehab, a rehabilitation therapy services company
located in Mississippi. Consideration for the purchase was comprised of cash
amounting to $600 and a $300 promissory note. The promissory note is included in
liabilities subject to compromise in the consolidated balance sheet.
 
     In 1996, the Company announced a plan to dispose of eight long-term care
facilities that failed to meet RainTree's operational or financial criteria due
to inadequate Medicaid reimbursement, low occupancy rates or adverse local
market conditions. On March 1, 1997, four of these facilities were disposed of
via sublease agreement. In 1998, as part of the Company's restructuring plans,
RainTree modified its original disposition plan and identified additional
facilities for disposition. As part of these plans, in 1998 the Company
terminated the leases of 12 facilities. RainTree's facility disposition program
was concluded in the first quarter of 1999, when the Company terminated the
leases of seven additional facilities, six of which were leased from Omega (Note
2).
 
     The provision for losses on disposal of long-term care facilities is
included in impairment losses and other charges in the consolidated statement of
operations (Note 21). Revenues and expenses related to these facilities are
included in the consolidated statements of operations for the years ended
December 31 as follows:
 
<TABLE>
<CAPTION>
                                                         1998       1997       1996
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Total revenues........................................  $21,797    $44,220    $44,176
Total expenses........................................   24,769     48,450     49,114
</TABLE>
 
5.  STATEMENTS OF CASH FLOWS
 
     Supplemental information related to the statements of cash flows is as
follows:
 
<TABLE>
<CAPTION>
                                                           1998      1997       1996
                                                          ------    -------    ------
<S>                                                       <C>       <C>        <C>
Cash paid during year ended December 31 for:
  Interest..............................................  $4,417    $19,377    $3,014
  Income taxes..........................................      --        799       124
</TABLE>
 
     Cash paid for reorganization items related to the Chapter 11 proceedings
were as follows:
 
<TABLE>
<S>                                                           <C>
Professional fees...........................................  $1,912
Bankruptcy Trustee fees.....................................     208
Other.......................................................     120
                                                              ------
                                                              $2,240
                                                              ======
</TABLE>
 
                                      F-16
<PAGE>   64
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company's acquisitions involved the following noncash activities for
the years ended December 31:
 
<TABLE>
<CAPTION>
                                                           1998     1997       1996
                                                           ----    ------    --------
<S>                                                        <C>     <C>       <C>
Fair value of assets acquired............................   $--    $1,100    $122,420
Liabilities assumed and incurred.........................   --        441      68,492
Common stock issued......................................   --         --      12,703
                                                            --     ------    --------
                                                            $--    $  659    $ 41,225
                                                            ==     ======    ========
</TABLE>
 
     Other noncash financing activities for the years ended December 31 are as
follows:
 
<TABLE>
<CAPTION>
                                                             1998     1997      1996
                                                             ----    ------    ------
<S>                                                          <C>     <C>       <C>
Conversion of debentures into shares of common stock.......   $--    $  800    $1,174
Property and equipment acquired under capital leases.......   --        729     7,205
Accounts payable converted to debt.........................   --      3,206        --
</TABLE>
 
6.  PREPAID EXPENSES AND OTHER CURRENT ASSETS
 
     Prepaid expenses and other current assets as of December 31 are follows:
 
<TABLE>
<CAPTION>
                                                               1998      1997
                                                              ------    ------
<S>                                                           <C>       <C>
Prepaid expenses............................................  $1,741    $  870
Deferred taxes (Note 18)....................................   5,456     5,079
Inventories.................................................   1,473     1,819
                                                              ------    ------
                                                              $8,670    $7,768
                                                              ======    ======
</TABLE>
 
7.  PROPERTY AND EQUIPMENT
 
     Property and equipment as of December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                      LIFE (YEARS)     1998       1997
                                                      ------------    -------    -------
<S>                                                   <C>             <C>        <C>
Land and building...................................     15-25        $20,439    $17,863
Equipment...........................................      5-15         14,135     11,652
Leasehold improvements..............................     12-15          4,009      3,066
                                                                      -------    -------
                                                                       38,583     32,581
Accumulated depreciation............................                   (9,356)    (6,993)
                                                                      -------    -------
                                                                      $29,227    $25,588
                                                                      =======    =======
</TABLE>
 
     Property and equipment includes assets acquired under capitalized leases of
approximately $4,477 at December 31, 1998 and 1997. Accumulated depreciation
related to capital leases amounted to $1,973 and $1,170 at December 31, 1998 and
1997, respectively.
 
     Property and equipment also includes land and buildings leased from Omega
in the aggregate amount of $20,156 (Note 2). The Sale Leaseback was accounted
for as a financing transaction (Note 15).
 
                                      F-17
<PAGE>   65
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  LEASE OPERATING RIGHTS AND OTHER INTANGIBLE ASSETS
 
     Lease operating rights and other intangible assets as of December 31 are as
follows:
 
<TABLE>
<CAPTION>
                                                     AMORTIZATION
                                                    PERIOD (YEARS)     1998       1997
                                                    --------------    -------    -------
<S>                                                 <C>               <C>        <C>
Lease operating rights............................      25-30         $56,648    $79,723
Capitalized assembled workforce...................          3           1,845      1,845
Debt and bond issue costs.........................       3-10           8,786      7,882
Covenants not to compete..........................          5             100        850
Other.............................................       5-20             792        956
                                                                      -------    -------
                                                                       68,171     91,256
Accumulated amortization..........................                     (9,211)    (6,769)
                                                                      -------    -------
                                                                      $58,960    $84,487
                                                                      =======    =======
</TABLE>
 
     The reduction in lease operating rights from 1997 to 1998 is primarily a
result of the Company's evaluation of its long-lived assets for impairment in
accordance with SFAS 121 (Note 21).
 
9.  SECURITY DEPOSITS AND OTHER ASSETS
 
     Security deposits and other assets as of December 31 are summarized as
follows:
 
<TABLE>
<CAPTION>
                                                               1998      1997
                                                              ------    ------
<S>                                                           <C>       <C>
Security deposits -- leases.................................  $5,322    $4,373
Security deposits -- insurance..............................   4,061     3,444
                                                              ------    ------
                                                              $9,383    $7,817
                                                              ======    ======
</TABLE>
 
     In connection with its lease agreements with Omega, RainTree is required to
maintain security deposits. Deposits held by Omega amounted to $4,646 and $3,739
at December 31, 1998 and 1997, respectively.
 
10.  ACCOUNTS PAYABLE
 
     Accounts payable as of December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                               1998       1997
                                                              -------    ------
<S>                                                           <C>        <C>
Trade payables..............................................  $ 8,571    $5,329
Checks drawn in excess of bank balances.....................    2,244     2,263
                                                              -------    ------
                                                              $10,815    $7,592
                                                              =======    ======
</TABLE>
 
                                      F-18
<PAGE>   66
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
11.  ACCRUED EXPENSES
 
     Accrued expenses as of December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                               1998       1997
                                                              -------    -------
<S>                                                           <C>        <C>
Accrued compensation and benefits...........................  $ 8,266    $ 9,843
Accrued interest............................................       --      3,603
Accrued professional fees...................................      113      1,585
Income and gross receipt taxes..............................    2,329      3,340
Reserve for dispositions....................................    1,103      2,023
Other.......................................................    3,364      4,223
                                                              -------    -------
                                                              $15,175    $24,617
                                                              =======    =======
</TABLE>
 
12.  NOTES PAYABLE AND LONG-TERM DEBT
 
     Notes payable and long-term debt due to related parties as of December 31
are as follows:
 
<TABLE>
<CAPTION>
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Additional Payment Obligation...............................  $  9,588    $  9,588
Working capital notes.......................................     3,950       3,950
Notes in escrow.............................................     1,146       1,146
Convertible Notes...........................................     1,826       1,826
Subordinated notes payable to a related party...............     2,312       2,320
Other notes.................................................     1,670       1,670
                                                              --------    --------
                                                                20,492      20,500
Less amounts included in liabilities subject to
  compromise................................................   (20,492)         --
Less current portion........................................        --     (20,500)
                                                              --------    --------
                                                              $     --    $     --
                                                              ========    ========
</TABLE>
 
     When RainTree and its subsidiaries filed for bankruptcy in 1998, the
Company was in payment default of all of the related party obligations listed
above. Therefore, these obligations are included in liabilities subject to
compromise in the consolidated balance sheet as of December 31, 1998. Under the
terms of the Plan, the claims of Messrs. Kremser and Whitehead and their
respective affiliates were settled as described in Note 2. Other notes payable
to related parties were general unsecured claims of RainTree.
 
     In connection with the BritWill Acquisition (Note 4), RainTree incurred the
Additional Payment Obligation in the original amount of $11,500.
 
     On April 21, 1997, RainTree obtained a $2,950 loan for general working
capital purposes from affiliates of Messrs. Kremser and Whitehead. This loan
matured on August 1, 1997. On September 25, 1997, RainTree borrowed an
additional $1,000 from Messrs. Whitehead and Kremser which was due on October 7,
1997.
 
     A portion of the purchase consideration for Signature was comprised of
promissory notes totaling $1,146, which were placed in escrow (the "Escrow
Notes"). Of this amount, $500 was due to be paid to Mr. Kremser and the other
former shareholders of Signature on October 31, 1997 and the remaining $646 was
due and payable on October 31, 1998.
 
                                      F-19
<PAGE>   67
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In March 1997, the former shareholders of Signature received additional
consideration of $2,511, paid in the form of the Convertible Notes amounting to
$1,826 and 238,052 shares of RainTree common stock with a conversion price of
$2.875 per share. The Convertible Notes were due on December 31, 1997.
 
     Subordinated notes payable were incurred in connection with the BritWill
Acquisition and are payable to BritWill Texas, an affiliate of Mr. Whitehead.
 
     Other notes include obligations to the former owners of Sunbelt amounting
to $1,626 (Note 4).
 
     Other notes payable and long-term debt as of December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                               1998       1997
                                                              ------    --------
<S>                                                           <C>       <C>
12 1/4% Senior Notes........................................  $   --    $100,000
13% Senior Notes............................................      --      20,000
Mortgage Note...............................................      --      18,422
Revolving line of credit....................................   7,004       7,117
Capital lease obligations (Note 16).........................     665       3,429
Notes payable to trade vendors..............................      --       1,100
Term loans and other........................................     475       2,229
                                                              ------    --------
                                                               8,144     152,297
Less current portion........................................  (1,012)   (144,277)
                                                              ------    --------
                                                              $7,132    $  8,020
                                                              ======    ========
</TABLE>
 
     When RainTree filed for bankruptcy in 1998, it was in payment and/or
covenant default of substantially all of its debt obligations. Therefore,
prepetition unsecured debt obligations and capital leases that were rejected are
included in liabilities subject to compromise in the consolidated balance sheet
as of December 31, 1998. The settlement of bankruptcy claims related to these
obligations is described in Note 2.
 
     Other notes and long-term debt included in liabilities subject to
compromise are as follows:
 
<TABLE>
<CAPTION>
                                                                   AT
                                                              DECEMBER 31,
                                                                  1998
                                                              ------------
<S>                                                           <C>
12 1/4% Senior Notes........................................    $100,000
13% Senior Notes............................................      20,000
Notes payable to trade vendors..............................       1,061
Capital lease obligations...................................       2,411
Term loans and other........................................         531
                                                                --------
                                                                $124,003
                                                                ========
</TABLE>
 
     When RainTree filed for bankruptcy, it obtained an extension of its
revolving line of credit with Health Partners. Borrowings under the $11,000 HCFP
DIP Facility accrued interest at the prime rate plus 3.0% and were secured by
the Company's eligible accounts receivable. On the Effective Date, the
outstanding balance of $8,145 was repaid. The HCFP DIP Facility was partially
replaced with a new $7,000 revolving line of credit with Health Partners (the
"First Line"). Interest on amounts outstanding under the First Line accrues at
the prime rate plus 0.85%. A commitment fee of 0.5% per annum is payable on the
unused portion. The Company is in the process of negotiating with Health
Partners with respect to another $7,000 line of credit (the "Second Line").
Total combined borrowings under the First Line and Second Line cannot exceed
$12,000. The lines of credit will expire in January 2002.
 
                                      F-20
<PAGE>   68
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In connection with the Signature acquisition, RainTree assumed the 10.5%
Mortgage Note collateralized by property and equipment of six of the Signature
facilities. In connection with the Sale Leaseback transaction on December 31,
1998 (Note 2), the Mortgage Note was repaid in the amount of $18,240 plus
interest and a prepayment penalty of $1,094.
 
     Future maturities of notes payable and long-term debt at December 31, 1998,
excluding amounts included in liabilities subject to compromise, are as follows:
 
<TABLE>
<S>                                                   <C>
Years ending December 31,
1999................................................  $1,012
2000................................................     128
2001................................................      --
2002................................................   7,004
2003................................................      --
                                                      ------
                                                      $8,144
                                                      ======
</TABLE>
 
13.  STOCKHOLDER'S EQUITY
 
     Since 1995, RainTree has issued a number of warrants to purchase its common
stock, as described below. Under the terms of the Plan, all warrants were
cancelled on the Effective Date.
 
     In December 1995 and January 1996, RainTree completed its initial public
offering (the "IPO"), issuing 2,000,000 shares of common stock at $9.00 per
share. In connection with the IPO, RainTree issued warrants to purchase of up to
120,000 shares of common stock to the representatives of the underwriters in
exchange for certain advisory services provided to the Company during the
twelve-month period following the IPO. The exercise price of the warrants was
$11.70 per share (market value at the date of grant), which approximates the
fair value of consideration received at the date of issuance. The warrants were
exercisable for a five-year period beginning in December 1996.
 
     On August 10, 1995, RainTree entered into a stock purchase agreement with
Health Partners. The agreement entitled HealthPartners to purchase shares of
RainTree's common stock with an aggregate market value of $150, or approximately
16,667 shares based on the IPO price of $9.00 per share. The $150 was
capitalized as a deferred financing cost. In December 1996, HealthPartners
exercised its option to require RainTree to repurchase the warrants for $213 in
cash, which was recorded as a reduction of additional paid-in capital.
 
     Effective December 31, 1994, RainTree completed a stock purchase agreement
to satisfy amounts due to an individual who actively negotiated several of
RainTree's management and operating lease agreements. The warrants were
exercised in 1996, whereby 178,000 shares of RainTree common stock were
purchased for two hundred dollars. Since the warrants were granted at less than
fair market value, leasehold rights totaling $43 were 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 RainTree common stock were issued to a commercial bank in connection
with a short-term loan agreement. The exercise prices of the warrants were
$12.80 and $13.00 (market value at the date of grant), which approximates the
fair value of consideration received at the date of issuance.
 
     RainTree's common stock was traded on The Nasdaq Stock Market's National
Market System from December 19, 1995 to August 21, 1997. Effective August 22,
1997, Nasdaq moved RainTree's securities to its SmallCap Market because the
Company did not satisfy the minimum tangible net asset requirement for the
listing of its stock on the National Market System. On February 23, 1998, new,
more stringent quantitative
 
                                      F-21
<PAGE>   69
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
maintenance requirements for continued listing on the Nasdaq SmallCap Market
went into effect. RainTree did not meet these requirements, and on April 15,
1998, Nasdaq delisted the Company's securities.
 
14.  STOCK OPTIONS
 
     Prior to the Effective Date, RainTree issued stock options pursuant to the
1995 Stock Option Plan (the "1995 Plan"). On the Effective Date, all outstanding
stock options were cancelled, as was the 1995 Plan.
 
     The 1995 Plan offered two types of options. The discretionary option grant
program (the "Discretionary Program") provided that eligible individuals could,
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. The automatic option grant program (the "Automatic Program") provided
that grants of options were automatically 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 vested over two years and was exercisable for ten
years. Options granted under the Discretionary Program vested over periods of
two to four years.
 
     RainTree 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. The alternative
fair value accounting provided for under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
RainTree's employee stock options equaled 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 RainTree had accounted for
its employee stock options under the fair value method of that Statement. The
fair value of the options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
5.0%, 5.0% and 5.0%; dividend yields of 0%, 0% and 0%; volatility factors of the
expected market price of the Company's common stock of 11.17, 1.32 and .64 and a
weighted-average expected life of the option of eight years.
 
     The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that 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
RainTree's employee stock options have characteristics significantly different
from those of traded options, and 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. Because
outstanding stock options were cancelled on the Effective Date, all unamortized
amounts are assumed to be charged to expense in 1998. RainTree's pro forma
information follows:
 
<TABLE>
<CAPTION>
                                                         1998       1997       1996
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Pro forma net loss....................................  $46,065    $48,415    $24,157
Pro forma net loss per share..........................  $  7.17    $  7.60    $  5.16
</TABLE>
 
                                      F-22
<PAGE>   70
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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, 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
  Granted............................    913,466           2.63            122,500           2.44
  Canceled...........................   (696,730)          8.06           (139,980)          9.33
  Exercised..........................       (350)          9.00                 --
                                       ---------                          --------
  Outstanding at December 31, 1997...    829,663           3.13            122,500           2.44
  Granted............................    105,000           0.53                 --
  Canceled...........................   (118,485)          3.74            (41,250)          2.44
  Exercised..........................         --                                --
                                       ---------                          --------
  Outstanding at December 31,
     1998............................    816,178           2.63             81,250           2.44
                                       =========                          ========
Exercisable at December 31, 1996.....    127,998          $9.00             23,740          $9.00
  1997...............................    198,138           3.79             61,250           2.44
  1998...............................    403,320           2.65             81,250           2.44
Weighted-average fair value of
  options granted:
  1996...............................  $    6.39
  1997...............................       2.38
  1998...............................       0.53
</TABLE>
 
     Exercise prices for options outstanding at December 31, 1998 ranged from
$0.53 to $9.50. The weighted-average remaining contractual life of those options
is 8.7 years.
 
     At December 31, 1998, 590,915 shares of common stock were available under
the 1995 Plan for future awards.
 
15.  LEASES
 
     As of December 31, 1998, RainTree operated 35 facilities under
noncancelable operating leases with lease terms ranging from five to twenty
years plus renewal options. The lease agreements provide for either scheduled
rent increases or contingent rent based on increases in the Consumer Price Index
("CPI"), Medicaid reimbursement rates, and number of licensed beds. Certain of
the leases have purchase options determined by a specified formula. RainTree is
responsible for all taxes, maintenance and other executory costs.
 
     As of December 31, 1998, RainTree leased 21 facilities from Omega. RainTree
also leased six facilities from BritWill Texas that were subject to a mortgage
in favor of Omega. RainTree entered into the Omega Master Lease on December 31,
1998 covering seven facilities sold to Omega in the Sale Leaseback transaction
(Note 2). On the Effective Date, 11 facilities were added to the Omega Master
Lease, including three
 
                                      F-23
<PAGE>   71
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
facilities previously leased from BritWill Texas. As described in Note 2, six
facilities previously leased from Omega were excluded from the Omega Master
Lease.
 
     The initial term of the Omega Master Lease is 14 years with one 14 -year
renewal option. The Omega Master Lease grants RainTree the option to purchase
the Omega facilities upon the expiration of the initial lease term. At January
31, 1999, the annual minimum rent under the Omega Master Lease (before
escalations) was approximately $8,276 during the initial lease term. The minimum
rent is subject to increase annually based upon increases in facility revenue
and the CPI. The Omega Master Lease requires the Company to maintain specified
cash flow to debt service and current ratios and minimum levels of tangible net
worth.
 
     The Sale Leaseback with Omega was accounted for as a financing transaction.
Therefore, RainTree recorded a lease financing obligation amounting to $38,200,
which was the sales price of the seven buildings sold to Omega. Rent associated
with these facilities, which will total approximately $4,429 in 1999, will be
recorded as interest expense.
 
     In connection with the BritWill Acquisition (Note 4), RainTree recorded a
leasehold liability in the amount of $4,700. This adjustment was based on an
independent appraisal that 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.
 
     Future minimum lease payments at December 31, 1998 under noncancelable
lease arrangements with initial or remaining terms of one year or more,
including the Omega Master Lease, consist of the following. Capital lease
payments include rent related to the seven facilities included in the Sale
Leaseback.
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                                      CAPITAL     OPERATING
------------------------                                      --------    ---------
<S>                                                           <C>         <C>
1999........................................................  $  3,862    $ 11,701
2000........................................................     3,854      11,745
2001........................................................     3,967      11,877
2002........................................................     4,082      11,998
2003........................................................     4,201      11,995
Thereafter..................................................    42,914      78,613
                                                              --------    --------
Total minimum lease payments................................    62,880    $137,929
                                                                          ========
Less amount representing interest...........................   (62,215)
                                                              --------
Present value of net minimum lease payments.................       665
Less current portion........................................      (171)
                                                              --------
Long-term obligations.......................................  $    494
                                                              ========
</TABLE>
 
     RainTree's lease payments are senior to all unsecured debt.
 
16.  RELATED PARTY TRANSACTIONS
 
     The notes, debentures and Additional Payment Obligation issued as
consideration for the BritWill Acquisition were issued to the former
shareholders of BritWill (Notes 4 and 12). The majority shareholder of BritWill
was Whitehead Family Investments, Ltd. ("WFI"), which owned 81.5% of the stock
of BritWill prior to the BritWill Acquisition. Mr. Whitehead is the president of
the general partner of WFI and, together with a family trust, owns 100% of WFI.
With the BritWill Acquisition, RainTree also assumed unsecured subordinated
notes payable to BritWill Texas with an aggregate balance at December 31, 1998
of $2,312 (Note 12).
 
                                      F-24
<PAGE>   72
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In connection with the acquisition of Signature, RainTree incurred debt
obligations to Mr. Kremser and the other shareholders of Signature, including
the Escrow Notes and Convertible Notes. In 1997, RainTree obtained working
capital loans in the aggregate amount of $3,950 from affiliates of Mr. Kremser
and Mr. Whitehead (Note 12).
 
     As of December 31, 1998, RainTree was in default of its debt obligations to
Messrs. Whitehead and Kremser and their affiliates in the aggregate amount of
$18,822 (Note 12). These obligations were settled under the terms of the Plan
(Note 2). RainTree recorded interest expense on obligations to the Kremser
Affiliates in the amount of $268, $348 and $15 in 1998, 1997 and 1996,
respectively. Interest expense related to obligations to the Whitehead
Affiliates amounted to $581, $1,327 and $1,215 in 1998, 1997 and 1996,
respectively.
 
     In connection with the BritWill Acquisition, RainTree paid a financial
advisory fee to Trouver Capital Partners, L.P. ("Trouver") in the amount of
$675. One of Trouver's general partners was a director of RainTree until
December 1998. This individual is also the president and sole shareholder of
Woodhill Capital Corporation ("Woodhill"). RainTree paid an advisory fee of $350
to Woodhill in connection with the sale of the 13% Senior Notes.
 
     Prior to the Effective Date, Mr. Whitehead personally guaranteed RainTree's
lease payments to Omega (Note 15) to $13,500. RainTree also leased six
facilities in Texas from BritWill Texas. Lease expense on the BritWill Texas
Leases amounted to $1,119, $1,241 and $2,661 in 1998, 1997 and 1996,
respectively.
 
17.  INCOME TAXES
 
     The components of income tax expense (benefit) are as follows:
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1998       1997       1996
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Current:
  Federal.............................................  $   772    $   596    $   698
  State...............................................      320        210         61
Deferred:
  Federal.............................................   (9,408)    (2,828)    (7,777)
  State...............................................   (1,526)      (458)    (1,338)
                                                        -------    -------    -------
                                                        $(9,842)   $(2,480)   $(8,356)
                                                        =======    =======    =======
</TABLE>
 
                                      F-25
<PAGE>   73
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The difference between RainTree's effective income tax rates and statutory
rates are as follows:
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Statutory federal income tax expense (benefit).....  $(18,661)   $(16,895)   $(10,810)
Increases (decreases) resulting from:
  Change in effective tax rate.....................        --          --        (495)
  Amortization of intangibles and nondeductible
     expenses......................................       562         413       1,060
  State tax expense (benefit), net of federal
     benefit.......................................    (1,843)     (1,873)       (876)
  Change in valuation allowance....................     9,387      16,024       1,528
  Current federal income taxes of subsidiaries not
     consolidated for tax purposes.................       772         596         698
  Adjustments to tax bases of acquired companies...        --        (539)         --
  Other............................................       (59)       (206)        539
                                                     --------    --------    --------
Income tax expense (benefit).......................  $ (9,842)   $ (2,480)   $ (8,356)
                                                     ========    ========    ========
</TABLE>
 
     Significant components of deferred taxes are as follows:
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1998        1997
                                                              --------    --------
<S>                                                           <C>         <C>
Deferred liabilities:
  Intangibles...............................................  $ (4,957)   $(15,547)
  Accelerated depreciation..................................      (499)       (466)
  State income taxes........................................      (271)         --
  Cash to accrual adjustment................................      (112)       (224)
                                                              --------    --------
Total liabilities...........................................    (5,839)    (16,237)
                                                              --------    --------
Deferred assets:
  Allowance for doubtful accounts...........................     3,650       2,796
  Reserve for loss on disposition of assets.................       886       1,953
  Vacation accruals.........................................       378         516
  Net operating loss carryforward...........................    19,607      17,552
  Taxable gain on sale leaseback............................     6,935          --
  Other, net................................................     1,322          38
                                                              --------    --------
Total assets................................................    32,778      22,855
                                                              --------    --------
Total net asset.............................................    26,939       6,618
Valuation allowance.........................................   (26,939)    (17,552)
                                                              --------    --------
Net deferred items..........................................  $     --    $(10,934)
                                                              ========    ========
</TABLE>
 
     SFAS No. 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes and certain other factors, the Company
has established a valuation allowance principally for the portion of its
deductible temporary differences, including net operating loss carryforwards
that may not be available due to expirations or other limitations after
consideration of net reversals of future taxable and deductible amounts. After
application of the valuation allowance, RainTree's net deferred tax assets and
liabilities are zero.
 
                                      F-26
<PAGE>   74
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Management has determined that its net operating loss carryforwards
amounting to $51,912 will be subject to substantial reduction in realizability
in future periods. Specifically, the Internal Revenue Service Code provides
that, in a Chapter 11 bankruptcy case, income normally arising from the
discharge of indebtedness is excluded from taxable income. However, to the
extent that income from discharge of indebtedness is excluded from income,
taxpayers must reduce specified tax attributes which include net operating
losses. The Company anticipates that, in connection with the implementation of
the Plan (Note 2), its net operating losses will be substantially reduced as a
result of the restructuring of its debt obligations. In addition, the Company
may have had a statutory ownership change (as defined for purposes of Section
382 of the Internal Revenue Code) as a result of the effectiveness of the Plan.
Accordingly, those net operating losses that may remain available as a result of
the income tax implications of the attribute reduction may be restricted.
 
     If the Company, in future tax periods, were to recognize tax benefits
attributable to tax attributes of the Company prior to the Effective Date of the
Plan (such as net operating loss carryforwards), any such benefit would be
applied to reduce the balance of reorganization value in excess of amounts
allocable to identifiable assets.
 
18.  FAIR VALUES OF FINANCIAL INSTRUMENTS
 
     The carrying amounts reported in the consolidated balance sheet for cash,
accounts receivable, lease deposits, accounts payable and accrued expenses
approximate their fair value. The aggregate carrying amounts and fair values of
RainTree's other financial instruments at December 31 are as follows:
 
<TABLE>
<CAPTION>
                                                  1998                    1997
                                           -------------------    --------------------
                                           CARRYING     FAIR      CARRYING      FAIR
                                            AMOUNT      VALUE      AMOUNT      VALUE
                                           --------    -------    --------    --------
<S>                                        <C>         <C>        <C>         <C>
Notes payable and long-term debt,
  excluding capital lease obligations....  $  7,479    $ 7,479    $169,369    $155,446
Notes payable and long-term debt included
  in liabilities subject to compromise,
  excluding capital lease obligations....   142,084     46,000          --          --
</TABLE>
 
     The fair values of RainTree's borrowings not subject to compromise are
estimated based on quoted market prices or by discounting future cash flows at
current rates offered to RainTree for debt of comparable types and maturities.
Because no market exists for certain of these obligations, 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.
 
     The fair values of borrowings included in liabilities subject to compromise
were determined based on the settlement of these items pursuant to the Plan
(Note 2).
 
19.  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. RainTree 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 coverage could have an
adverse effect on RainTree's business. However, based upon the evaluation of
RainTree's historical asserted
 
                                      F-27
<PAGE>   75
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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, 1998.
 
     In 1998, approximately 25% of employees enrolled in Company sponsored
health plans were covered under a self-insured plan. RainTree's liability for
losses under this plan is capped at $25 per claim and $2,500 per person through
a contract with an insurance company. The Company is also insured for Workers'
Compensation. The Company's liability for losses is capped at $250 per claim
through a contract with an insurance company. RainTree has a cash deposit of
$2,244 with this insurance company which is held as collateral.
 
     RainTree is insured for professional and general liability claims under a
claims made, retrospective insurance policy. Beginning December 1, 1998, the
Company's liability for losses is capped at $1,750 in the aggregate. RainTree
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 RainTree. 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.
 
20.  COMMITMENTS AND CONTINGENCIES
 
  Regulatory Environment
 
     The health care industry is subject to numerous laws and regulations of
federal, state and local governments. Compliance with these laws and regulations
can be subject to future government review and interpretation as well as
regulatory actions unknown or unasserted at this time. Recently, government
activity has increased with respect to investigations and allegations concerning
possible violations by health care providers, which creates a possibility of
significant repayments for reimbursement of patient services previously billed.
The Company believes that it is in substantial compliance with the applicable
laws and regulations. However, if the Company is ever found to have engaged in
improper practices, it could be subjected to civil, administrative or criminal
fines, penalties or restitutionary relief.
 
  Healthcare Reform Legislation
 
     The Balanced Budget Act enacted in August 1997 (the "Budget Act") contains
extensive changes to the Medicare and Medicaid programs intended to reduce the
projected amount of increase in payments under those programs over the next five
years. The Budget Act also requires the establishment of a prospective payment
system for nursing facilities for cost reporting periods beginning on or after
July 1, 1998. During the first three years, the per diem rates for nursing
facilities will be based on a blend of facility-specific costs and Federal
costs. Thereafter, the per diem rates will be based solely on Federal costs. The
payments received under the new prospective payment system will cover all
services for Medicare patients, including all ancillary services, such as
respiratory therapy, physical therapy, occupational therapy, speech pathology
and certain covered drugs. Management has not completed the analysis to
determine the impact that the Budget Act will have on future operations.
However, the Company is actively implementing strategies and operational
modifications to address changes in the Federal reimbursement system.
 
     There also continues to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as RainTree. Many states have enacted or are considering enacting
measures that are designed to reduce their Medicaid expenditures including cost
caps and the establishment of Medicaid prospective payment systems for nursing
facilities.
 
     Approximately 84% of RainTree's long-term care net patient service revenues
in 1998, 1997 and 1996 were derived from reimbursement under Medicare and
Medicaid programs, and approximately 90% and 88%
 
                                      F-28
<PAGE>   76
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
of RainTree's patient accounts receivable at December 31, 1998 and 1997,
respectively, were due from such programs.
 
     There can be no assurance that the Budget Act or future healthcare
legislation will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
 
21.  ASSET IMPAIRMENT
 
     In 1996, RainTree 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 RainTree'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, RainTree 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. In 1997, the Company
continued to incur operating losses and cash shortfalls from operations and
identified additional facilities for disposition. In 1998, RainTree filed for
reorganization under Chapter 11 (Note 2). Accordingly, the Company reevaluated
its long-lived assets for impairment in 1997 and 1998.
 
     To evaluate assets for impairment, RainTree estimated the undiscounted net
cash flows from all business units and determined that the carrying value of
certain of RainTree's long-lived assets exceeded such undiscounted cash flows.
RainTree then compared the fair value of the assets, based on the present value
of the estimated future cash flows for the facilities, with the carrying value.
The estimates of future cash flows were 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. RainTree determined that the fair value
of certain facilities was less than their carrying value and estimated the costs
to sublease and exit from facilities held for disposition (Note 4). Accordingly,
RainTree recorded impairment losses and other charges of $23,385, $27,185 and
$3,865 in 1998, 1997 and 1996, respectively.
 
22.  LITIGATION
 
     Various suits and claims arising in the ordinary course of business are
pending against the Company. 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.
 
     RainTree is a defendant in seven consolidated securities class action
lawsuits pending in the United States District Court in Phoenix, Arizona (the
"Federal Action"), and a securities class action lawsuit pending in California
Superior Court (the "State Action") (collectively, the "Class Actions"). The
Class Actions arise from the Company's announcement on March 11, 1997 that it
would be restating its financial results for the nine-month period ended
September 30, 1996. The Federal Action seeks damages for alleged violations of
federal and Arizona state securities laws; the State Action seeks damages for
alleged violations of the California state securities laws. The broadest class
period is that alleged in the Federal Action from December 18, 1995 (the date of
the Company's initial public offering) to May 30, 1997.
 
     The parties in the Federal Action have reached a settlement in principle
that is expected to resolve both the Federal and State Actions in their
entirety, assuming appropriate court approval and acceptance by members of the
class. The settlement calls for a cash payment by the Company's primary insurer
amounting to $4,250 and 1,000,000 "pre-bankruptcy" common shares or the
post-bankruptcy equivalent of such shares.
 
                                      F-29
<PAGE>   77
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Under the Plan, existing equity holders had their interests converted into
warrants; under the proposed settlement, class members who receive RainTree
shares will receive the same prorated treatment. The settlement was approved by
the Bankruptcy Court on December 30, 1998 and preliminary approval of the
settlement was granted by the district court in the Federal Action on February
24, 1999. A Notice of Settlement of Class Action and a Proof of Claim and
Release form has been mailed to the Company's shareholders of record immediately
before and after the class period and all purchasers of record of the Company's
common stock during the class period. A final settlement approval hearing is
scheduled for April 28, 1999.
 
23.  OPERATING SEGMENTS
 
     During the fourth quarter of 1998, RainTree adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires the presentation of
descriptive information about reportable segments that is consistent with that
made available to the management of the Company to assess performance.
RainTree's four reportable segments are strategic business units that involve
specialized healthcare services and require different marketing strategies.
 
     The long-term care segment consists of RainTree's nursing facilities and
assisted and independent living facilities. Sunbelt conducts the Company's
rehabilitation therapy segment operations. The pharmacy segment is comprised of
RainTree's institutional pharmacy and Medicare Part B billing and supply
business units. The laboratory segment represents the combined operations of
Ampro and Memphis.
 
     The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies (Note 3).
Intersegment sales are accounted for at fair value as if the sales were to third
parties.
 
<TABLE>
<CAPTION>
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Revenues from nonrelated entities:
  Long-term care...........................................  $140,549    $172,139    $121,970
  Rehabilitation therapy...................................    12,073      10,505       8,701
  Pharmacy.................................................     9,750       9,799       6,755
  Laboratory...............................................        --          --          --
  Corporate................................................        91         630       1,560
                                                             --------    --------    --------
     Total.................................................  $162,463    $193,073    $138,986
                                                             ========    ========    ========
Total revenues:
  Long-term care...........................................  $140,549    $172,139    $121,970
  Rehabilitation therapy...................................    22,988      31,091      13,213
  Pharmacy.................................................    15,015      14,200       8,484
  Laboratory...............................................     5,388       6,306       6,547
  Corporate................................................     9,332      11,763       7,578
  Eliminations.............................................    (9,241)    (11,133)     (9,118)
                                                             --------    --------    --------
     Total.................................................  $184,031    $224,366    $148,674
                                                             ========    ========    ========
</TABLE>
 
                                      F-30
<PAGE>   78
                        RAINTREE HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Operating income (loss):
  Long-term care...........................................  $ (9,480)   $ (3,297)   $ (7,269)
  Rehabilitation therapy...................................    (4,456)      1,414       1,113
  Pharmacy.................................................     2,708       2,500       1,346
  Laboratory...............................................    (1,628)       (380)       (565)
  Unallocated corporate expenses...........................   (12,063)    (22,743)    (22,554)
                                                             --------    --------    --------
     Consolidated operating loss...........................   (24,919)    (22,506)    (27,929)
Impairment losses and other charges........................    23,385      27,185       3,865
Reorganization items.......................................     5,487          --          --
                                                             --------    --------    --------
Consolidated loss before income taxes and extraordinary
  charge...................................................  $(53,791)   $(49,691)   $(31,794)
                                                             ========    ========    ========
Total assets:
  Long-term care...........................................  $ 79,624    $104,340    $122,049
  Rehabilitation therapy...................................    13,266      14,472      14,004
  Pharmacy.................................................     5,751       4,648       3,751
  Laboratory...............................................     2,372       3,734       4,033
  Corporate................................................    73,732      67,915      90,297
  Eliminations.............................................    (4,205)     (2,942)     (3,213)
                                                             --------    --------    --------
     Total.................................................  $170,540    $192,167    $230,921
                                                             ========    ========    ========
Interest expense:
  Long-term care...........................................  $  3,800    $  4,232    $    532
  Rehabilitation therapy...................................        20          68         399
  Pharmacy.................................................        16          45         168
  Laboratory...............................................        20           1         175
  Corporate................................................     8,284      15,730       3,287
                                                             --------    --------    --------
     Total.................................................  $ 12,140    $ 20,076    $  4,561
                                                             ========    ========    ========
Depreciation and amortization:
  Long-term care...........................................  $  4,266    $  6,360    $  2,510
  Rehabilitation therapy...................................       955         963         302
  Pharmacy.................................................       183         146          92
  Laboratory...............................................       248         252         194
  Corporate................................................     3,318       2,253       1,463
                                                             --------    --------    --------
     Total.................................................  $  8,970    $  9,974    $  4,561
                                                             ========    ========    ========
Routine capital expenditures:
  Long-term care...........................................  $  1,635    $    641    $  2,147
  Rehabilitation therapy...................................       139         163         116
  Pharmacy.................................................        66         180         194
  Laboratory...............................................       130          73          73
  Corporate................................................       995       1,207       4,044
                                                             --------    --------    --------
     Total.................................................  $  2,965    $  2,264    $  6,574
                                                             ========    ========    ========
</TABLE>
 
     Corporate assets include lease operating rights amounting to $20,648.
Amortization expense related to this asset, amounting to $1,265 in 1998, was
allocated to the long-term care segment.
 
                                      F-31
<PAGE>   79
                                                                     SCHEDULE II

                         RAINTREE HEALTHCARE CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (In thousands)


<TABLE>
<CAPTION>
                                                            ADDITIONS
                                                      --------------------
                                                      CHARGED
                                         BALANCE AT   TO COSTS    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, 1996
   Allowance for doubtful accounts ....     $  783      $2,742     $  672 (1)    $  (421) (2)      $3,776
Year ended December 31, 1997
   Allowance for doubtful accounts ....     $3,776      $2,039     $1,967 (3)    $  (359) (2)      $7,423
Year ended December 31, 1998
   Allowance for doubtful accounts ....     $7,423      $6,210         --        $(3,970) (2)      $9,663
</TABLE>

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

(1)  Represents the allowance for doubtful accounts recorded by Signature at
     October 31, 1996. 
(2)  Uncollectible accounts written off, net of recoveries.
(3)  Included in impairment losses and other charges in the consolidated
     statement of operations.














                                       S-1
<PAGE>   80
 
                               INDEX TO EXHIBITS
 
<TABLE>
<C>    <S>
 2.1   Disclosure Statement in Support of Debtors' Joint Plan of
       Reorganization Dated August 10, 1998 and Debtors' Joint Plan
       of Reorganization Dated August 10 (incorporated by reference
       to Exhibit 99.1 to Form 8-K filed on August 13, 1998)
 2.2   Disclosure Statement in Support of Debtors' First Amended
       Joint Plan of Reorganization Dated October 15, 1998 and
       Debtors' First Amended Joint Plan of Reorganization Dated
       October 15, 1998 (incorporated by reference to Exhibit 2.1
       to Form 10-K filed on November 4, 1998)
 3.1   Certificate of Incorporation of RainTree Healthcare
       Corporation, as amended and restated (incorporated by
       reference to Exhibit 2 of Amendment No. 1 to the Form 8-A
       filed on April 8, 1999)
 3.2   Bylaws of RainTree Healthcare Corporation, as amended and
       restated (incorporated by reference to Exhibit 3 to
       Amendment No. 1 to the Form 8-A filed on April 8, 1999)
 4.1   Indenture dated as of January 31, 1999, among RainTree
       Healthcare Corporation, the Guarantors and Norwest Bank
       Minnesota, National Association, as Trustee
10.1   Omega New Master Lease dated December 31, 1998 among Omega
       Healthcare Investors, Inc. and Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.2   First Amendment to Omega New Master Lease, dated as of
       February 1, 1999, among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments-I, Inc.,
       BritWill Investments-II, Inc., Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.3   Revolving Credit Note dated February 8, 1999, among RainTree
       Healthcare Corporation, Sunquest SPC, Inc., Safford Care,
       Inc. Douglas Manor, Inc., Cornerstone Care, Inc. and
       Arkansas, Inc., and HCFP Funding, Inc.
10.4   Loan and Security Agreement dated February 8, 1999, among
       RainTree Healthcare Corporation, Sunquest SPC, Inc., Safford
       Care, Inc. Douglas Manor, Inc., Cornerstone Care, Inc. and
       Arkansas, Inc., and HCFP Funding, Inc.
10.5   Second Amendment To Omega New Master Lease, dated as of
       February 2, 1999 among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments-I, Inc.,
       BritWill Investments-II, Inc., Amberwood Court, Inc., The
       Arbors Health Care Center, Inc., Brookshire House, Inc.,
       Christopher Nursing Center, Inc., Los Arcos, Inc., Pueblo
       Norte, Inc., and Rio Verde Nursing Center, Inc.
10.6   First Amendment To Omega New Master Lease Guarantee, dated
       as of February 2, 1999 among RainTree Healthcare
       Corporation, Signature Health Care Corporation, BritWill
       HealthCare Company, BritWill Investments-I, Inc., Cedar
       Care, Inc., and Sherwood HealthCare Corporation in favor of
       Omega Healthcare Investors, Inc.
10.7   First Amendment To Security Agreement, dated as of February
       1, 1999 among Omega Healthcare Investors, Inc. and BritWill
       Indiana Partnership as successor in interest to BritWill
       Investments-I, Inc.
10.8   Amended and Restated Security Agreement, dated as of
       February 2, 1999 among Omega Healthcare Investors, Inc. and
       BritWill Indiana Partnership, BritWill Investments-II, Inc.,
       Amberwood Court, Inc., The Arbors Health Care Center, Inc.,
       Brookshire House, Inc., Christopher Nursing Center, Inc.,
       Los Arcos, Inc., Pueblo Norte, Inc., and Rio Verde Nursing
       Center, Inc.
10.9   Indiana Returned Facilities Agreement, dated as of February
       1, 1999 among Omega Healthcare Investors, Inc. and BritWill
       Indiana Partnership
</TABLE>
<PAGE>   81
<TABLE>
<C>    <S>
10.10  Indiana Returned Facility Note, dated as of January 31, 1999
       among Omega Healthcare Investors, Inc. and BritWill Indiana
       Partnership
10.11  Indiana Returned Facility Note Guarantee, dated as of
       January 31, 1999 among RainTree Healthcare, BritWill
       HealthCare Company and Omega Healthcare Investors, Inc.
10.12  Indiana Returned Facilities Interim Management Agreement,
       dated as of February 1, 1999 by and between RainTree
       Healthcare Corporation and Omega Healthcare Investors, Inc.
10.13  Amended Pledge Agreement, dated as of February 2, 1999 by
       and between BritWill HealthCare Company and Omega Healthcare
       Investors, Inc.
10.14  Second Amended and Restated Pledge Agreement, dated as of
       February 2, 1999 by and between BritWill Investments-I, Inc.
       and Omega Healthcare Investors, Inc.
10.15  Promissory Note dated as of January 31, 1999 among RainTree
       Healthcare Corporation, American Professional Holding, Inc.,
       Ampro Medical Services, Inc., Gamma Laboratories, Inc.,
       Memphis Clinical Laboratory, Inc., Quest Pharmacies, Inc.,
       and David Kremser, Bernice Kremser, Holly Kremser, Michael
       Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
10.16  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)
10.17  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)
10.18  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)
10.19  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)
10.20  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)
10.21  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)
10.22  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)
10.23  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)
10.24  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)
10.25  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)
10.26  Lease for Homestead of McKinney dated as of July 1, 1996
       between Westminister Healthcare, Inc. and BritWill
       Investments-II, Inc. (incorporated by reference to Exhibit
       10.92 to the Company's Annual Report on Form 10-K for the
       year ended December 31, 1996)
</TABLE>
<PAGE>   82
<TABLE>
<C>    <S>
10.27  Security Agreement effective as of February 1, 1996 by among
       RainTree 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)
10.28  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, File No. 333-30793)
10.29  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, File No. 333-30793)
10.30  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,
       File No. 333-30793)
10.31  Lease dated as of July 28, 1995, between American Health
       Properties of Arizona, Inc. and Douglas Manor, Inc.
       (incorporated by reference to Exhibit 10.124 to the
       Company's Annual Report on Form 10-K for the year ended
       December 31, 1996)
10.32  [Intentionally Omitted]
10.33  [Intentionally Omitted]
10.34  [Intentionally Omitted]
10.35  [Intentionally Omitted]
10.36  [Intentionally Omitted]
10.37  BritWill Acquisition Promissory Note A dated as of January
       31, 1999, among RainTree Healthcare Corporation and BritWill
       Investments Company, Ltd.
10.38  BritWill Acquisition Promissory Note B dated as of January
       31, 1999, among RainTree Healthcare Corporation and UNHC
       Real Estate Holdings, Ltd.
10.39  Pledge Agreement effective January 31, 1999, among RainTree
       Healthcare Corporation and Norwest Bank Minnesota, National
       Association
10.40  Registration Rights Agreement dated as of January 31, 1999,
       among RainTree Healthcare Corporation and Morgan Stanley
       Dean Witter High Yield Securities, Inc., Morgan Stanley Dean
       Witter Diversified Income Fund, Morgan Stanley Dean Witter
       Variable Investment Series--High Yield Portfolio, High
       Income Advantage Trust II, High Income Advantage Trust, High
       Income Advantage Trust III, Morgan Stanley Dean Witter
       Select Dimensions Investment Series--The Diversified Income
       Portfolio and Capital Research and Management Company
10.41  Security Agreement effective January 31, 1999 by and between
       Quest Pharmacies, Inc., Sunbelt Therapy Management Services,
       Inc. (Arizona), Decatur Sports Fit & Wellness Center, Inc.,
       Therapy Health Systems, Inc., Henderson & Associates
       Rehabilitation, Inc., Sunbelt Therapy Management Services,
       Inc. (Alabama), RainTree Healthcare Corporation and Norwest
       Bank Minnesota, National Association
10.42  Security Agreement dated as of January 31, 1999 by and
       between American Professional Holding, Inc. and David
       Kremser, Bernice Kremser, Holly Kremser, Michael Kremser,
       Stanley Kremser and Elk Meadows Investments, L.L.C.
10.43  Stock Pledge Agreement (American Professional Holding, Inc.)
       dated January 31, 1999 by and between RainTree Healthcare
       Corporation and David Kremser, Bernice Kremser, Holly
       Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
       Investments, L.L.C.
10.44  Security Agreement dated as of January 31, 1999 by and
       between Ampro Medical Services, Inc. and David Kremser,
       Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
       Kremser and Elk Meadows Investments, L.L.C.
</TABLE>
<PAGE>   83
<TABLE>
<C>    <S>
10.45  Stock Pledge Agreement (Ampro Medical Services, Inc.) dated
       January 31, 1999 by and between American Professional
       Holding, Inc. and David Kremser, Bernice Kremser, Holly
       Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
       Investments, L.L.C.
10.46  Security Agreement dated as of January 31, 1999 by and
       between Gamma Laboratories, Inc. and David Kremser, Bernice
       Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and
       Elk Meadows Investments, L.L.C.
10.47  Stock Pledge Agreement (Gamma Laboratories, Inc.) dated
       January 31, 1999 by and between American Professional
       Holding, Inc. and David Kremser, Bernice Kremser, Holly
       Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
       Investments, L.L.C.
10.48  Security Agreement dated as of January 31, 1999 by and
       between Memphis Clinical Laboratory, Inc. and David Kremser,
       Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
       Kremser and Elk Meadows Investments, L.L.C.
10.49  Stock Pledge Agreement (Memphis Clinical Laboratory, Inc.)
       dated January 31, 1999 by and between RainTree Healthcare
       Corporation and David Kremser, Bernice Kremser, Holly
       Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
       Investments, L.L.C.
10.50  Security Agreement dated as of January 31, 1999 by and
       between Quest Pharmacies, Inc. and David Kremser, Bernice
       Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and
       Elk Meadows Investments, L.L.C.
10.51  Stock Pledge Agreement (Quest Pharmacies, Inc.) dated
       January 31, 1999 by and between RainTree Healthcare
       Corporation and David Kremser, Bernice Kremser, Holly
       Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
       Investments, L.L.C.
10.52  Sharing Agreement dated February 1, 1999, by and between
       Northwest Bank Minnesota, National Association, RainTree
       Healthcare Corporation, BritWill Healthcare Company,
       BritWill Indiana Partnership and Omega Healthcare Investors,
       Inc.
21     List of subsidiaries (incorporated by reference to Exhibit
       21 to the Company's Annual Report on Form 10-K for the year
       ended December 31, 1997)
27     Financial Data Schedule (included only in the EDGAR filing)
</TABLE>