Class Action Suit Filed Against Paracelsus Healthcare Corp. and Its Officers and Directors Alleging Misrepresentations and False Financial Statements.

SAN DIEGO--(BUSINESS WIRE)--Oct. 11, 1996--A class action has been commenced in the California Superior Court for Los Angeles County by plaintiffs Rajeshwar Gaonkar and Thomas R. Bell on behalf of purchasers of Paracelsus Healthcare Corporation ("Paracelsus") common stock during the period August 13, 1996 to October 9, 1996.

The complaint charges Paracelsus and certain of its officers and directors with violations of the California Corporations and Civil Codes and violation of the Federal Securities Act of 1933 due to defendants' issuance of false and misleading financial statements in connection with, inter alia, (1) Paracelsus' acquisition, with stock issued pursuant to an S-4 registration statement, of Champion Healthcare Corporation ("Champion"); (2) the sale pursuant to a registration statement effective on or about August 15, 1996 of $325,000,000 of 10% Senior Subordinated Notes; and (3) the sale pursuant to an S-1 registration statement effective on or about August 15, 1996 of 4,600,000 shares of Paracelsus stock at $8.50 per share. These false financial statements permitted Paracelsus to complete the acquisition of Champion and the note and stock offerings. Paracelsus' stock traded as high as $10-1/2 during the Class Period and closed at $10-1/8 on October 9, 1996. The notes traded as high as $103.30. After the market closed on October 9, 1996, Paracelsus stunned its investors by revealing in a press release that financial results for the quarter ending September 30, 1996 would be "substantially lower than expected." The release stated that the Company expected to report a "significantly larger loss for the quarter than anticipated" due to "lower operating results of psychiatric and certain other Los Angeles metropolitan area hospitals; reimbursement accounting issues; and the need to revise allowances for certain accounts receivable." The release revealed that Paracelsus' Board of Directors had appointed a special committee to investigate "the nature and reasons for the shortfall" and to "explore accounting and financial reporting practices and procedures, including certain corporate reserve practices, in the periods before the quarter ending September 30, 1996." The press release also revealed that the Company expected to restate its financial results and amend its quarterly reports on Form 10-Q for the quarters ended December 31, 1995, March 31, 1996, and June 30, 1996. The release revealed that there would likely be "adjustments relating to the use of reserves and recognition of certain bad debt expenses, collection expenses, and facilities closure costs." The press release also revealed that the Company was reviewing the status of its compliance under its senior bank credit agreement. Trading in the securities of Paracelsus was halted. These stunning announcements come less than two months after Paracelsus completed its acquisition of Champion for about $168 million of Paracelsus stock, issued and sold $325 million of debt securities and issued and sold nearly $40 million of common stock.

Plaintiffs who have sued seek to recover damages on behalf of all purchasers of Paracelsus common stock during the Class Period (the "Class"). They are represented by three law firms, Milberg Weiss Bershad Hynes & Lerach LLP, Kaplan, Kilsheimer & Fox, LLP and Savett Frutkin Podell & Ryan, P.C., who have expertise in prosecuting investor class actions and extensive experience in actions involving financial fraud.

Milberg Weiss has been actively engaged in commercial litigation, emphasizing securities and antitrust class actions, for more than 20 years. The firm has offices in New York, San Diego, San Francisco and Los Angeles and is active in major litigations pending in federal and state courts throughout the United States. The firm's reputation for excellence has been recognized on repeated occasions by courts which have appointed the firm to major positions in complex multi-district or consolidated litigations. Milberg Weiss has taken a lead role in numerous important actions on behalf of defrauded investors, and has been responsible for a number of outstanding recoveries which, in the aggregate, total approximately $2 billion.

If you wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact plaintiffs' counsel, William Lerach or Alan Schulman of Milberg Weiss at 800/348-6192, Frederic S. Fox of Kaplan, Kilsheimer at 800/290-1952 or Stuart H. Savett of Savett Frutkin at 215/923-5400.

CONTACT: Milberg Weiss Bershad Hynes & Lerach LLP

William Lerach, 800/348-6192