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<TITLE>TEAM HEALTH, INC.</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>As Filed With The Securities And Exchange Commission On
August&nbsp;16, 2005</B>
</DIV>

<DIV align="right" style="font-size: 10pt;">
<B>Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</DIV>

<DIV align="center" style="font-size: 6pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Form&nbsp;S-1</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>UNDER</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<DIV align="center" style="font-size: 24pt;">
<B>Team Health, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Exact Name of Registrant as Specified in Its Charter)</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 9pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Tennessee</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>8090</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>62-1562558</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I>(State or Other Jurisdiction of<BR>
    Incorporation or Organization)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(Primary Standard Industrial<BR>
    Classification Code Number)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(I.R.S. Employer<BR>
    Identification No.)</I></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt;">
<B>1900 Winston Road</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Suite&nbsp;300</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Knoxville, Tennessee 37919</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(865)&nbsp;693-1000</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant&#146;s Principal Executive Offices)</I>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>c/o David Jones</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Chief Financial Officer</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>1900 Winston Road, Suite&nbsp;300</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Knoxville, Tennessee 37919</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(800)&nbsp;342-2898</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Names, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)</I>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>With Copies To:</I></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Joshua N. Korff,&nbsp;Esq.<BR>
    Kirkland&nbsp;&#38; Ellis LLP<BR>
    Citigroup Center<BR>
    153 East 53rd&nbsp;Street<BR>
    New York, New York 10022-4675<BR>
    (212)&nbsp;446-4800</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>Dennis Friedman,&nbsp;Esq.<BR>
    Barbara Becker,&nbsp;Esq.<BR>
    Gibson, Dunn&nbsp;&#38; Crutcher LLP<BR>
    200 Park Avenue<BR>
    New York, New York 10166-0193<BR>
    (212) 351-4000</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
<B>Approximate date of commencement of proposed sale to the
public:</B> As soon as practicable after this Registration
Statement becomes effective.
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule&nbsp;415 under the Securities Act of 1933, check the
following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is filed to register additional securities for an
offering pursuant to Rule&nbsp;462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is a post-effective amendment filed pursuant to
Rule&nbsp;462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If this form is a post-effective amendment filed pursuant to
Rule&nbsp;462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
If delivery of the prospectus is expected to be made pursuant to
Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="56%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed Maximum</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount of</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class&nbsp;of</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Aggregate</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registration</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Securities to be Registered</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Offering Price(1)(2)</B></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Fee</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock, $0.01&nbsp;par value</DIV>
    </TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $172,500,000</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $20,304</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 9pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    This amount represents the proposed aggregate offering price of
    the securities registered hereunder to be sold by the registrant
    and the selling shareholders. These figures are estimated solely
    for the purpose of calculating the registration fee pursuant to
    Rule&nbsp;457(o) under the Securities Act of 1933, as amended.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Includes shares of common stock that the underwriters have an
    option to purchase solely to cover over-allotments, if any.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 9pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;
<B>The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement
shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to Section&nbsp;8(a), may
determine.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" cellpadding="5" style="border: 3pt double #000000; margin-bottom: 6pt; font-size: 10pt"><TR><TD>
<B><FONT style="font-size: 8pt" color="#D30547" face="helvetica,arial">The
information in this prospectus is not complete and may be
changed. We and the selling shareholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.</FONT><FONT style="font-size: 8pt" face="helvetica,arial">
<BR>

</FONT></B>
</TD></TR></TABLE>

<DIV align="center" style="font-size: 12pt; margin-top: 1pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<FONT color="#D30547">Subject to Completion. Dated
August&nbsp;16, 2005.
</FONT>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
PROSPECTUS
</DIV>

<DIV align="center" style="font-size: 16pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y11893y1189300.gif" alt="(TEAM HEALTH LOGO)">
</DIV>

<DIV align="center" style="font-size: 22pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Team Health, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Common Stock
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
This is the initial public offering of Team Health, Inc. No
public market currently exists for our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
We currently anticipate the initial public offering price of our
common stock to be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. We intend to apply for listing of the common stock on The
New York Stock Exchange under the symbol &#147;THH&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
We are
offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock. The selling shareholders identified in this
prospectus are offering an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
We will not receive any of the proceeds from the sale of shares
being sold by the selling shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The selling shareholders have granted the underwriters a 30-day
option to purchase up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
on the same terms and conditions as set forth above if the
underwriters sell more
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock in this offering.
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<I>Investing in our securities involves risks. See &#147;Risk
Factors&#148; beginning on page&nbsp;6 of this prospectus.</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap>Per Share</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Total</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Public Offering Price</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting Discount</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to Team Health, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to selling shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Delivery of shares will be made on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 17pt;">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left">Lehman Brothers</TD>
    <TD align="right">Merrill Lynch&nbsp;&#38; Co.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 17pt;">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left">JPMorgan</TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
<!-- TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="93%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#101'>SPECIAL NOTE&nbsp;ABOUT FORWARD-LOOKING
    STATEMENTS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>ii</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#102'>INDUSTRY AND MARKET DATA</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>ii</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#103'>PROSPECTUS SUMMARY</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#104'>RISK FACTORS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#105'>USE OF PROCEEDS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#106'>DIVIDEND POLICY</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#107'>CAPITALIZATION</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#108'>DILUTION</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#109'>SELECTED CONSOLIDATED FINANCIAL DATA</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#110'>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#111'>BUSINESS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#112'>MANAGEMENT</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#113'>PRINCIPAL AND SELLING SHAREHOLDERS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#114'>CERTAIN RELATIONSHIPS AND RELATED PARTY
    TRANSACTIONS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#115'>DESCRIPTION OF CAPITAL STOCK</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#116'>SHARES ELIGIBLE FOR FUTURE SALE</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#117'>MATERIAL U.S.&nbsp;FEDERAL TAX CONSEQUENCES
    FOR NON-U.S.&nbsp;HOLDERS OF OUR COMMON STOCK</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#118'>UNDERWRITING</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#119'>LEGAL MATTERS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#120'>EXPERTS</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#121'>WHERE YOU CAN FIND MORE INFORMATION</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y11893exv23w1.htm">EX-23.1: CONSENT OF ERNST & YOUNG LLP</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>IMPORTANT NOTICE TO READERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
You should rely only on the information contained in this
prospectus or to which we have referred you. We and the selling
shareholders have not authorized any other person to provide you
with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. This document may only be used in jurisdictions where offers
and sales of the securities are permitted. You should not assume
that information contained in this prospectus is accurate as of
any date other than the date on the front page of this
prospectus, regardless of when this prospectus is delivered or
when any sale of our securities occurs.
</DIV>

<P align="center" style="font-size: 10pt;">i

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SPECIAL NOTE&nbsp;ABOUT FORWARD-LOOKING STATEMENTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus includes &#147;forward-looking statements.&#148;
Some of these statements can be identified by terms and phrases
such as &#147;anticipate,&#148; &#147;believe,&#148;
&#147;intend,&#148; &#147;estimate,&#148; &#147;expect,&#148;
&#147;continue,&#148; &#147;could,&#148; &#147;may,&#148;
&#147;plan,&#148; &#147;project,&#148; &#147;predict&#148; and
similar expressions and include references to assumptions that
we believe are reasonable and relate to our future prospects,
developments and business strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Factors that could cause our actual results to differ materially
from those expressed or implied in such forward-looking
statements, include, but are not limited to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general economic conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the adequacy of our insurance coverage and insurance reserves;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to generate cash flow to service our debt
    obligations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the outcome of government investigations of certain of our
    business practices;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to maintain or implement complex information systems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to successfully integrate strategic acquisitions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to continue to recruit and retain qualified
    healthcare professionals and our ability to attract and retain
    operational personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to enter into and retain contracts with hospitals,
    military treatment facilities and other healthcare facilities on
    attractive terms;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the general level of emergency department patient volumes at our
    clients&#146; facilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the effect and interpretation of current or future government
    regulation of the healthcare industry, and our ability to comply
    with these regulations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in rates or methods of government payments for our
    services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    competition in our market;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our reliance on third-party-payers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our exposure to professional liability lawsuits and governmental
    agency investigations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our future capital needs and ability to obtain future financing;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to carry out our business strategy;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the control of our company by our controlling shareholders.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We undertake no obligation to revise the forward-looking
statements included in this prospectus to reflect any future
events or circumstances. Our actual results, performance or
achievements could differ materially from the results expressed
or implied by these forward-looking statements. Factors that
could cause or contribute to such differences include those
discussed under the heading &#147;Risk Factors&#148; in this
prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "INDUSTRY AND MARKET DATA" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INDUSTRY AND MARKET DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The market data and other statistical information used
throughout this prospectus are based on independent industry
publications, government publications, reports by market
research firms or other published independent sources. Some data
is also based on our good faith estimates, which are derived
from our review of internal surveys, as well as the independent
sources listed above. Although we believe these sources are
reliable, we have not independently verified the information and
cannot guarantee its accuracy and completeness.
</DIV>

<P align="center" style="font-size: 10pt;">ii

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "PROSPECTUS SUMMARY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PROSPECTUS SUMMARY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>References to &#147;Team Health,&#148; &#147;we,&#148;
&#147;our,&#148; and &#147;us&#148; refer to Team Health, Inc.,
its predecessors, its subsidiaries and its affiliated medical
groups. This summary highlights the information contained
elsewhere in this prospectus. Because this is only a summary, it
does not contain all of the information that may be important to
you. For a more complete understanding of this offering, we
encourage you to read this entire prospectus and the documents
to which this prospectus refers.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Unless otherwise indicated, the information contained in this
prospectus assumes that the underwriters&#146; over-allotment
option is not exercised.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Team Health is the largest provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States, based upon revenues
and patient visits. We serve more than 470 hospital clients and
their affiliated clinics and surgical centers in 44&nbsp;states
with a team of approximately 4,700 physicians, mid-level
practioners and nurses. Since our inception in 1979, we have
focused primarily on providing outsourced services to hospital
emergency departments, which accounted for 72% of our net
revenues less provision for uncollectibles in the six months
ended June&nbsp;30, 2005. We also provide comprehensive programs
for inpatient care (hospitalist), radiology, anesthesiology,
pediatrics and other healthcare services, principally within
hospitals and other healthcare facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Emergency departments, or EDs, generate approximately 40% of all
hospital admissions, making this department critical to a
hospital&#146;s patient satisfaction rates and overall success.
This dynamic, combined with the challenges involved in billing
and collections and physician recruiting and retention, leads
many hospitals to utilize companies like Team Health for
outsourced staffing and management. Our revenues from ED
contracts increased by 22% from 2001 to 2004. The emergency
departments that we staff generally are located in larger
hospitals that treat over 15,000&nbsp;patients annually in the
ED. We believe that our experience and expertise in managing the
complexity of these high volume emergency departments enables
our hospital clients to provide higher quality and more
efficient physician and administrative services. In this type of
environment we can establish long-term relationships, recruit
and retain high quality physicians and other providers and
staff, and generate attractive payer mixes and profit margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We target clinical areas that face severe physician shortages
and growing demand for services because many healthcare
facilities lack the infrastructure and personnel necessary to
identify and attract specialized, career-oriented physicians. We
offer the following range of physician and non-physician
staffing and administrative services to our clients:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    recruiting, scheduling and credentials coordination for clinical
    and non-clinical medical professionals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    coding, billing and collection of fees for services provided by
    medical professionals;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    administrative support services, such as payroll, insurance
    coverage, continuing medical education services and management
    training; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    claims and risk management services.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With the increasing complexity of clinical, regulatory, managed
care and reimbursement matters in today&#146;s healthcare
environment, healthcare facilities are under significant
pressure from the government and private payers both to improve
the quality and reduce the cost of care. Furthermore, most
healthcare facilities do not have billing systems that properly
handle the large volumes of payments that are typical in the
emergency and other specialty departments. Finally, hospitals
may lack the resources to recruit physicians and other providers
in those same specialty areas effectively. In response to these
factors, healthcare facilities have increasingly outsourced the
staffing and management of multiple clinical areas to companies
with specialized skills, standardized models and information
technology to improve service, increase the overall quality of
care and reduce administrative costs. The market for outsourced
services tends to be highly fragmented, consisting of many local
providers that often lack the operating capital, experience,
breadth of services and sophisticated information technology
necessary to meet the complex needs of hospitals. As a result,
healthcare facilities are
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">1
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
seeking third-party staffing providers with the billing
expertise, IT infrastructure and systems necessary to reduce
their administrative burden and effectively manage the
complexity of these services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competitive Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our competitive position as the largest provider
of outsourced physician staffing and administrative services to
hospitals and other healthcare providers is attributable to a
number of key strengths, including the following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Trusted Reputation for Consistent and Reliable Services.</I>
    With more than 25&nbsp;years in the industry, we believe we are
    one of the country&#146;s most experienced and trusted providers
    of outsourced physician staffing and administrative services.
    This is evidenced by our overall ED contract retention rate of
    more than 90% and our recent physician survey, in which 97% of
    respondents indicated that we were attending to business
    functions in a way that allowed them to focus on their patients
    and their clinical practices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Leading Market Position.</I> We are the largest national
    provider of physician staffing and administrative services to
    hospitals and other healthcare providers in the United States,
    based upon revenues and patient visits. We believe our scale
    generates significant cost efficiencies that are generally not
    available to smaller competitors. As a full-service provider
    with both a comprehensive understanding of changing healthcare
    regulations and policies and the management information systems
    that provide support to manage these changes, we believe we are
    well positioned to maintain and grow our market share from other
    service providers and from new outsourcing opportunities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Regional Operating Models Supported by a National
    Infrastructure.</I> Our 13 regional management sites are
    supported by our national infrastructure, which includes
    integrated information systems and standardized procedures. This
    allows us to deliver locally focused services with the resources
    and sophistication of a national provider. Many of these
    regional sites were independent local companies that we added
    through acquisition. These businesses have been fully
    integrated, but originated locally and have retained their roots
    in their communities. Our local presence results in responsive
    service and high physician retention rates, which allow us to
    market our services effectively to local hospital decision
    makers.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Significant Investment in Information Systems and
    Procedures.</I> Our proprietary information systems link our
    regional management sites, allowing our best practices and
    procedures to be delivered and implemented nationally. The
    sophistication of our information systems has enhanced our
    reimbursement and billing and collections productivity and
    results in what we believe to be among the industry&#146;s
    lowest average cost per patient billed and average recruiting
    cost per physician.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Financial Performance.</I> We believe that financial
    stability, including a demonstrated ability to pay providers in
    a timely manner and provide adequate professional liability
    insurance, is one of the key discriminating factors used by
    clients in the healthcare industry when choosing outsourcing
    providers. We have generated positive operating cash flow for
    each of the last five years. Cash flow from operations for the
    six months ended June&nbsp;30, 2005 was approximately
    $28.0&nbsp;million. We believe that our operating cash needs
    will continue to be met through cash generated from operations.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Risk Management.</I> We have a comprehensive risk management
    program designed to prevent or minimize medical errors and
    attendant professional liability claims. Our national presence
    across 44 states enables us to share best practices in risk
    management throughout our 13 regional management sites. The
    breadth and depth of our efforts in this area are a critical
    component of our business strategy and ability to meet our
    client retention and acquisition goals. Over the last two years,
    we have significantly reduced the number of new patient claims
    filed. In 2003 and 2004, claims declined 12% and 26%,
    respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Ability to Recruit and Retain High Quality Physicians.</I>
    While our local presence provides us with the knowledge to
    properly match physicians with hospitals and other facilities,
    our national presence and infrastructure enable us to provide
    physicians with flexible work hours, a variety of practice
    opportunities, extensive continuing medical education
    activities, advanced information and reimbursement systems and
    standardized procedures. We believe this flexibility, combined
    with fewer administrative</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">2

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    burdens, improves our physician retention rates and helps to
    stabilize our contract base. We also believe we have among the
    highest physician retention rates in the industry.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Experienced Management Team with Significant Equity
    Ownership.</I> Our senior management team has an average of over
    20&nbsp;years experience in the outsourced physician staffing
    and medical services industries. Our Chief Executive Officer, H.
    Lynn Massingale,&nbsp;M.D., co-founded Team Health&#146;s
    predecessor entity in 1979. After the offering, members of our
    management team will have, with the inclusion of
    performance-based options, an indirect fully diluted ownership
    interest of
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of Team Health, Inc. As a result of this substantial equity
    interest, we believe our management team has a significant
    incentive to maintain and grow our client base, and increase our
    revenue and profitability.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Business Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to utilize our competitive strengths to capitalize on
favorable industry trends and execute on the following business
strategies:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Increase Revenues from Existing Customers.</I> We have a
    strong record of achieving growth in revenues from our existing
    customer base, primarily as a result of increased patient
    volumes, enhanced billing and collections and the addition of
    new services. In 2004 and the six months ended June&nbsp;30,
    2005, net revenues less provision for uncollectibles from same
    contracts, grew by approximately 4.2% and 13.2% on a
    year-over-year and period-over-period basis, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Capitalize on Outsourcing Opportunities to Win New
    Contracts.</I> As hospitals and other healthcare providers
    continue to experience pressure from managed care companies and
    other payers to reduce costs while maintaining or improving the
    quality of service, we believe hospitals and other contracting
    parties will increasingly turn to a single-source with an
    established track record of success for outsourced physician
    staffing and administrative services. We believe our leading
    market position and competitive strengths, along with an
    increased investment in our sales force in late 2004, favorably
    position us to capitalize on growth in outsourcing opportunities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Increase Revenue from Additional Clinical Areas.</I>
    Complementing our core ED staffing business are opportunities to
    further grow revenues of our inpatient services (hospitalist),
    radiology, anesthesiology and pediatrics service offerings. We
    believe we are well positioned to increase our market share in
    these areas due to our ability to leverage our infrastructure
    and existing client relationships as well as our recruiting and
    risk management expertise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Leverage Infrastructure to Enhance Profitability.</I> Our
    revenue growth strategy along with our established regional and
    corporate infrastructure is designed to allow for continued
    enhancement of profitability. Our information systems and
    economies of scale allow us to enhance profitability with
    revenue growth without compromising the quality of operations or
    clinical care. Our strategy to continually reduce costs, improve
    efficiencies and provide employee incentives in order to
    maximize our profitability.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Focus on Risk Management.</I> Through our risk management
    staff, quality assurance staff and medical directors, we conduct
    an aggressive risk management program for loss prevention and
    early intervention in order to prevent or minimize medical
    professional liability claims. We have a proactive role in
    promoting early reporting, evaluation and resolution of serious
    incidents that may evolve into claims or suits.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Pursue Selective Acquisitions.</I> Although we are the
    largest national provider of outsourced physician staffing and
    administrative services in the U.S.&nbsp;based on revenues and
    patient visits, our current market share is less than 10%. We
    intend to acquire complementary businesses selectively in the
    fragmented outsourcing market.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Company Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Team Health, Inc., a Tennessee corporation incorporated in 1994,
and its predecessor have been operating as a business since
1979. Our principal executive offices are located at
1900&nbsp;Winston Road, Suite&nbsp;300, Knoxville, Tennessee
37919, and our telephone number at that address is
(865)&nbsp;693-1000. Our website address is
<I>http://www.teamhealth.com</I>. The information on our website
is not part of this prospectus.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">3

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The Offering</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a brief summary of some of the terms of this
offering. For a more complete description of the terms of the
common stock, see &#147;Description of Capital Stock&#148; in
this prospectus.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="28%"></TD>
    <TD width="1%"></TD>
    <TD width="71%"></TD>
</TR>

<TR>
    <TD valign="top">
    Common stock we are offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock the selling shareholders are offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
    which will be offered by Madison Dearborn Capital
    Partners&nbsp;II, L.P. (&#147;Madison Dearborn Partners&#148;)
    Cornerstone Equity Investors&nbsp;IV, L.P. (&#147;Cornerstone
    Equity Investors&#148;) and Beecken Petty O&#146;Keefe and
    Company. See &#147;Principal and Selling Shareholders.&#148;
    Following the offering, Madison Dearborn Partners, LLC,
    Cornerstone Equity Investors, LLC and Beecken Petty O&#146;Keefe
    and Company will continue to
    own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
    of our outstanding common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock to be outstanding after the offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Use of proceeds</TD>
    <TD></TD>
    <TD valign="top">
    We will use the proceeds of the sale of our common stock for the
    repayment of debt. We will not receive any proceeds from the
    sale of shares of common stock offered by selling shareholders.
    See &#147;Use of Proceeds.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Dividend policy</TD>
    <TD></TD>
    <TD valign="top">
    We currently expect to retain future earnings, if any, for use
    in the operation and expansion of our business and do not
    anticipate paying any cash dividends in the foreseeable future.
    Our ability to pay dividends on our common stock is limited by
    the covenants of our senior credit and term loan facilities as
    well as our senior subordinated notes and may be further
    restricted by the terms of any future debt or preferred
    securities.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Risk factors</TD>
    <TD></TD>
    <TD valign="top">
    See &#147;Risk Factors&#148; beginning on page&nbsp;6 and other
    information included in this prospectus for a discussion of
    factors you should consider carefully before deciding to invest
    in our common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Proposed NYSE symbol</TD>
    <TD></TD>
    <TD valign="top">
    &#147;THH&#148;</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">4
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Historical Consolidated Financial Data</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>The following table presents our summary historical
consolidated financial data for the fiscal years ended
December&nbsp;31, 2002, December&nbsp;31, 2003 and
December&nbsp;31, 2004, which are derived from our audited
consolidated financial statements and the notes to those
statements. The table also presents our summary historical
consolidated financial statements and data for the six months
ended June&nbsp;30, 2004 and 2005, which are derived from our
unaudited consolidated financial statements and the notes to
those statements. Operating results for the six fiscal months
ended June&nbsp;30, 2004 and 2005 are not necessarily indicative
of the results that may be expected for the entire fiscal year.
Because the data in this table are only a summary and does not
provide all of the data contained in our financial statements,
the information should be read in conjunction with
&#147;Selected Consolidated Financial Data,&#148;
&#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&#148; and the financial
statements and accompanying notes thereto appearing elsewhere in
this prospectus.</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>(Dollars in thousands, except per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statement of Operations Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues less provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>834,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>999,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,008,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>508,308</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>194,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,273</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,765</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,560</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Refinancing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,166</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,913</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,410</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55,953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,251</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,814</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,555</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Per Share Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) per common share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>June&nbsp;30, 2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pro Forma</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Adjustments</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(Dollars in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance Sheet Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>560,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>347,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total shareholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(167,537</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</DIV>

<P align="center" style="font-size: 10pt;">5

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<DIV align="left" style="font-size: 10pt;">
<A name='104'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>RISK FACTORS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Any investment in our common stock involves a high degree of
risk. You should consider carefully the following information
about these risks, together with the other information contained
in this prospectus, before buying shares of our common stock.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>In addition, please read &#147;Special Note&nbsp;About
Forward-Looking Statements&#148; in this prospectus, where we
describe additional uncertainties associated with our business
and the forward-looking statements included in this prospectus.
Please note that additional risks not presently known to us or
that we currently deem immaterial may also impair our business
and operations.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Relating to Our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Laws and regulations that regulate payments for medical
services by government sponsored healthcare programs could cause
our revenues to decrease.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our affiliated physician groups derive a significant portion of
their net revenues less provision for uncollectibles from
payments made by government sponsored healthcare programs such
as Medicare and state reimbursed programs. There are public and
private sector pressures to restrain healthcare costs and to
restrict reimbursement rates for medical services. Any change in
reimbursement policies, practices, interpretations, regulations
or legislation that places limitations on reimbursement amounts
or practices could significantly affect hospitals, and
consequently affect our operations unless we are able to
renegotiate satisfactory contractual arrangements with our
hospital clients and contracted physicians. Reductions in
amounts paid by government programs for physician services or
changes in methods or regulations governing payment could cause
our revenues and profits to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that regulatory trends in cost containment will
continue. We cannot assure you that we will be able to offset
reduced operating margins through cost reductions, increased
volume, the introduction of additional procedures or otherwise.
In addition, we cannot assure you that the federal government
will not impose reductions in the Medicare physician fee
schedule in the future. Any such reductions could reduce our
revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November&nbsp;2, 2004, Centers for Medicare and Medicaid
Services, or CMS, issued its updates to the Physician Fee
Schedule payment rates for 2005. The 2005 Physician Fee Schedule
payment rate updates, mandated by the Medicare Modernization
Act, provide that the update to the conversion factor for
physicians&#146; services for 2005 will increase by
approximately 1.5%. As a result of the legislative change, we
estimate that we will realize an increase in such revenues in
2005 from Medicare and other related revenue sources of
approximately $2.0&nbsp;million. In addition to the 1.5%
increase provided as a result of the Medicare Modernization Act,
an additional 5.0% payment is provided starting in 2005 when a
hospital is located within a Physician Scarcity Area, or PSA.
This is estimated to increase revenues in 2005 by
$1.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On August&nbsp;1, 2005, CMS issued a proposed rule containing
updates to its Physician Fee Schedule payment rates for 2006.
The proposed rule is subject to a comment period and final
adoption. If the proposed rule is adopted as a final rule, then
payment rates under the Physician Fee Schedule will decrease by
4.3%, effective January&nbsp;1, 2006. In the event that the 4.3%
rate reduction becomes effective in 2006, we estimate that it
will negatively affect our revenues from Medicare and other
revenue sources whose rates are linked to changes in the
Medicare fee schedule rates by an estimated $6.4&nbsp;million.
Additional changes in managed care revenues are possible if fee
schedules maintained by certain of such organizations are
revised based on the Medicare fee schedule changes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If governmental authorities determine that we violate
Medicare reimbursement regulations, our revenues may decrease
and we may have to restructure our method of billing and
collecting Medicare payments.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Medicare Prescription Drug Improvement and Modernization Act
of 2003 amended the Medicare reassignment statute as of
December&nbsp;8, 2003 to permit our independent contractor
physicians to reassign their Medicare receivables to us. We have
begun to restructure our method of billing and collecting
Medicare payments in light of this new statutory reassignment
exception.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the new reassignment arrangement, many of our independent
contractor physicians now reassign their Medicare receivables to
us, so that Medicare carriers send payments for those
physicians&#146; services directly to us. In cases where we have
not yet converted to the new reassignment arrangement, we still
use a
</DIV>

<P align="center" style="font-size: 10pt;">6

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<DIV align="left" style="font-size: 10pt;">
&#147;lockbox&#148; model which we implemented shortly after
notifying Medicare carriers of the details of our lockbox
billing arrangements in December 1997. For the lockbox
arrangements still in effect, Medicare carriers send payments
for the physician services to a lockbox bank account under the
control of the physician. The physician, fulfilling his
contractual obligations to us, then directs the bank to transfer
the funds in that bank account into a company bank account. In
return, we pay the physician an agreed amount for professional
services provided and provide management and administrative
services to or on behalf of the physician or physician group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With respect to Medicare services that physicians employed by
physician-controlled professional corporations render, Medicare
carriers send payments for physician services to a group account
under the group&#146;s control. While we seek to comply
substantially with applicable Medicare reimbursement
regulations, we cannot assure you that government authorities
would find that we comply in all respects with these regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We utilize physician assistants and nurse practitioners,
sometimes referred to collectively as &#147;midlevel
practitioners,&#148; to provide care under the supervision of
our physicians. State and federal laws require that such
supervision be performed and documented using specific
procedures. For example, in some states some or all of the
midlevel practitioner&#146;s chart entries must be
countersigned. Under applicable Medicare rules, the midlevel
practitioner&#146;s services are reimbursed at a rate equal to
85% of the physician fee schedule amount and we do not bill
separately for the supervising physician&#146;s services.
However, when a midlevel practitioner assists a physician who is
directly and personally involved in the patient&#146;s care, we
often bill for the services of the physician at the full
physician fee schedule rates and do not bill separately for the
midlevel practitioner&#146;s services. We believe our billing
and documentation practices related to our use of midlevel
practitioners comply with applicable state and federal laws, but
we cannot assure you that enforcement authorities will not find
that our practices violate such laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
When our services are covered by multiple third party payers,
such as a primary and a secondary payer, financial
responsibility must be allocated among the multiple payers in a
process known as &#147;coordination of benefits,&#148; or COB.
The rules governing COB are complex, particularly when one of
the payers is Medicare or another government program. Under
these rules, in some cases Medicare or other government payers
can be billed as a &#147;secondary payer&#148; only after
recourse to a primary payer (e.g., a liability insurer) has been
exhausted. In some instances, multiple payers may reimburse us
an amount which, in the aggregate, exceeds the amount to which
we are entitled. In such cases, we are obligated to process a
refund. If we improperly bill Medicare or other government
payers as the primary payer when that program should be billed
as the secondary payer, or if we fail to process a refund when
required, we may be subject to civil and/or criminal penalties.
Although we believe we currently have procedures in place to
assure that we comply with applicable COB rules, and that we
process refunds when we receive overpayments, we cannot assure
you that payers or enforcement agencies will not find that we
have violated these requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management is not aware of any inquiry, investigation, or notice
from any governmental entity indicating that we are in violation
of any of the Medicare laws regarding Medicare Program payments.
However, such laws are broadly worded and may be interpreted or
applied by prosecutorial, regulatory or judicial authorities in
ways that we cannot predict. Accordingly, we cannot assure you
that our arrangements and business practices will not be the
subject of government scrutiny or be found to violate applicable
laws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We are subject to complex rules and regulations that
govern our licensing and certification, and the failure to
comply with these rules can result in delays in reimbursement or
civil or criminal sanctions.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and our affiliated physicians are subject to various federal,
state and local licensing and certification laws and regulations
and accreditation standards and other laws, relating to, among
other things, the adequacy of medical care, equipment, personnel
and operating policies and procedures. We are also subject to
periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary
for licensing and accreditations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In certain jurisdictions, changes in our ownership structure
require pre-&nbsp;or post-notification to governmental licensing
and certification agencies. Relevant laws and regulations may
also require re-application and approval to maintain or renew
our operating authorities or require formal application and
approval to continue providing services under certain government
contracts.
</DIV>

<P align="center" style="font-size: 10pt;">7

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Similarly, the change in corporate structure and ownership in
connection with this offering may require us to give notice and
make applications for authority in various jurisdictions. The
relevant laws and regulations are complex, and we are pursuing
the steps we believe we must take to retain or obtain all
requisite operating authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to receive payment from Medicare, Medicaid and certain
other government programs, healthcare providers are required to
enroll in these programs by completing complex enrollment
applications. Certain government programs, including Medicare
and Medicaid programs, require notice or re-enrollment when
certain ownership changes occur. Generally, in jurisdictions
where we are required to obtain a new licensing authority, we
may also be required to re-enroll in that jurisdiction&#146;s
government payer program. If the payer requires us to complete
the re-enrollment process prior to submitting reimbursement
requests, we may be delayed in payment, receive refund requests
or be subject to recoupment for services we provide in the
interim.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Compliance with these change in ownership requirements is
complicated by the fact that they differ from jurisdiction to
jurisdiction, and in some cases are not uniformly applied or
interpreted even within the same jurisdiction. Failure to comply
with these enrollment and reporting requirements can lead not
only to delays in payment and refund requests, but in extreme
cases can give rise to civil or criminal penalties in connection
with prior changes in our operations and ownership structure.
While we have made reasonable efforts to substantially comply
with these requirements in connection with prior changes in our
operations and ownership structure, and will do so in connection
with this offering, we cannot assure you that the agencies that
administer these programs will not find that we have failed to
comply in some material respects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We could be subject to professional liability lawsuits,
some of which we may not be fully insured against or reserved
for.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In recent years, physicians, hospitals and other participants in
the healthcare industry have become subject to an increasing
number of lawsuits alleging medical malpractice and related
legal theories such as negligent hiring, supervision and
credentialing, and vicarious liability for acts of their
employees or independent contractors. Many of these lawsuits
involve large claims and substantial defense costs. Although we
do not engage in the practice of medicine or provide medical
services nor control the practice of medicine by our affiliated
physicians or affiliated medical groups or the compliance with
regulatory requirements applicable to the physicians and
physician groups with which we contract, we have been involved
in this type of litigation, and cannot assure you that we will
not become so involved in the future. In addition, through our
management of hospital departments and provision of
non-physician healthcare personnel, patients who receive care
from physicians or other healthcare providers affiliated with
medical organizations and physician groups with whom we have a
contractual relationship could sue us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to March&nbsp;12, 2003, we had obtained professional
liability insurance from insurance companies to cover our
professional liability loss exposures. Our principal insurance
policy in effect for such potential claims ended March&nbsp;11,
2003. The insurance market for professional liability insurance
coverage had changed significantly since our last policy
renewal. Several significant insurance providers of such
coverage ceased to provide such coverage and others, at the
time, had announced substantial rate increases for such
coverage. Because of our significant volumes of patient visits,
the number of insurance carriers in the marketplace with the
ability to provide coverage for our volume of business became
increasingly more limited and, as a result, more costly.
Effective March&nbsp;12, 2003, we began insuring our
professional liability risks principally through a program of
self-insurance reserves and a captive insurance company
arrangement. Under this program, we provide professional
liability insurance to affiliated physicians and other
healthcare practitioners and establish reserves, using
independent actuarial estimates, for losses in respect of such
insurance, as well as the professional liability losses of Team
Health and our other corporate entities. These losses are funded
by our captive insurance company and, to the extent these losses
exceed the coverage provided by our captive insurance company,
may be funded by us. The captive insurance company is subject to
insurance regulatory laws and regulations, including actuarially
determined premiums and loss reserve requirements. Under our
current professional liability insurance program, our exposure
for claim losses under professional liability insurance policies
provided to affiliated physicians and other healthcare
practitioners is limited to the amounts of individual policy
coverage limits but there is no limit for aggregate claim losses
incurred under all insurance provided to affiliated physicians
and other healthcare practitioners or for individual or aggregate
</DIV>

<P align="center" style="font-size: 10pt;">8
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<DIV align="left" style="font-size: 10pt;">
professional liability losses incurred by Team Health or other
corporate entities. While our provisions for professional
liability claims and expenses are determined through independent
actuarial estimates, there can be no assurance that such
independent actuarial estimates will not be exceeded by actual
losses and related expenses in the future. Claims regardless of
their merit or outcome, may also adversely affect our reputation
and ability to expand our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We could be liable for claims against our affiliated physicians
for incidents incurred but not reported during periods for which
claims-made insurance covered the related risk. Under generally
accepted accounting principles, the cost of professional
liability claims, which includes costs associated with
litigating or settling claims, is accrued when the incidents
that give rise to the claims occur. The accrual includes an
estimate of the losses that will result from incidents, which
occurred during the claims-made period, but were not reported
during that period. These claims are referred to as
incurred-but-not-reported claims, or IBNR. With respect to those
physicians for whom we provide tail coverage, for periods prior
to March&nbsp;12, 2003, we have acquired from a commercial
insurance company tail coverage for IBNR claims. We cannot
assure you that claim losses for periods prior to March&nbsp;12,
2003, will not exceed the limits of available insurance coverage
or reserves established by us for any losses in excess of such
insurance coverage limits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furthermore, for those portions of our professional liability
losses that are insured through commercial insurance companies,
we are subject to the &#147;credit risk&#148; of those insurance
companies. While we believe our commercial insurance company
providers are currently creditworthy, there can be no assurance
that such insurance companies will remain so in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On July&nbsp;19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants, including our parent corporation and one of its
affiliates. The jury verdict was $13.0&nbsp;million in excess of
available third-party insurance coverage in effect at the date
of the incident. The jury award is subject to the issuance of a
final judgment by the trial court. We do not believe the facts
or the law presented to the jury support the jury&#146;s award,
and we have requested a new trial and intend to pursue all
appeal options. An adverse determination in this matter could
have a negative impact on our financial results. See
&#147;Business&nbsp;&#151; Legal Proceedings&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>The reserves that we have established in respect of our
professional liability losses are subject to inherent
uncertainties and if a deficiency is determined this may lead to
a reduction in our net earnings.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have established reserves for losses and related expenses,
which represent estimates involving actuarial and statistical
projections, at a given point in time, of our expectations of
the ultimate resolution and administration of costs of losses
incurred in respect of professional liability risks for the
period on and after March&nbsp;12, 2003. We have also
established a reserve for potential losses in excess of
commercial insurance aggregate coverage limits for the period
prior to March&nbsp;12, 2003. Insurance reserves are inherently
subject to uncertainty. Our reserves are based on historical
claims, demographic factors, industry trends, severity and
exposure factors and other actuarial assumptions calculated by
an independent actuary firm. The independent actuary firm will
perform studies of projected ultimate losses at least annually.
We use the actuarial estimates to establish reserves. Our
reserves could be significantly affected should current and
future occurrences differ from historical claim trends and
expectations. While claims are monitored closely when estimating
reserves, the complexity of the claims and wide range of
potential outcomes often hampers timely adjustments to the
assumptions used in these estimates. Actual losses and related
expenses may deviate, perhaps substantially, from the reserve
estimates reflected in our financial statements. If our
estimated reserves are determined to be inadequate, we will be
required to increase reserves at the time of such determination,
which would result in a corresponding reduction in our net
earnings in the period in which such deficiency is determined.
See &#147;Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations&nbsp;&#151; Critical
Accounting Policies and Estimates&nbsp;&#151; Insurance
Reserves&#148; and Note&nbsp;12 of the Notes to our Consolidated
Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We depend on reimbursements by third-party payers, as well
as payments by individuals, which could lead to delays and
uncertainties in the reimbursement process.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We receive a substantial portion of our payments for healthcare
services from third-party payers, including Medicare, Medicaid,
private insurers, managed care organizations and hospitals. We
received approximately 56% and 59% of our net revenues less
provision for uncollectibles from such third-party payers
</DIV>

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<DIV align="left" style="font-size: 10pt;">
during fiscal 2004 and the six months ended June&nbsp;30, 2005,
respectively, including approximately 23% and 25% from Medicare
and Medicaid, collectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The reimbursement process is complex and can involve lengthy
delays. Third-party payers continue their efforts to control
expenditures for healthcare, including proposals to revise
reimbursement policies. We recognize revenue when we provide
healthcare services; however, there can be delays before we
receive payment. In addition, third-party payers may disallow,
in whole or in part, requests for reimbursement based on
determinations that certain amounts are not reimbursable under
plan coverage, they were for services provided that were not
medically necessary or additional supporting documentation is
necessary. Retroactive adjustments may change amounts realized
from third-party payers. We are subject to governmental audits
of our Medicare and Medicaid reimbursement claims and may be
required to repay these agencies if a finding is made that we
were incorrectly reimbursed. Delays and uncertainties in the
reimbursement process may adversely affect accounts receivable,
increase the overall costs of collection and cause us to incur
additional borrowing costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also may not be paid in those instances where physicians
provide healthcare services to uninsured individuals. Amounts
not covered by third-party payers are the obligations of
individual patients. We may not receive whole or partial
payments from these uninsured individuals. As a result of
government laws and regulations requiring physicians to treat
patients meeting the definition of requiring emergency care
regardless of their ability to pay, a substantial increase in
self-pay patients could result in increased costs associated
with physician services for which sufficient revenues less
uncollectibles are not realized to offset such additional
physician service costs. In such an event, our earnings and cash
flow would be adversely affected, potentially affecting our
ability to maintain our restrictive debt covenant ratios and
meet our financial obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In summary, the risks associated with third-party payers and
uninsured individuals and the inability to monitor and manage
accounts receivable successfully could have a material adverse
effect on our business, financial condition and results of
operations. Furthermore, our collection policies or our
provisions for allowances for Medicare, Medicaid and contractual
discounts and doubtful accounts receivable may not be adequate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We are subject to the financial risks associated with our
fee-for-service contracts which could decrease our revenue,
including changes in patient volume, mix of insured and
uninsured patients and patients covered by government sponsored
healthcare programs and third party reimbursement rates.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We derive our revenue through two primary types of arrangements.
If we have a flat fee contract with a hospital, the hospital
bills and collects fees for physician services and remits a
negotiated amount to us monthly. If we have a fee-for-service
contract with a hospital, either we or our affiliated physicians
collect the fees for physician services. Consequently, under
fee-for-service contracts, we assume the financial risks related
to changes in mix of insured and uninsured patients and patients
covered by government sponsored healthcare programs, third party
reimbursement rates and changes in patient volume. We are
subject to these risks because under our fee-for-service
contracts, our fees decrease if a smaller number of patients
receive physician services or if the patients who do receive
services do not pay their bills for services rendered or we are
not fully reimbursed for services rendered. Our fee-for-service
contractual arrangements also involve a credit risk related to
services provided to uninsured individuals. This risk is
exacerbated in the hospital emergency department
physician-staffing context because federal law requires hospital
emergency departments to treat all patients regardless of the
severity of illness or injury. We believe that uninsured
patients are more likely to seek care at hospital emergency
departments because they frequently do not have a primary care
physician with whom to consult. We also collect a relatively
smaller portion of our fees for services rendered to uninsured
patients than for services rendered to insured patients. In
addition, fee-for-service contracts also have less favorable
cash flow characteristics in the start-up phase than traditional
flat-rate contracts due to longer collection periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Failure to timely or accurately bill for our services
could have a negative impact on our net revenues, bad debt
expense and cash flow.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Billing for emergency department visits in a hospital setting
and other physician-related services is complex. The practice of
providing medical services in advance of payment or, in many
cases, prior to assessment of ability to pay for such services,
may have significant negative impact on our net revenues, bad
</DIV>

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<DIV align="left" style="font-size: 10pt;">
debt expense, and cash flow. We bill numerous and varied payers,
such as self-pay patients, various forms of commercial insurance
companies and the Medicare and Medicaid programs. These
different payers typically have differing forms of billing
requirements that must be met prior to receiving payment for
services rendered. Reimbursement to us is typically conditioned
on our providing the proper medical necessity and diagnosis
codes. Incorrect or incomplete documentation and billing
information could result in non-payment for services rendered.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additional factors that could complicate our billing include:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    disputes between payers as to which party is responsible for
    payment,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    variation in coverage for similar services among various payers,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the difficulty of adherence to specific compliance requirements,
    diagnosis coding and various other procedures mandated by
    responsible parties,&nbsp;and</TD>
</TR>

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    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    failure to obtain proper physician credentialing and
    documentation in order to bill various commercial and
    governmental payers.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the extent that the complexity associated with billing for
our services causes delays in our cash collections, we assume
the financial risk of increased carrying costs associated with
the aging of our accounts receivable as well as increased
potential for bad debts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the majority of the patient visits for which we
bill payers are processed in one of five regional billing
centers. A disruption of services at any one of these locations
could result in a delay in billing and thus cash flows to us, as
well as potential additional costs to process billings in
alternative settings or locations. Our billing centers process
approximately 97% of our non-military patient visit billings
using a common automated billing system. While we employ what we
believe are adequate back-up alternatives in the event of a main
computer site disaster, failure to execute our back-up plan
successfully or timely may cause a significant disruption to our
cash flows and increase temporarily our billing costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>A reclassification of our independent contractor
physicians by tax authorities could require us to pay
retroactive taxes and penalties.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of June&nbsp;30, 2005, we contracted with approximately 2,300
affiliated physicians as independent contractors to fulfill our
contractual obligations to clients. Because we consider many of
the physicians with whom we contract to be independent
contractors, as opposed to employees, we do not withhold federal
or state income or other employment related taxes, make federal
or state unemployment tax or Federal Insurance Contributions Act
payments, except as described below, or provide workers&#146;
compensation insurance with respect to such affiliated
physicians. Our contracts with our independent contractor
physicians obligate these physicians to pay these taxes. The
classification of physicians as independent contractors depends
upon the facts and circumstances of the relationship. In the
event of a determination by federal or state taxing authorities
that the physicians engaged as independent contractors are
employees, we may be adversely affected and subject to
retroactive taxes and penalties. Under current federal tax law,
a &#147;safe harbor&#148; from reclassification, and
consequently retroactive taxes and penalties, is available if
our current treatment is consistent with a long-standing
practice of a significant segment of our industry and if we meet
certain other requirements. If challenged, we may not prevail in
demonstrating the applicability of the safe harbor to our
operations. Further, interested persons have proposed in the
recent past to eliminate the safe harbor and may do so again in
the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our practices with respect to the classification of our
independent contractors have periodically been reviewed by the
Internal Revenue Service with no adjustments or changes to our
practices required as a result of such review. The most recent
review was completed by the Internal Revenue Service in
conjunction with the audit of our federal tax returns for 2000
and 2001.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>A significant number of our programs are concentrated in
certain states, particularly Florida and Tennessee, which makes
us particularly sensitive to regulatory, economic and other
conditions in those states.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the six months ended June&nbsp;30, 2005, Florida and
Tennessee each accounted for approximately 18% of our net
revenues less provisions for uncollectibles, respectively. If
our programs in these states are adversely affected by changes
in regulatory, economic and other conditions, our revenue and
profitability may decline.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We derive a portion of our net revenues less provision for
uncollectibles from services provided to the Department of
Defense under the TRICARE Program ($74.7&nbsp;million for the
six months ended June&nbsp;30, 2005). This Program underwent
significant change in 2004 that has had a material impact on our
revenues and profits derived from such services.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a provider of health care professionals that serve
military personnel and their dependents in military treatment
facilities nationwide. In 2004, the Department of Defense made a
decision to re-contract all of its outsourced health care
staffing positions. Such positions were formerly staffed through
managed care organizations, which in turn subcontracted with
staffing providers, including Team Health. The change made by
the military was to primarily contract directly with health care
staffing providers through each branch of service. The
re-contracting of such services across all branches of the
military was completed on approximately November&nbsp;1, 2004.
Based on the results of such re-contracting, we concluded that
our revenue and operating margins would be materially adversely
affected and that a portion of goodwill related to our military
business had been impaired. An impairment loss of
$73.2&nbsp;million was recorded in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our revenues derived from military health care staffing totaled
approximately $74.7&nbsp;million in the first six months of 2005
compared to approximately $123.9&nbsp;million in the same period
in 2004. Revenues for the full year 2004 totaled approximately
$207.5&nbsp;million, reflecting our staffing revenues as both a
subcontractor and a direct contractor during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net revenues and cash flow in the six months ended
June&nbsp;30, 2005, have been affected as a result of the
re-contracting process. We won through competitive bidding a
number of new contracts. The staffing of such new contracts
requires locating, recruiting and hiring new health care staff,
some of whom, such as nurses, are in significant demand in
today&#146;s workforce. Our realization of net revenues in the
initial months of certain of the new contracts has been
adversely affected by unfilled staffing positions either due to
worker shortages or due to higher rates of turnover in certain
positions, leaving periods of vacancies in such positions.
Additionally, the billing process for our military staffing
services has changed following completion of the re-contracting
period. Our services are now billed directly to the respective
military treatment facilities or as a subcontractor to a
third-party direct contract holder who requires payment from the
military prior to reimbursing us. The change in military billing
practices and payment flow has caused a slow-down in the payment
cycle for our military staffing services. The average days
outstanding for our military staffing accounts receivable
totaled 79.1&nbsp;days at June&nbsp;30, 2005. Prior to the new
contracting process, our average days outstanding for military
staffing accounts receivable was 56.1&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Approximately $64.8&nbsp;million of estimated annual revenue won
by us as part of the military&#146;s contract bidding process in
2004 was awarded to us on a one-year contract basis and is
subject to re-bid and award on or about October&nbsp;1, 2005.
Approximately $79.1&nbsp;million of estimated annual revenue won
during the bidding process in 2004 was awarded to us on a two to
five year contract basis which gives the government the option
to exercise available option years. We anticipate an estimated
$100.0&nbsp;million of annual revenue derived from contracts
presently held by other staffing providers will also be up for
re-bid and award on or about October&nbsp;1, 2005. However, we
expect to be ineligible to bid on a substantial portion of the
business held by other staffing providers due to the
government&#146;s practice of reserving a substantial portion of
its contracts for award to small businesses. Our ability to
participate in such small business bid awards will be limited to
the extent we can serve as a sub-contractor to small businesses
that win such bids. We are unable at this time to estimate the
outcome of such expected bidding process or its impact on the
results of our operations subsequent to such award dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have remaining goodwill related to our military staffing
business of $54.7&nbsp;million. The outcome of the
military&#146;s re-bidding of its staffing contracts through
October&nbsp;1, 2005 could impact our valuation of the remaining
goodwill once the bid awards are known.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We are subject to billing investigations by federal and
state authorities.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
State and federal statutes impose substantial penalties,
including civil and criminal fines, exclusion from participation
in government health care programs and imprisonment, on entities
or individuals (including any individual corporate officers or
physicians deemed responsible) that fraudulently or wrongfully
bill governmental or other third-party payers for health care
services. In addition, federal laws allow a private person to
bring a civil action in the name of the United States government
for false billing violations. On
</DIV>

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<DIV align="left" style="font-size: 10pt;">
March&nbsp;30, 2004, we received a subpoena from the Department
of HHS Office of Inspector General, or OIG, located in Concord,
California, requesting certain information from the period 1999
to present relating to our billing practices. See
&#147;Business&nbsp;&#151; Legal Proceedings&#148; and the risk
factor below. We believe that additional audits, inquiries and
investigations from government agencies will continue to occur
from time to time in the ordinary course of our business, which
could result in substantial defense costs to us and a diversion
of management&#146;s time and attention. We cannot predict
whether any such pending or future audits, inquiries or
investigations, or the public disclosure of such matters, will
have a material adverse effect on our business, financial
condition, results of operations and the trading price of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>The outcome of an ongoing federal investigation in which
we are involved could have a material adverse impact on our
business and financial condition.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;30, 2004, we received a subpoena from the
Department of HHS OIG located in Concord, California, requesting
certain information for the period 1999 to present relating to
our billing practices. To date, we have produced and delivered
to the OIG and the Department of Justice certain requested
information. We have learned that the basis for the issuance of
the subpoena is a complaint filed in the United States District
Court for the Northern District of California by an individual
on behalf of the government. The identity of the qui tam relator
and portions of the qui tam complaint remain sealed by the Court
pending the government&#146;s investigation. The portions of the
complaint not under seal allege that we engaged in certain
billing practices that resulted in our receipt of duplicate
payments for the same medical service and that we misled certain
providers about the entities that were performing their billing
services. Additionally, the portions of the complaint not under
seal allege that we terminated the employment of the individual
who filed the complaint in retaliation for that
individual&#146;s bringing of these allegations to our
attention. We deny these allegations and do not believe that any
of our current or prior billing practices would form the basis
for a violation of federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are fully cooperating with the federal authorities in this
matter and have been producing and delivering to the federal
authorities the requested documents. However, due to lack of
more specific information available to us at this time, we are
unable to ascertain the full scope of the government&#146;s
inquiry or the qui tam relator&#146;s complaint. Since
cooperating with the federal authorities with respect to the
original realtor complaint, we have complied with numerous
federal authorities&#146; requests for additional information
relative to our billing polices and practices for all payers and
have made members of our management available to them for
purposes of their further understanding of such billing polices
and practices. We cannot predict the outcome of this
investigation or suit or their respective durations. The federal
government has informed us that it intends to file a notice of
intention to intervene. If this investigation results in current
or prior billing practices being identified as violative of
applicable laws or regulations, results in penalties being
imposed upon us, or results in an adverse determination in the
qui tam relator&#146;s complaint against us, the impact could
have a material adverse effect on our business and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may become involved in litigation which could harm the
value of our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the normal course of our business, we are involved in
lawsuits, claims, audits and investigations, including those
arising out of services provided, personal injury claims,
professional liability claims, our billing and marketing
practices, employment disputes and contractual claims. The
outcome of these matters could have a material adverse effect on
our financial position or results of operations. We do not
believe that any such claims that have been asserted are likely
to have such an effect. However, we may become subject to future
lawsuits, claims, audits and investigations that could result in
substantial costs and divert our attention and resources. In
addition, since our current growth strategy includes
acquisitions, among other things, we may become exposed to legal
claims for the activities of an acquired business prior to the
acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our quarterly operating results may fluctuate
significantly and may cause our stock price to decline.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our quarterly operating results may vary significantly in the
future depending on many factors that may include, but are not
limited to, the following:
</DIV>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the overall patient demand for our healthcare services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to accurately receive and process on a timely basis
    billing related information and other demographic factors that
    in turn can affect our fee-for-service revenue estimates;</TD>
</TR>

</TABLE>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the relative proportion of revenues we derive from various
    services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increased competition in our local markets;</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in our operating expenses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to recruit and train new physicians in new or
    existing local markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in our business strategy;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    economic and political conditions, including fluctuations in
    interest rates and tax increases.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result, our stock price may fluctuate and you may not be
able to resell your shares at or above the price you paid for
them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our revenue could be adversely affected by a net loss of
contracts.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A significant portion of our growth has historically resulted
from increases in the number of patient visits and fees for
services provided under existing contracts and the addition and
acquisition of new contracts. Our contracts with hospitals
generally have terms of three years. Our contracts with military
treatment facilities are generally for one year and currently
are in the form of a direct contract with a military treatment
facility. Hospital contracts often include automatic renewal
options under similar terms and conditions, unless either party
gives notice of an intent not to renew. While most contracts are
terminable by either of the parties upon notice of as little as
30&nbsp;days, the average tenure of our existing hospital
contracts is approximately eight years. These contracts may not
be renewed or, if renewed, may contain terms that are not as
favorable to us as our current contracts. The termination of a
contract is principally due to either an award of the contract
to another source of provider staffing as a result of a
competitive bidding process or termination of the contract by us
due to a lack of an acceptable profit margin on fee-for-service
patient volumes coupled with inadequate contract subsidies.
Additionally, to a much lesser extent, contracts may be
terminated due to such conditions as a hospital facility closing
because of facility mergers or a hospital attempting to insource
the service being provided by us. Our current military contracts
generally have terms of one year and in many cases have renewal
options on the part of the military. Such renewal options
typically are for one to four years. We cannot assure you that
we will not experience a net loss of contracts in the future and
that any such net loss would not have a material adverse effect
on our operating results and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may not accurately assess the costs we will incur under
new contracts.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our new contracts increasingly involve a competitive bidding
process. When we obtain new contracts, we must accurately assess
the costs we will incur in providing services in order to
realize adequate profit margins and otherwise meet our financial
and strategic objectives. Increasing pressures from healthcare
payers to restrict or reduce reimbursement rates at a time when
the costs of providing medical services continue to increase
make assessing the costs associated with the pricing of new
contracts, as well as maintenance of existing contracts, more
difficult. In addition, integrating new contracts, particularly
those in new geographic locations, could prove more costly, and
could require more management time, than we anticipate. Our
failure to accurately predict costs or to negotiate an adequate
profit margin could have a material adverse effect on our
business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may not be able to find suitable acquisition candidates
or successfully integrate completed acquisitions into our
current operations in order to profitably operate our
consolidated company.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A portion of our growth in net revenues has resulted from, and
is expected to continue to result from, the acquisition of
healthcare businesses. Our acquisition strategy could present
some challenges. Some of the difficulties we could encounter
include: problems identifying all service and contractual
commitments of the acquired entity, evaluating the stability of
the acquired entity&#146;s hospital contracts, integrating
financial and operational software, and accurately projecting
physician and employee costs. Our acquisition strategy is also
subject to the risk that, in the future, we may not be able to
identify suitable acquisition candidates, obtain acceptable
financing or consummate desired acquisitions, any of which could
inhibit our growth. In addition, in connection with
acquisitions, we may need to obtain the consent of third parties
who have contracts with the entity to be acquired, such as
managed care companies or hospitals contracting with the entity.
We may be unable to obtain these consents. If we fail to
integrate acquired operations, fail to manage the cost of
providing our services or fail to price our services
appropriately, our operating results may decline.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
Furthermore, the diversion of management&#146;s attention and
any delays or difficulties encountered in connection with the
integration of businesses we acquire could negatively impact our
business and results of operations. Finally, as a result of our
acquisitions of other healthcare businesses, we may be subject
to the risk of unanticipated business uncertainties or legal
liabilities relating to such acquired businesses for which we
may not be indemnified by the sellers of the acquired businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our substantial indebtedness could adversely affect our
financial condition and our ability to operate our
business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have a substantial amount of debt. At June&nbsp;30, 2005, we
had total debt of $348.0&nbsp;million, including
$202.3&nbsp;million of borrowings under our senior secured
credit facility and $145.7&nbsp;million of senior subordinated
notes. In addition, subject to restrictions in the indenture
governing our notes and the credit agreement governing our
senior secured credit facility, we may incur additional debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our substantial debt could have important consequences to you,
including the following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    it may be difficult for us to satisfy our obligations, including
    debt service requirements under our outstanding debt,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to obtain additional financing for working capital,
    capital expenditures, debt service requirements or other general
    corporate purposes may be impaired,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we must use a significant portion of our cash flow for payments
    on our debt, which will reduce the funds available to us for
    other purposes,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we are more vulnerable to economic downturns and adverse
    industry conditions and our flexibility to plan for, or react
    to, changes in our business or industry is more limited,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to capitalize on business opportunities and to react
    to competitive pressures, as compared to our competitors, may be
    compromised due to our high level of debt,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to borrow additional funds or to refinance debt may
    be limited,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    it may cause potential or existing customers or physicians to
    not contract with us due to concerns over our ability to meet
    our financial obligations, such as payment of physicians or
    insuring against our professional liability risks, under such
    contracts.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furthermore, all of our debt under our senior secured credit
facility bears interest at variable rates. If these rates were
to increase significantly, our ability to borrow additional
funds may be reduced and the risks related to our substantial
debt would intensify.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Servicing our debt will require a significant amount of
cash. Our ability to generate sufficient cash depends on
numerous factors beyond our control, and we may be unable to
generate sufficient cash flow to service our debt
obligations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our business may not generate sufficient cash flow from
operating activities. Our ability to make payments on and to
refinance our debt and to fund planned capital expenditures will
depend on our ability to generate cash in the future. To some
extent, this is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are
beyond our control. Lower net revenues, or higher provision for
uncollectibles, generally will reduce our cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If we are unable to generate sufficient cash flow to service our
debt and meet our other commitments, we may need to refinance
all or a portion of our debt, sell material assets or operations
or raise additional debt or equity capital. We cannot assure you
that we could effect any of these actions on a timely basis, on
commercially reasonable terms or at all, or that these actions
would be sufficient to meet our capital requirements. In
addition, the terms of our existing or future debt agreements
may restrict us from effecting any of these alternatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may be required to seek additional financing to meet
our future capital needs, which we may not be able to secure on
favorable terms, or at all.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Continued expansion of our business may require additional
capital. In the future, it is possible that we will be required
to raise additional funds through public or private financings,
collaborative relationships or other arrangements. We cannot
assure you that this additional funding, if needed, will be
available on terms attractive to us, if at all. Furthermore, any
additional equity financing may be dilutive to shareholders and
</DIV>

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<DIV align="left" style="font-size: 10pt;">
debt financing, if available, may involve restrictive covenants
that could affect our ability to pay dividends, if any, or raise
additional capital. Our failure to raise capital when needed
could harm our competitive position, business, financial
condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Restrictive covenants in our senior secured credit
facility and the indenture governing our senior subordinated
notes may restrict our ability to pursue our business
strategies.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our senior secured credit facility and the indenture governing
our senior subordinated notes limit our ability, among other
things, to:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    incur additional indebtedness,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sell material assets,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    retire, redeem or otherwise reacquire our capital stock,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    acquire the capital stock or assets of another company,&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pay dividends.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the senior credit agreement includes a provision
for the prepayment of a portion of the outstanding term loan
amounts at any year-end if we generate &#147;excess cash
flow,&#148; as defined in the agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Despite current indebtedness levels, we and our
subsidiaries may still be able to incur substantially more debt.
This could further exacerbate the risks associated with our
substantial leverage.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. Although the agreements
governing our debt instruments contain restrictions on the
incurrence of additional indebtedness, these restrictions are
subject to a number of qualifications and exceptions, and the
indebtedness incurred in compliance with these restrictions
could be substantial. If we incur additional debt above the
levels currently in effect, the risks associated with our
leverage, including those described above, would increase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If we fail to implement our business strategy, our
business, financial condition and results of operations could be
materially and adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our future financial performance and success are dependent in
large part upon our ability to implement our business strategy
successfully. Our business strategy envisions several
initiatives, including increasing revenue from existing
customers, capitalizing on outsourcing opportunities to win new
contracts, focusing on risk management and pursuing selected
acquisitions. We may not be able to implement our business
strategy successfully or achieve the anticipated benefits of our
business plan. If we are unable to do so, our long-term growth
and profitability may be adversely affected. Even if we are able
to implement some or all of the initiatives of our business plan
successfully, our operating results may not improve to the
extent we anticipate, or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our success depends on our ability to manage growth
effectively.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Even if we are successful in obtaining new business, failure to
manage our growth could adversely affect our financial
condition. We may experience extended periods of very rapid
growth. If we are not able to manage our growth effectively, our
business and financial condition could materially suffer. Our
growth may significantly strain our managerial, operational and
financial resources and systems. To manage our growth
effectively, we will have to continue to implement and improve
our operational, financial and management controls, reporting
systems and procedures. In addition, we must effectively expand,
train and manage our employees. We will be unable to manage our
businesses effectively if we are unable to alleviate the strain
on resources caused by growth in a timely and successful manner.
There can be no assurance that we will be able to manage our
growth and a failure to do so could have a material adverse
effect on our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may not be able to successfully recruit and retain
qualified physicians to serve as our independent contractors or
employees.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our affiliated medical groups provide facility-based services in
virtually all types of settings. These include urban and
suburban hospitals as well as rural and remote facilities. Our
ability to recruit and retain affiliated physicians and
qualified personnel for such settings can significantly affect
our performance at such facilities. Certain of these locations
present difficulties in recruiting providers due to limits on
compensation, facility and equipment availability, reduced
back-up by other specialists and personal/ family lifestyle
preferences. In addition, a number of our client hospitals
increasingly demand a greater degree of specialized skills,
training and experience in the physicians who staff their
contracts. This decreases the number of physicians who are
qualified to staff potential and existing contracts.
</DIV>

<P align="center" style="font-size: 10pt;">16

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<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our core competencies include recruiting physicians and other
providers to all types of settings. Our staff includes
approximately 68 recruiters who work solely for us to fill the
vacancies that occur via attrition and new contract sales. We
utilize a proprietary IT application, populated with data
purchased from various provider professional societies, to
contact, recruit and employ or contract with providers as they
are needed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, recruiting physicians to staff contracts in regions
of the country for economically disadvantaged hospitals may be
challenging. Occasionally, the recruiting of providers may not
occur quickly enough to fill all openings with permanent staff.
In these situations, clinical shifts are often filled
temporarily by existing employees or independent contractors
from other areas of our company, including by our regional
management. If such assistance is not available for any reason,
we utilize staffing from our internal locums tenens, or
temporary position, company to fill the staffing need until a
permanent candidate is identified. Finally, if the
aforementioned alternatives are unsuccessful, we contract with
one of the many third-party locums tenens companies that exist
to provide these services to healthcare facilities or companies
such as ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A number of resource options are available to us along with a
large full-time staff of recruiters that use sophisticated IT
tools to recruit staffing for almost any situation. As a result,
the inability to recruit skilled permanent provider staffing is
seldom a reason for the termination of a contract.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We compete with other entities to recruit and retain qualified
physicians and other healthcare professionals to deliver
clinical services. Our future success depends on our continued
ability to recruit and retain competent physicians to serve as
our employees or independent contractors. We may not be able to
continue to attract and retain sufficient numbers of competent
physicians and other healthcare professionals to continue to
expand our operations. In recent years there has been a shortage
of radiologists. The impact of this shortage has increased
staffing opportunities for such physicians. We have responded to
this shortage in ways other than our traditional fee-for-service
contracting arrangements. We first have experienced increased
staffing opportunities for radiologists through our locums
tenens business. Additionally, we have changed in the past two
years from a fee-for-service model to increasingly more often a
cost-plus arrangement with healthcare facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The type of professional staffing services provided to military
treatment facilities in 2005 has changed significantly as a
result of a re-contracting process initiated by the Department
of Defense in 2004. The mix of professional services rendered
within our military staffing business has changed to an
increasing percentage of such services being provided in the
area of nurse staffing. There is a generally recognized shortage
of practicing nurses within the country. These shortages present
challenges to us in terms of recruiting for such contracted
positions overall and recruiting for such positions on a timely
basis to meet our contractual obligations. In situations where
we are unable to recruit nurses on a timely basis, our net
revenues will be adversely affected as a result.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our ability to attract and retain physicians and providers
depends on several factors, including our ability to provide
physicians and providers with competitive benefits and wages. If
we do not increase benefits and wages in response to increases
by our competitors, we could face difficulties attracting and
retaining qualified healthcare personnel. In addition, if we
raise wages in response to our competitors&#146; wage increases
and are unable to pass such increases on to our clients, our
margins could decline. We cannot assure you that we will be
successful in any of these areas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There can be no assurance that our non-competition contractual
arrangements with affiliated physicians and professional
corporations will not be successfully challenged in certain
states as unenforceable. We have contracts with physicians in
many states. State law governing non-compete agreements varies
from state to state. Some states are reluctant to strictly
enforce non-compete agreements with physicians. In such event,
we would be unable to prevent former affiliated physicians and
professional corporations from competing with us, potentially
resulting in the loss of some of our hospital contracts and
other business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>The high level of competition in our industry could
adversely affect our contract and revenue base.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provision of outsourced physician staffing and
administrative services to hospitals and clinics is
characterized by a high degree of competition. Competition for
outsourced physician and other healthcare staffing and
administrative service contracts is based primarily on:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to improve department productivity and patient
    satisfaction while reducing overall costs,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the breadth of staffing and management services offered,</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">17

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<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to recruit and retain qualified physicians,
    technicians and nurses,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    billing and reimbursement expertise,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a reputation for compliance with state and federal
    regulations,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    financial stability, demonstrating an ability to pay providers
    in a timely manner and provide professional liability insurance.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Such competition could adversely affect our ability to obtain
new contracts, retain existing contracts and increase our profit
margins. We compete with both national and regional enterprises.
In addition, some of these firms may have greater access than we
do to physicians and potential clients. All of these competitors
provide healthcare services that are similar in scope to the
services we provide. We do not believe our services to have any
disadvantages with respect to such competitors. Although we and
our competitors operate on a national or regional basis, the
majority of the targeted hospital community for our services
engages local physician provider practice groups to provide
services similar to the services we provide. We therefore also
compete against local physician groups and self-operated
hospital emergency departments for satisfying staffing and
scheduling needs. Such local groups will often times outsource
many of their back office functions, including billing and
collection, risk management and other functions. While we
believe our company has certain competitive advantages over
these local groups relative to the economics of certain back
office functions, stability of operations to hospitals and
greater resources overall to provide flexibility in providing
services to our clients, local groups may compete more
effectively in the short-term in terms of the cost of their
services. Such cost advantages in a competitive bidding process
may reflect a willingness of a local group to provide their
services for below market reimbursement rates for their
physician services or to assume greater personal professional
liability risk exposure than is deemed prudent by other staffing
providers for contract pricing purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The military has changed its approach under its TRICARE Program
toward providing most of its outsourced healthcare staffing
needs through direct provider contracting on a competitive bid
basis. As a result, competition for such outsourced military
staffing contracts may be affected by such factors as:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the lowest bid price;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to meet technical government bid specifications;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to recruit and retain qualified health care
    providers;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restrictions on the ability to competitively bid based on
    restrictive government bid lists or bid specifications designed
    to award government contracts to targeted business ownership
    forms, such as those determined to meet small business or
    minority ownership qualifications.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
While we believe our significant experience and demonstrated
ability to recruit high quality healthcare professionals to meet
the military&#146;s needs provides certain attractive advantages
to the use of our services, such services and quality screening
considerations may not result in the lowest competitive bid
price and thus a failure to win contracts where the decision is
based strictly on pricing considerations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our business depends on numerous complex information
systems, and any failure to successfully maintain these systems
or implement new systems could materially harm our
operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our business depends on complex, integrated information systems
and standardized procedures for operational and financial and
billing operations. We may not be able to enhance existing
information systems or implement new information systems where
necessary. Furthermore, we may experience unanticipated delays,
complications and expenses in implementing, integrating and
operating our systems. In addition, our information systems may
require modifications, improvements or replacements that may
require substantial expenditures and may require interruptions
in operations during periods of implementation. Implementation
of these systems is further subject to the availability of
information technology and skilled personnel to assist us in
creating and implementing the systems. The failure to
successfully implement and maintain operational, financial and
billing information systems could have a material adverse effect
on our business, financial condition and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Loss of key personnel and/or failure to attract and retain
highly qualified personnel could make it more difficult for us
to generate cash flow from operations and service our
debt.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our success depends to a significant extent on the continued
services of our core senior management team of H.&nbsp;Lynn
Massingale,&nbsp;M.D., Chief Executive Officer and Director;
Greg Roth, President and Chief
</DIV>

<P align="center" style="font-size: 10pt;">18

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<DIV align="left" style="font-size: 10pt;">
Operating Officer; Robert&nbsp;J. Abramowski, Executive Vice
President, Finance and Administration; Robert&nbsp;C. Joyner,
Executive Vice President, General Counsel; David Jones, Chief
Financial Officer; Stephen Sherlin, Chief Compliance Officer;
and Joseph Carmen, President, Billing Operations as well as the
leaders of major components of our company. If one or more of
these individuals were unable or unwilling to continue in his
present position, our business would be disrupted and we might
not be able to find replacements on a timely basis or with the
same level of skill and experience. Finding and hiring any such
replacements could be costly and might require us to grant
significant incentive compensation, which could adversely impact
our financial results. We have not had problems retaining key
personnel in the past and do not have reason to believe that key
personnel will be leaving in the near future.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Relating to Government Regulation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We may incur substantial costs defending our
interpretations of federal and state government regulations and
if we lose, the government could force us to restructure and
subject us to fines, monetary penalties and exclusion from
participation in government-sponsored programs such as Medicare
and Medicaid.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our operations and arrangements with healthcare providers are
subject to extensive federal and state government regulation,
including numerous laws directed at payment for services,
conduct of operations, preventing fraud and abuse, laws
prohibiting general business corporations, such as us, from
practicing medicine, controlling physicians&#146; medical
decisions or engaging in some practices such as splitting fees
with physicians, and laws regulating billing and collection of
reimbursement from governmental programs, such as the Medicare
and Medicaid programs. Of particular importance are:
</DIV>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;provisions of the Omnibus Budget Reconciliation Act of
    1993, commonly referred to as Stark&nbsp;II, that, subject to
    limited exceptions, prohibit physicians from referring Medicare
    patients to an entity for the provision of certain
    &#147;designated health services&#148; if the physician or a
    member of such physician&#146;s immediate family has a direct or
    indirect financial relationship (including a compensation
    arrangement) with the entity,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;provisions of the Social Security Act, commonly
    referred to as the &#147;anti-kickback statute,&#148; that
    prohibit the knowing and willful offering, payment, solicitation
    or receipt of any bribe, kickback, rebate or other remuneration
    in return for the referral or recommendation of patients for
    items and services covered, in whole or in part, by federal
    healthcare programs, such as Medicare and Medicaid,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (3)&nbsp;provisions of the Health Insurance Portability and
    Accountability Act of 1996, or HIPAA, and related rules that
    prohibit knowingly and willfully executing a scheme or artifice
    to defraud any healthcare benefit program or falsifying,
    concealing or covering up a material fact or making any material
    false, fictitious or fraudulent statement in connection with the
    delivery of or payment for healthcare benefits, items, or
    services,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (4)&nbsp;the federal False Claims Act that imposes civil and
    criminal liability on individuals or entities that submit false
    or fraudulent claims for payment to the government,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (5)&nbsp;reassignment of payment rules that prohibit certain
    types of billing and collection practices in connection with
    claims payable by the Medicare programs,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (6)&nbsp;similar state law provisions pertaining to
    anti-kickback, self-referral and false claims issues,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (7)&nbsp;state laws that prohibit general business corporations,
    such as us, from practicing medicine, controlling
    physicians&#146; medical decisions or engaging in some practices
    such as splitting fees with</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (8)&nbsp;laws that regulate debt collection practices as applied
    to our internal collection agency and debt collection practices,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (9)&nbsp;federal laws such as the Emergency Medical Treatment
    and Active Labor Act of 1986 that require the hospital and
    emergency department or urgent care center physicians to provide
    care to any patient presenting to the emergency department or
    urgent care center in an emergent condition regardless of the
    patient&#146;s ability to pay, and similar state laws,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (10)&nbsp;state and federal statutes and regulations that govern
    workplace health and safety.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (11)&nbsp;a provision of the Social Security Act that imposes
    criminal penalties on healthcare providers who fail to disclose
    or refund known overpayments.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">19

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (12)&nbsp;federal and state laws that prohibit providers from
    billing and receiving payment from Medicare and Medicaid for
    service unless the services are medically necessary, adequately
    and accurately documented, and billed using codes that
    accurately reflect the type and level of services rendered.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (13)&nbsp;federal and state laws and policies that require
    healthcare providers to enroll in the Medicare and Medicaid
    programs, to report certain changes in their operations to the
    agencies that administer these programs and, in some cases, to
    re-enroll in these programs when changes in direct or indirect
    ownership occur,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (14)&nbsp;federal and state laws pertaining to the provision of
    services by nurse practitioners and physician assistants in the
    emergency department and urgent care settings, physician
    supervision of those services, and reimbursement requirements
    that may be dependent on the manner in which the services are
    provided and documented.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the above may have related rules and regulations which
are subject to interpretation and may not provide definitive
guidance as to the application of those laws, rules or
regulations to our operations, including our arrangements with
hospitals, physicians and professional corporations. See
&#147;Business&nbsp;&#151;&nbsp;Regulatory Matters&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have structured our operations and arrangements with third
parties in an attempt to comply with these laws, rules and
regulations based upon what we believe are reasonable and
defensible interpretations of these laws, rules and regulations.
However, we cannot assure you that the government will not
successfully challenge our interpretation as to the
applicability of these laws, rules and regulations as they
relate to our operations and arrangements with third parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the ordinary course of business and like others in the
healthcare industry, we receive requests for information from
government agencies in connection with their regulatory or
investigational authority. We review such requests and notices
and take appropriate action. We have been subject to certain
requests for information in the past and could be subject to
such requests for information in the future, which could result
in significant penalties, as well as adverse publicity. The
results of any current or future investigation or action could
have a material adverse effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
With respect to state laws that relate to the practice of
medicine by general business corporations and to fee splitting,
while we seek to comply substantially with existing applicable
laws, we cannot assure you that state officials who administer
these laws will not successfully challenge our existing
organization and our contractual arrangements, including
noncompetition agreements with physicians, professional
corporations and hospitals as unenforceable or as constituting
the unlicensed practice of medicine or prohibited fee-splitting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We cannot assure you that a professional corporation will not
seek to terminate an agreement with us on the basis that it
violates the applicable state laws prohibiting the corporate
practice of medicine or any other basis, nor can we assure you
that governmental authorities in those states will not seek
termination of these arrangements on the same basis. If any
state governmental authority or professional corporation with
which we have a practice management agreement were to succeed in
such a termination, our business could be materially harmed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If federal or state government officials challenge our
operations or arrangements with third parties that we have
structured based upon our interpretation of these laws, rules
and regulations, the challenge could potentially disrupt our
business operations and we may incur substantial defense costs,
even if we successfully defend our interpretation of these laws,
rules and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event regulatory action were to limit or prohibit us from
carrying on our business as we presently conduct it or from
expanding our operations to certain jurisdictions, we may need
to make structural and organizational modifications of our
company and/or our contractual arrangements with physicians,
professional corporations and hospitals. Our operating costs
could increase significantly as a result. We could also lose
contracts or our revenues could decrease under existing
contracts as a result of a restructuring. Moreover, our
financing agreements may also prohibit modifications to our
current structure and consequently require us to obtain the
consent of the holders of this indebtedness or require the
refinancing of this indebtedness. Any restructuring would also
negatively impact our operations because our management&#146;s
time and attention would be diverted from running our business
in the ordinary course.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Federal and state laws are broadly worded and may be interpreted
or applied by prosecutorial, regulatory or judicial authorities
in ways that we cannot predict. Accordingly, we cannot assure
you that our
</DIV>

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<DIV align="left" style="font-size: 10pt;">
arrangements and business practices will not be the subject of
government scrutiny or be found to violate applicable laws. In
March 2004, we received a subpoena from the Department of Health
and Human Services Office of Inspector General, or OIG, located
in Concord, California requesting certain information for the
period from 1999 to the present relating to our billing
practices. We responded with information pertaining to the
request. The OIG has indicated to us that it intends to file a
notice to intervene in the related case. See
&#147;Business&#148;&nbsp;&#151; &#147;Legal Proceedings.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Our use and disclosure of patient information is subject
to privacy regulations</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Numerous state, federal and international laws and regulations
govern the collection, dissemination, use and confidentiality of
patient&nbsp;&#151; identifiable health information, including
HIPAA. In the provision of services to our customers, we may
collect, use, maintain and transmit patient information in ways
that will be subject to many of these laws and regulations. The
three rules that were promulgated pursuant to HIPAA that could
most significantly affect our business are the Standards for
Electronic transactions, or Transactions Rule; the Standards for
Privacy of Individuality Identifiable Health Information, or
Privacy Rule; and the Health Insurance Reform: Security
Standards or Security Rule. The respective compliance dates for
these rules for most entities were October&nbsp;16, 2003,
April&nbsp;16, 2003 and April&nbsp;21, 2005. HIPAA applies to
covered entities, which include most healthcare facilities and
health plans that will contract for the use of our protocols and
our services. The HIPAA rules require covered entities to bind
contractors to compliance with certain burdensome HIPAA rule
requirements. Other federal and state laws restricting the use
and protecting the privacy of patient information also apply to
our customers directly and to us, either directly or indirectly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The HIPAA Transactions Rule establishes format and data content
standards for eight of the most common healthcare transactions.
When we perform billing and collection services on behalf of our
customers we may be engaging in one of more of these standard
transactions and will be required to conduct those transactions
in compliance with the required standards. The HIPAA Privacy
Rule restricts the use and disclosure of patient information,
requires entities to safeguard that information and to provide
certain rights to individuals with respect to that information.
The HIPAA Security Rule establishes elaborate requirements for
safeguarding patient information transmitted or stored
electronically. We may be required to make costly system
purchases and modifications to comply with the HIPAA rule
requirements that will be imposed on us and our failure to
comply may result in liability and adversely affect our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Federal and state consumer laws are being applied increasingly
by the Federal Trade Commission, or FTC, and state attorneys
general to regulate the collection, use and disclosure of
personal or patient information, through web sites or otherwise,
and to regulate the presentation of web site content. Courts may
also adopt the standards for fair information practices
promulgated by the FTC, which concern consumer notice, choice,
security and access.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Numerous other federal and state laws protect the
confidentiality of patient information. These laws in many cases
are not preempted by HIPAA rules and may be subject to varying
interpretations by courts and government agencies, creating
complex compliance issues for us and our customers and
potentially exposing us to additional expense, adverse publicity
and liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
New health information standards, whether implemented pursuant
to HIPAA, congressional action or otherwise, could have a
significant effect on the manner in which we must handle
healthcare related data, and the cost of complying with
standards could be significant. If we do not properly comply
with existing or new laws and regulations related to patient
health information we could be subject to criminal or civil
sanctions. See &#147;Business&nbsp;&#151; Regulatory
Matters.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If we fail to comply with the federal anti-kickback
statute, we could be subject to criminal and civil penalties,
loss of licenses and exclusion from the Medicare and Medicaid
programs, which could have a material adverse effect on our
business, financial condition and results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A provision of the Social Security Act, commonly referred to as
the federal anti-kickback statute, prohibits the offer, payment,
solicitation or receipt of any form of remuneration in return
for referring, ordering, leasing, purchasing or arranging for or
recommending the ordering, purchasing or leasing of items or
services payable by the Medicare and Medicaid programs or any
other federally funded healthcare program. The federal
anti-kickback statute is very broad in scope, and many of its
provisions have not been uniformly or definitively interpreted
by courts or regulations.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the operation of our business, we pay various healthcare
providers or other referral sources for items or services they
provide to us, and healthcare providers or other referral
sources pay us for items or services we provide to them. In
addition, we have non-financial relationships with referral
sources. All of our financial relationships with healthcare
providers and other referral sources, and with referral
recipients (such as service agreements, equipment leases, space
leases, etc.) potentially implicate the federal anti-kickback
law to the extent Medicare or Medicaid pays for the item or
service that is referred by or to those parties, and some of our
non-financial relationships may implicate the federal
anti-kickback law. In addition, most of the states in which we
operate also have adopted laws similar to the federal
anti-kickback law, although some of them are broader and apply
regardless of the source of payment for the item or service
provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Violations of the federal anti-kickback law and similar state
laws may result in significant fines, imprisonment and exclusion
from the Medicare and Medicaid programs. Such fines and
exclusion could have a material adverse effect on our business,
financial condition and results of operations. While we believe
that our arrangements with healthcare providers and other
referral sources and recipients fall within applicable safe
harbors or otherwise do not violate the law, there can be no
assurance that federal or state regulatory authorities will not
challenge these arrangements under anti-kickback laws. See
&#147;Business&nbsp;&#151; Regulatory Matters.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If future regulation forces us to restructure our
operations, including our arrangements with physicians,
professional corporations, hospitals and other facilities, we
may incur additional costs, lose contracts and suffer a
reduction in revenue under existing contracts and we may need to
refinance our debt or obtain debt holder consent.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Legislators have introduced and may introduce in the future
numerous proposals into the United States Congress and state
legislatures relating to healthcare reform in response to
various healthcare issues. We cannot assure you as to the
ultimate content, timing or effect of any healthcare reform
legislation, nor is it possible at this time to estimate the
impact of potential legislation. Further, although we exercise
care in structuring our arrangements with physicians,
professional corporations, hospitals and other facilities to
comply in all significant respects with applicable law, we
cannot assure you that: (1)&nbsp;government officials charged
with responsibility for enforcing those laws will not assert
that we, or transactions into which we have entered, violate
those laws or (2)&nbsp;governmental entities or courts will
ultimately interpret those laws in a manner consistent with our
interpretation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The continual flux of healthcare rules and regulations at the
federal, state and local level could revise the future of our
relationships with the hospitals and physicians with whom we
contract. In addition to the regulations referred to above,
aspects of our operations are also subject to state and federal
statutes and regulations governing workplace health and safety
and, to a small extent, the disposal of medical waste.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Changes in ethical guidelines and operating standards of
professional and trade associations and private accreditation
commissions such as the American Medical Association and the
Joint Commission on Accreditation of Healthcare Organizations
may also affect our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accordingly, changes in existing laws and regulations, adverse
judicial or administrative interpretations of these laws and
regulations or enactment of new legislation could force us to
restructure our relationships with physicians, professional
corporations, hospitals and other facilities. This could cause
our operating costs to increase significantly. A restructuring
could also result in a loss of contracts or a reduction in
revenues under existing contracts. Moreover, if these laws
require us to modify our structure and organization to comply
with these laws, our financing agreements may prohibit such
modifications and require us to obtain the consent of the
holders of such indebtedness or require the refinancing of such
indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If we fail to comply with physician self-referral laws as
they are currently interpreted or may be interpreted in the
future, or if other legislative restrictions are issued, we
could incur a significant loss of reimbursement revenue and be
subject to significant monetary penalties, which could have a
material adverse effect on our business, financial condition and
results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to federal and state laws and regulations that
limit the circumstances under which physicians who have a
financial relationship with us may refer patients to us for the
provision of certain services (including clinical laboratory
services, home health services, physical therapy services,
occupational therapy services, and certain diagnostic services).
These laws and regulations also prohibit our billing for
services provided in violation of the laws and regulations.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have financial relationships with physicians in the form of
compensation arrangements for services rendered. In addition, we
have financial relationship with physicians to the extent they
own a beneficial interest in our common stock. While we believe
our compensation arrangements with physicians are in material
compliance with applicable laws and regulations, government
authorities might take a contrary position or prohibited
referrals may occur. Further, because we cannot be certain that
we will have knowledge of all physicians who may own a
beneficial interest in our common stock, we also cannot be
certain that referrals from any such physicians will not cause
us to violate these laws and regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Violation of these laws and regulations may result in
prohibition of payment for services rendered, significant fines
and penalties, and exclusion from the Medicare and Medicaid
programs, any of which could have a material adverse effect on
our business, financial condition and results of operations. In
addition, expansion of our operations to new jurisdictions, new
interpretations of laws in our existing jurisdictions or new
physician self&#150;referral laws, could require structural and
organizational modifications of our relationships with
physicians to comply with those jurisdictions&#146; laws. Such
structural and organizational modifications could result in
lower profitability and failure to achieve our growth
objectives. See &#147;Business&nbsp;&#151; Regulatory
Matters.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We could experience a loss of contracts with our
physicians or be required to sever relationships with our
affiliated professional corporations in order to comply with
antitrust laws.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our contracts with physicians include contracts with physicians
organized as separate legal professional entities (e.g.
professional medical corporations) and as individuals. As such,
the antitrust laws deem each such physician/ practice to be
separate, both from Team Health and from each other and,
accordingly, each such physician/ practice is subject to a wide
range of laws that prohibit anti-competitive conduct among
separate legal entities or individuals. A review or action by
regulatory authorities or the courts, which is negative in
nature as to the relationship between us and the
physicians/practices we contract with, could force us to
terminate our contractual relationships with physicians and
affiliated professional corporations. Since we derive a
significant portion of our revenues from these relationships,
our revenues could substantially decrease. Moreover, if any
review or action by regulatory authorities required us to modify
our structure and organization to comply with such action or
review, our debt covenants may not permit such modifications,
thereby requiring us to obtain the consent of the holders of
such indebtedness or requiring the refinancing of such
indebtedness.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risks Related to this Offering</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Since our common stock has never been publicly traded, a
trading market may not develop for our common stock, and you may
not be able to sell your stock.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There has not been a public market for our common stock. A
liquid trading market for our common stock may not develop. The
initial public offering price will be determined in negotiations
among representatives of the underwriters, the selling
shareholders and us and may not be indicative of prices that
will prevail in the trading market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>You will experience immediate and substantial
dilution.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The price you pay for shares of our common stock sold in this
offering is substantially higher than the per share value of our
net assets, after giving effect to this offering. Assuming an
initial public offering price for our common stock of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the initial public offering price range
indicated on the cover of this prospectus), you will incur
immediate dilution in net tangible book value per share of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
Additionally, new investors in this offering will have
contributed &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our total equity as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005, but will own
only &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding shares upon completion of this offering. As
of June&nbsp;30, 2005, we had 1,394,025 outstanding options to
purchase&nbsp;1,394,025&nbsp;shares of our common stock at a
weighted average price of $11.86&nbsp;per share. To the extent
these options are exercised, you will suffer additional dilution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>If securities analysts do not publish research or reports
about our business or if they downgrade our stock or our sector,
the price of our stock could decline.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The trading market for our common stock will rely in part on the
research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts.
Furthermore, if one or more of the analysts who do cover us
downgrades our stock or our industry, or the stock of any of our
competitors, the price of our stock could decline. If one or
more of these analysts ceases coverage of our company, we could
lose visibility in the market, which in turn could cause our
stock price to decline.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Future sales of our common stock or the possibility or
perception of such future sales may depress our stock
price.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After this offering, we will
have &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding. Sales of a substantial number of
shares of common stock in the public market following this
offering, or the perception that these sales could occur, could
substantially decrease the market price of our common stock. All
the shares sold in this offering will be freely tradable.
Substantially all of the remaining shares of our common stock
are available for resale in the public market, subject to the
restrictions on sale or transfer during the 180-day lockup
period after the date of this prospectus that is described in
&#147;Shares Eligible for Future Sale.&#148; Certain of our
existing shareholders are parties to agreements that provide for
registration rights. Registration of the sale of these shares of
our common stock would permit their sale into the market
immediately. As restrictions on resale end or upon registration
of any of these shares for resale, the market price of our
common stock could drop significantly if the holders of these
shares sell them or are perceived by the market as intending to
sell them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We will incur increased costs as a result of being a
public company.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a public company, we will incur significant legal,
accounting, reporting and other expenses that we did not incur
as a private company. We expect these rules and regulations to
increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We also expect
these new rules and regulations may make it more difficult and
more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, we may experience more
difficulty attracting and retaining qualified individuals to
serve on our board of directors or as executive officers. We
cannot predict or estimate the amount of additional costs we may
incur as a result of these requirements or the timing of such
costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We will be exposed to risks relating to the evaluation of
our internal controls over financial reporting as required by
Section&nbsp;404 of the Sarbanes-Oxley Act.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are in the process of evaluating, testing and implementing
internal controls over financial reporting to enable management
to report on, and our independent registered accounting firm to
attest to, such internal controls as required by
Section&nbsp;404 of the Sarbanes-Oxley Act. While we anticipate
being compliant with the requirements of Section&nbsp;404 by our
December&nbsp;31, 2006 deadline, we cannot be certain as to the
timing of the completion of our evaluation, testing and
remediation actions or the impact of the same on our operations.
If we are not able to implement the requirements of
Section&nbsp;404 in a timely manner or with adequate compliance,
we may be subject to investigation and sanctions by regulatory
authorities, such as the SEC. As a result, there could be a
negative reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements. In
addition, we may be required to incur costs in improving our
internal controls and the hiring of additional personnel. Any
such actions could negatively affect our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>The interests of our controlling equityholders may be in
conflict with your interests.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Madison Dearborn Partners Cornerstone Equity Investors and
Beecken Petty O&#146;Keefe and Company own the majority of the
interest in our equity shares. Circumstances may occur in which
the interests of these equity holders could be in conflict with
your interests. Madison Dearborn Partners Cornerstone Equity
Investors and Beecken Petty O&#146;Keefe and Company are able
to, subject to applicable law, designate a majority of the
members of the board of directors and control actions to be
taken by us and our board of directors, including amendments to
our charter and bylaws and approval of significant corporate
transactions, including mergers and sales of substantially all
of our assets. The directors so elected will have the authority,
subject to the terms of our indebtedness and the rules and
regulations of the NYSE to issue additional stock, implement
stock repurchase programs, declare dividends and make other
decisions. These equity holders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though
such transactions might involve risks to you. See
&#147;Management,&#148; &#147;Principal and Selling
Shareholders&#148; and &#147;Certain Relationships and Related
Transactions.&#148;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We are a &#147;controlled company,&#148; within the
meaning of The New York Stock Exchange rules and, as a result,
will avail ourselves of exemptions from certain corporate
governance requirements.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this offering, Madison Dearborn Partners,
Cornerstone Equity Investors and Beecken Petty O&#146;Keefe and
Company will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common stock. Because Madison Dearborn
Partners Cornerstone Equity Investors and Beecken Petty
O&#146;Keefe and Company will own more than 50% of the voting
power of Team Health after giving effect to this offering, we
are considered a &#147;controlled company&#148; for the purposes
of the New York Stock Exchange listing requirements. As such, we
are permitted to, and have, opted out of the New York Stock
Exchange corporate governance requirements that: our board of
directors, our compensation committee and our nominating and
corporate governance committee meet the standard of independence
established by those corporate governance requirements. As a
result, our board of directors and those committees may have
more directors who do not meet the New York Stock Exchange
independence standards than they would if those standards were
to apply. The New York Stock Exchange independence standards are
intended to ensure that directors who meet the independence
standard are free of any conflicting interest that could
influence their actions as directors. The significant ownership
interest of these equity holders could adversely affect
investors&#146; perception of our corporate governance or delay,
prevent or cause a change in control of our company, any of
which could adversely affect the market price of our common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Tennessee law and certain anti-takeover provisions of our
corporate documents could delay or prevent a third party from
acquiring us or a change in control even if it would benefit our
shareholders.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our restated certificate of incorporation and bylaws will
contain a number of provisions that may delay, deter or inhibit
a future acquisition or change in control that is not first
approved by our board of directors. This could occur even if our
shareholders receive an attractive offer for their shares or if
a substantial number or even a majority of our shareholders
believe the takeover may be in their best interest. These
provisions are intended to encourage any person interested in
acquiring us to negotiate with and obtain approval from our
board of directors prior to pursuing a transaction. For example,
our restated charter will provide that shareholders may not act
by written consent and that only our board of directors may call
a special meeting. In addition, shareholders will be required to
provide us with advance notice if they wish to nominate any
persons for election to our board of directors or if they intend
to propose any matters for consideration at an annual
shareholders meeting. Our restated charter will authorize the
issuance of preferred stock without shareholder approval and
upon such terms as the board of directors may determine. The
rights of the holders of shares of our common stock will be
subject to, and may be adversely affected by, the rights of
holders of any class or series of preferred stock that may be
issued in the future. Our restated charter will also provide for
a classified board with staggered terms. The existence of a
staggered board may delay a successful tender offeror from
obtaining majority control of our board, and therefore may deter
a potential offeror. Additionally, there are various Tennessee
laws that may have the general effect of discouraging, or
rendering more difficult, unfriendly takeover or acquisition
attempts. Consequently, such provisions would be beneficial to
current management in an unfriendly takeover attempt but could
have an adverse effect on shareholders who might wish to
participate in such a transaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We will incur charges against our future earnings in the
quarter in which this offering is consummated.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of June&nbsp;30, 2005, unamortized deferred financing costs
were approximately $6.3&nbsp;million. Upon consummation of this
offering, in addition to any applicable premium, we will take a
pro rata charge against earnings related to the write-off of
unamortized deferred financing costs from the early
extinguishment of our existing indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>We do not intend to pay cash dividends.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not intend to pay cash dividends on our common stock. We
currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Our ability to pay dividends on our common stock is limited by
the covenants of our senior credit and term loan facilities as
well as our senior subordinated notes and may be further
restricted by the terms of any future debt or preferred
securities. As a result, capital appreciation, if any, of our
common stock will be your sole source of potential gain for the
foreseeable future.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>USE OF PROCEEDS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will receive net proceeds of approximately
$<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>&nbsp;million
from the sale
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock at a public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the mid-point of the range set forth on the cover of this
prospectus) after deducting estimated offering expenses and
underwriting discounts and commissions of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
We will not receive any proceeds from shares of common stock
sold by the selling shareholders. We will use the proceeds of
the sale of our common stock for the repayment of debt.
</DIV>

<P align="center" style="font-size: 10pt;">26

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='106'></A>
</DIV>

<!-- link1 "DIVIDEND POLICY" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DIVIDEND POLICY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently expect to retain future earnings, if any, for use
in the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Our ability to pay dividends on our common stock is limited by
the covenants of our senior credit and term loan facilities as
well as our 9%&nbsp;senior subordinated notes due 2012 and may
be further restricted by the terms of any future debt or
preferred securities.
</DIV>

<P align="center" style="font-size: 10pt;">27

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "CAPITALIZATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CAPITALIZATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth our actual consolidated cash and cash
equivalents and capitalization as of June&nbsp;30, 2005, and on
an as adjusted basis to give effect to this offering and the use
of proceeds as if this offering were consummated on
June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
See &#147;Summary Consolidated Financial Data,&#148;
&#147;Selected Consolidated Financial Data&#148; and &#147;Use
of Proceeds.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below should be read in conjunction with our
consolidated financial statements and the related notes thereto
included elsewhere in this prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>June&nbsp;30, 2005</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>As Adjusted</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>(unaudited)</B></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>(Dollars in millions,</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>except par value)</B></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term Debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Term loan facilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>202.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    9%&nbsp;senior subordinated notes due 2012</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>145.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Preferred stock: $0.01&nbsp;par value per share; No shares of
    preferred stock issued and outstanding on June&nbsp;30, 2005
    (200,000&nbsp;shares authorized and no shares of preferred stock
    issued and outstanding upon completion of this offering as if it
    had occurred on June&nbsp;30, 2005)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock: $0.01&nbsp;par value per share;
    9,816,000&nbsp;shares of common stock issued and outstanding on
    June&nbsp;30, 2005 (12,000,000&nbsp;shares authorized
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares of common
    stock issued and outstanding upon completion of this offering as
    if it had occurred on June&nbsp;30, 2005)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(168.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less treasury shares at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total shareholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(167.5</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>180.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='108'></A>
</DIV>

<!-- link1 "DILUTION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DILUTION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dilution is the amount by which the portion of the offering
price paid by the purchasers of the common stock to be sold in
the offering exceeds the net tangible book value or deficiency
per share of our common stock after the offering. Net tangible
book value or deficiency per share of our common stock is
determined at any date by subtracting our total liabilities from
our total assets less our intangible assets and dividing the
difference by the number of shares of common stock deemed to be
outstanding at that date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net tangible book deficiency as of June&nbsp;30, 2005
(unaudited) was approximately $277.9&nbsp;million, or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. After giving effect to our receipt and
intended use of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering based on an
assumed initial public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock (the midpoint of the range set forth on
the cover page of this prospectus) our pro forma as adjusted net
tangible book deficiency as of June&nbsp;30, 2005 (unaudited)
would have been approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This represents an immediate increase in
net tangible book value of $&nbsp;per share of our common stock
to existing shareholders and an immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to new investors purchasing shares of
common stock in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table illustrates this substantial and immediate
dilution to new investors:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Initial public offering
    price per share of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net tangible book deficit
    per share as of June&nbsp;30, 2005 (unaudited)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase per share
    attributable to cash payments made by investors in this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pro forma as adjusted net
    tangible book deficit after this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dilution in net tangible
    book value per share to new investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth on a pro forma basis as of
June&nbsp;30, 2005, assuming no exercise of the over-allotment
option:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total number of shares of our common stock to be owned by
    the existing equity holders and the total number of shares of
    our common stock to be owned by the new investors purchasing
    shares of common stock in this offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total consideration to be paid by the existing equity
    holders and to be paid by the new investors purchasing shares of
    common stock in this offering;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the average price per share of common stock to be paid by
    existing equity holders (cash and stock) and the average price
    per share of common stock to be paid by new investors purchasing
    shares of common stock in this offering:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Total Consideration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price Per</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Share</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Existing shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;New investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">29
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "SELECTED CONSOLIDATED FINANCIAL DATA" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SELECTED CONSOLIDATED FINANCIAL DATA</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth our selected historical
consolidated financial data as of the dates and for the periods
indicated. The financial data as of and for the five years ended
December&nbsp;31, 2004 has been derived from our audited
historical consolidated financial statements and the financial
data as of and for each of the six month periods ended
June&nbsp;30, 2004 and 2005 were derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. You should read the data presented below together
with, and qualified by reference to, our consolidated financial
statements and related notes and &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of
Operations,&#148; each of which is included herein.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2000</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="26" align="center" nowrap><B>(Dollars in thousands, except per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statement of Operations Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues less provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>589,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>629,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>834,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>999,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,008,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>508,308</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of Services Rendered:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional service expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>444,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>493,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>635,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>746,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>754,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>366,643</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,392</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>105,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>194,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,273</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,765</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Terminated transaction expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management fee and other expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,162</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,560</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,015</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,166</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,913</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Refinancing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before income taxes and cumulative effect of
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(588</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,776</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,687</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,707</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,317</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,410</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before cumulative effect of change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,459</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55,953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle, net of
    income tax benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(294</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,459</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55,953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,783</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(13,348</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,251</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,814</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,555</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Per Share Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) per common share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">30

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>As of December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>As of June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2000</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="26" align="center" nowrap><B>(Dollars in thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance Sheet Data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents and short term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>55,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>82,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,187</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,039</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>99,372</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,049</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>502,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>500,198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>674,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>731,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>598,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>560,396</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>229,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>217,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>320,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>428,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>429,375</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>347,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mandatory redeemable preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>118,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>144,405</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>158,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total shareholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(86,123</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(99,690</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(97,432</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(115,203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(198,880</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(203,745</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(167,537</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

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<DIV align="left" style="font-size: 10pt;">
<A name='110'></A>
</DIV>

<!-- link1 "MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The purpose of this section is to discuss and analyze our
consolidated financial condition, liquidity and capital
resources and results of operations. You should read the
following discussion in conjunction with our consolidated
financial statements and the notes thereto that appear elsewhere
in this prospectus. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs, and which involve risks, uncertainties and assumptions.
Our actual results may differ materially from those discussed in
the forward-looking statements. Factors that might cause future
results to differ materially from those discussed in the
forward-looking statements include, but are not limited to,
those discussed in &#147;Special Note&nbsp;Regarding
Forward-Looking Statements,&#148; &#147;Risk Factors,&#148; and
elsewhere in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Introduction</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are the largest national provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States based on revenues and
patient visits. We have focused primarily on providing
outsourced services to hospital emergency departments, which
accounts for the majority of our revenue. Approximately 40% of
all hospital admissions originate in the Emergency Department,
or ED. As a result, this area is critical to a hospital&#146;s
patient satisfaction rates and overall success.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Due to market growth, as well as our ability to increase patient
volumes and improve billing and collections, our revenues from
ED staffing contracts grew by 22% from 2001 to 2004. Partially
offsetting this growth has been the impact of certain changes in
the market for outsourced military healthcare staffing during
the same period. We believe that our revenues from ED staffing
contracts will continue to represent an increasing percentage of
our total revenues in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our regional operating models also include comprehensive
programs for inpatient care, radiology, anesthesiology,
pediatrics other health care services, principally within
hospital departments and other healthcare treatment facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion provides an assessment of our results
of operations, liquidity and capital resources and should be
read in conjunction with our consolidated financial statements
and notes thereto included elsewhere in this document.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Critical Accounting Policies and Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States, which requires us to make estimates and assumptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management believes the following critical accounting policies,
among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Revenue Recognition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues.</I> Net revenues consist of fee-for-service
revenue, contract revenue and other revenue. Net revenues are
recorded in the period services are rendered. Our net revenues
are principally derived from the provision of healthcare
staffing services to patients within healthcare facilities. The
form of billing and related risk of non-collection for such
services may vary by customer. The following is a summary of the
principal forms of our billing arrangements and how net revenues
are recognized for each.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A significant portion (77% and 74% of our net revenues in the
six months ended June&nbsp;30, 2005 and in fiscal 2004,
respectively) resulted from fee-for-service patient visits.
Fee-for-service revenue represents revenue earned under
contracts in which we bill and collect the professional
component of charges for medical services rendered by our
contracted and employed physicians. Under the fee-for-service
arrangements, we bill patients for services provided and receive
payment from patients or their third-party payers.
Fee-for-service revenue is reported net of contractual
allowances and policy discounts. All services provided are
expected to result in cash flows and are therefore reflected as
net revenues in the financial statements. Fee-for-service
revenue is recognized in the period that the services are
rendered to specific patients and reduced immediately for the
estimated impact of contractual allowances in the case of those
patients having third-party payer coverage. The recognition of
net revenues (gross charges less contractual allowances) from
such visits is dependent on such factors as proper completion of
medical charts following a
</DIV>

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<DIV align="left" style="font-size: 10pt;">
patient visit, the forwarding of such charts to one of our
billing centers for medical coding and entering into our billing
systems and the verification of each patient&#146;s submission
or representation at the time services are rendered as to the
payer(s) responsible for payment of such services. Net revenues
are recorded based on the information known at the time of
entering of such information into our billing systems as well as
an estimate of the net revenues associated with medical charts
for a given service period that have not been processed yet into
our billing systems. The above factors and estimates are subject
to change. For example, patient payer information may change
following an initial attempt to bill for services due to a
change in payer status. Such changes in payer status have an
impact on recorded net revenues due to differing payers being
subject to different contractual allowance amounts. Such changes
in net revenues are recognized in the period that such changes
in payer become known. Similarly, the actual volume of medical
charts not processed into our billing systems may be different
from the amounts estimated. Such differences in net revenues are
adjusted in the following month based on actual chart volumes
processed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Contract revenue represents revenue generated under contracts in
which we provide physician and other healthcare staffing and
administrative services in return for a contractually negotiated
fee. Contract revenue consists primarily of billings based on
hours of healthcare staffing provided at agreed to hourly rates.
Revenue in such cases is recognized as the hours are worked by
our staff. Additionally, contract revenue also includes
supplemental revenue from hospitals where we may have a
fee-for-service contract arrangement. Contract revenue for the
supplemental billing in such cases is recognized based on the
terms of each individual contract. Such contract terms generally
either provide for a fixed monthly dollar amount or a variable
amount based upon measurable monthly activity, such as hours
staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on
variable arrangements are usually contractually fixed on a
monthly, quarterly or annual calculation basis considering the
variable factors negotiated in each such arrangement. Such
supplemental revenues are recognized as revenue in the period
when such amounts are determined to be fixed and therefore
contractually obligated as payable by the customer under the
terms of the respective agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other revenue consists primarily of revenue from management and
billing services provided to outside parties. Revenue is
recognized for such services pursuant to the terms of the
contracts with customers. Generally, such contracts consist of
fixed monthly amounts with revenue recognized in the month
services are rendered or as hourly consulting fees recognized as
revenue as hours are worked in accordance with such
arrangements. Additionally, we derive a small percentage of our
revenues from providing administrative and billing services that
are contingent upon the collection of third-party physician
billings, either by us on their behalf or other third-party
billing companies. Such revenues are not considered earned and
therefore not recognized as revenue until actual cash
collections are achieved in accordance with the contractual
arrangements for such services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues Less Provision for Uncollectibles.</I> Net
revenues less provision for uncollectibles reflects
management&#146;s estimate of billed amounts that ultimately
will be collected. Management, in estimating the amounts to be
collected resulting from its over six million annual
fee-for-service patient visits and procedures, considers such
factors as prior contract collection experience, current period
changes in payer mix and patient acuity indicators,
reimbursement rate trends in governmental and private sector
insurance programs, resolution of credit balances, the estimated
impact of billing system effectiveness improvement initiatives
and trends in collections from self-pay patients. Such estimates
are substantially formulaic in nature. The estimates are
continuously updated and adjusted if subsequent actual
collection experience indicates a change in estimate is
necessary. Such provisions and any subsequent changes in
estimates may result in adjustments to our operating results
with a corresponding adjustment to our accounts receivable
allowance for uncollectibles on our balance sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Accounts Receivable.</I> As described above and below, we
determine the estimated value of our accounts receivable based
on estimated cash collection run rates of estimated future
collections by contract for patient visits under our
fee-for-service contract revenue. Accordingly, we are unable to
report the payer mix composition on a dollar basis of our
outstanding net accounts receivable. Our days revenue
outstanding at June&nbsp;30, 2005, was 60.9&nbsp;days and at
December&nbsp;31, 2004, was 63.3&nbsp;days. The number of days
outstanding will fluctuate over time due to a number of factors.
The decrease in average days revenue outstanding of
approximately 2.4&nbsp;days includes a decrease of 5.1&nbsp;days
resulting from an increase in average revenue per day
</DIV>

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<DIV align="left" style="font-size: 10pt;">
between periods and a decrease of 1.5&nbsp;days related to an
increase in collections on contract accounts receivable related
primarily to military staffing contracts offset by an increase
of 4.0&nbsp;days associated with an increased valuation of
fee-for-service accounts receivable. Our allowance for doubtful
accounts totaled $138.1&nbsp;million as of June&nbsp;30, 2005.
Approximately 98% of our allowance for doubtful accounts is
related to gross fees for fee-for-service patient visits. Our
principal exposure for uncollectible fee-for-service visits is
centered in self pay patients and, to a lesser extent, for
co-payments and deductibles from patients with insurance. While
we do not specifically allocate the allowance for doubtful
accounts to individual accounts or specific payer
classifications, the portion of the allowance associated with
fee-for-service charges as of June&nbsp;30, 2005, was
approximately 97% of self-pay accounts outstanding as
fee-for-service patient visits at June&nbsp;30, 2005. The
majority of our fee-for-service patient visits are for the
provision of emergency care in hospital settings. Due to federal
government regulations governing the providing of such care, we
are obligated to provide emergency care regardless of the
patient&#146;s ability to pay or whether or not the patient has
insurance or other third-party coverage for the cost of the
services rendered. While we attempt to obtain all relevant
billing information at the time emergency care services are
rendered, there are numerous patient encounters where such
information is not available at time of discharge. In such cases
where detailed billing information relative to insurance or
other third-party coverage is not available at discharge, we
attempt to obtain such information from the patient or client
hospital billing record information subsequent to discharge to
facilitate the collections process. Collections at the time of
rendering such services (emergency room discharge) are not
significant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Primary responsibility for collection of fee-for-service
accounts receivable resides within our internal billing
operations. Once a claim has been submitted to a payer or an
individual patient, employees within our billing operations have
responsibility for the follow up collection efforts. The
protocol for follow up differs by payer classification. For self
pay patients, our billing system will automatically send a
series of dunning letters on a prescribed time frame requesting
payment or the provision of information reflecting that the
balance due is covered by another payer, such as Medicare or a
third-party insurance plan. Generally, the dunning cycle on a
self pay account will run from 90 to 120&nbsp;days. At the end
of this period, if no collections or additional information is
obtained from the patient, the account is no longer considered
an active account and is transferred to a collection agency.
Upon transfer to a collection agency, the patient account is
written-off as a bad debt. Any subsequent cash receipts on
accounts previously written off are recorded as a recovery. For
non-self pay accounts, billing personnel will follow up and
respond to any communication from payers such as requests for
additional information or denials until collection of the
account is obtained or other resolution has occurred. For
contract accounts receivable, invoices for services are prepared
in our various operating areas and mailed to our customers,
generally on a monthly basis. Contract terms under such
arrangements generally require payment within thirty days of
receipt of the invoice. Outstanding invoices are periodically
reviewed and operations personnel with responsibility for the
customer relationship will contact the customer to follow up on
any delinquent invoices. Contract accounts receivable will be
considered as bad debt and written-off based upon the individual
circumstances of the customer situation after all collection
efforts have been exhausted, including legal action if
warranted, and it is the judgment of management that the account
is not expected to be collected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Methodology for Computing Allowance for Doubtful
Accounts.</I> We employ several methodologies for determining
our allowance for doubtful accounts depending on the nature of
the net revenues recognized. We initially determine gross
revenue for our fee-for-service patient visits based upon
established fee schedule prices. Such gross revenue is reduced
for estimated contractual allowances for those patient visits
covered by contractual insurance arrangements to result in net
revenues. Net revenues are then reduced for our estimate of
uncollectible amounts. Fee-for-service net revenues less
provision for uncollectibles represents our estimated cash to be
collected from such patient visits and is net of our estimate of
account balances estimated to be uncollectible. The provision
for uncollectible fee-for-service patient visits is based on
historical experience resulting from the over six million annual
patient visits. The significant volume of annual patient visits
and the terms of thousands of commercial and managed care
contracts and the various reimbursement policies relating to
governmental healthcare programs do not make it feasible to
evaluate fee-for-service accounts receivable on a specific
account basis. Fee-for-service accounts receivable collection
estimates are reviewed on a quarterly basis for each of our
fee-for-service contracts by period of accounts
</DIV>

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<DIV align="left" style="font-size: 10pt;">
receivable origination. Such reviews include the use of
historical cash collection percentages by contract adjusted for
the lapse of time since the date of the patient visit. In
addition, when actual collection percentages differ from
expected results, on a contract by contract basis supplemental
detailed reviews of the outstanding accounts receivable balances
may be performed by our billing operations to determine whether
there are facts and circumstances existing that may cause a
different conclusion as to the estimate of the collectibility of
that contract&#146;s accounts receivable from the estimate
resulting from using the historical collection experience. Facts
and circumstances that may result in an adjustment to the
formulaic result are generally few and are usually related to
third-party payer processing problems that are temporary in
nature. Contract related net revenues are billed based on the
terms of the contract at amounts expected to be collected. Such
billings are typically submitted on a monthly basis and aged
trial balances prepared. Allowances for estimated uncollectible
amounts related to such contract billings are made based upon
specific accounts and invoice periodic reviews once it is
concluded that such amounts are not likely to be collected. The
methodologies employed to compute allowances for doubtful
accounts were unchanged between 2005 and 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Insurance Reserves.</I> The nature of our business is such
that it is subject to professional liability lawsuits.
Historically, to mitigate a portion of this risk, we have
maintained insurance for individual professional liability
claims with per incident and annual aggregate limits per
physician for all incidents. Prior to March&nbsp;12, 2003, we
obtained such insurance coverage from a commercial insurance
provider. Professional liability lawsuits are routinely reviewed
by our insurance carrier and management for purposes of
establishing ultimate loss estimates. Provisions for estimated
losses in excess of insurance limits have been provided at the
time such determinations are made. In addition, where as a
condition of a professional liability insurance policy the
policy includes a self-insured risk retention layer of coverage,
we have recorded a provision for estimated losses likely to be
incurred during such periods and within such limits based on our
past loss experience following consultation with our outside
insurance experts and claims managers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subsequent to March&nbsp;11, 2003, we have provided for a
significant portion of our professional liability loss exposures
through the use of a captive insurance company and through
greater utilization of self-insurance reserves. Accordingly,
beginning on March&nbsp;12, 2003, a substantial portion of our
provision for professional liability losses is based on periodic
actuarial estimates of such losses for periods subsequent to
March&nbsp;11, 2003. An independent actuarial firm is
responsible for preparation of the periodic actuarial studies.
Management&#146;s estimate of our professional liability costs
resulting from such actuarial studies is significantly
influenced by assumptions, which are limited by the uncertainty
of predicting future events, and assessments regarding
expectations of several factors. These factors include, but are
not limited to: the frequency and severity of claims, which can
differ significantly by jurisdiction; coverage limits of
third-party insurance; the effectiveness of our claims
management process; and the outcome of litigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our commercial insurance policy for professional liability
losses for the period March&nbsp;12, 1999 through March&nbsp;11,
2003, included insured limits applicable to such coverage in the
period. In March 2003 we had an actuarial projection made of our
potential exposure for losses under the provisions of our
commercial insurance policy that ended March&nbsp;11, 2003. The
results of that actuarial study indicated that we would incur a
loss for claim losses and expenses in excess of the
$130.0&nbsp;million aggregate limit. Based on the results of an
annual actuarial study completed in April 2005, the estimated
loss discounted at 4% for claim losses and expenses in excess of
the $130.0&nbsp;million aggregated limit was $50.5&nbsp;million
as of June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The payment of any losses realized by us under the aggregate
loss provision discussed above will only be after our previous
commercial insurance carrier has paid such losses and expenses
up to $130.0&nbsp;million for the applicable prior periods. The
pattern of payment for professional liability losses for any
incurrence year typically is as long as six years. Accordingly,
our portion of our loss exposure under the aggregate policy
feature, if realized, is not expected to result in an outflow of
cash until 2006 based on the most recent actuarial projection.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Since March&nbsp;12, 2003, our professional liability costs
consist of annual projected costs resulting from an actuarial
study along with the cost of certain professional liability
commercial insurance premiums and programs available to us that
remain in effect. The provisions for professional liability
costs will fluctuate as a result of several factors, including
hours of exposure as measured by hours of physician and related
professional staff services as well as actual loss development
trends.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our provisions for losses under the aggregate loss limits of our
policy in effect prior to March&nbsp;12, 2003, and under our
captive insurance and self-insurance programs since
March&nbsp;12, 2003, are subject to periodic actuarial
reevaluation. The results of such periodic actuarial studies may
result in either upward or downward adjustment to our previous
loss estimates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accounts of the captive insurance company are fully
consolidated with those of the other operations of the Company
in the accompanying financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Impairment of Intangible Assets.</I> In assessing the
recoverability of our intangibles we must make assumptions
regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, we
may be required to record impairment charges for these assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock-Based Compensation.</I> As described in more detail in
Note&nbsp;15 to our Consolidated Financial Statements, we have
issued stock options to employees, consultants and directors to
purchase our common stock under the Team Health Inc. Stock
Option Plan, or the 1999 Stock Option Plan, which we refer to as
the Option Plan. Effective as of January&nbsp;1, 2003, we have
accounted for the Option Plan in accordance with the fair value
recognition provisions of SFAS&nbsp;No.&nbsp;123,
&#147;Accounting for Stock Based Compensation,&#148;
prospectively to all new awards granted to employees after
January&nbsp;1, 2003. Prior to January&nbsp;1, 2003, we applied
the recognition and measurement provisions of Accounting
Principles Board, or APB, Opinion No.&nbsp;25, &#147;Accounting
for Stock Issued to Employees&#148;. We measure compensation
expense for this option plan using the intrinsic value method as
prescribed by APB Opinion No.&nbsp;25. Under the intrinsic value
method, compensation is measured as the amount the market value
of the underlying equity instrument on the grant date exceeds
the exercise price of the option. This amount, if any, is then
charged to compensation expense over the vesting period. No
stock-based compensation expense is reflected in net earnings
for 2002 as all options granted prior to January&nbsp;1, 2003
had an exercise price equal to the market value of the
underlying common stock on the date of grant. Therefore, the
expense related to stock-based employee compensation included in
the determination of net earnings for 2002 is less than that
which would have been recognized if the fair value method had
been applied to all awards since adoption of the Option Plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the year ended December&nbsp;31, 2004 and the six-month
period ended June&nbsp;30, 2005, the following awards were
granted under the Option Plan.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted -</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Intrinsic</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options Granted</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value per</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Date of Grants</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(000s)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>per Interest</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Interest</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    June&nbsp;1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    November&nbsp;1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    March&nbsp;11, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16.85</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Significant Factors, Assumptions, and Methodologies Used in
Determining our Fair Value.</I> As described in more detail in
Note&nbsp;15 to our Consolidated Financial Statements, members
of management possessing the requisite financial experience
estimated the fair value of the options granted under the Option
Plan from January&nbsp;1, 2004 to June&nbsp;30, 2005 based on
the fair value of our common equity, as calculated by our board
of directors. Our board of directors calculated the fair value
of the common equity by applying a market valuation multiple
(based upon current market valuations of comparable
publicly-traded healthcare services companies) to trailing
earnings before interest, tax, depreciation and amortization
(EBITDA) to calculate the enterprise value. The enterprise value
was then adjusted (reduced for charges such as outstanding debt
and increased for assets such as cash) in order to calculate the
total equity value of Team Health. The total equity value was
divided by the total outstanding number of common shares and
options in order to calculate the common equity valuation on a
per share basis. The board of directors also made other
adjustments it deemed appropriate, including those based on
current trends and the liquidity of the shares. Our Board of
Directors did not obtain contemporaneous valuations by an
unrelated valuation specialist because, at the time of the
issuances of stock options during this period, they believed
that they possessed the requisite valuation expertise to prepare
a reasonable estimate of the fair value of the interests.
Determining the fair value of our common and preferred equity
interests required them to make complex and subjective judgments.
</DIV>

<P align="center" style="font-size: 10pt;">36
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Factors and Trends that Affect Our Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In reading our financial statements, you should be aware of the
following factors and trends that our management believes are
important in understanding our financial performance.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>TRICARE Program</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a provider of health care professionals that serve
military personnel and their dependents in military treatment
facilities nationwide. During 2004, the Department of Defense
made a decision to re-contract all of its outsourced health care
staffing positions. Such positions were formerly staffed through
managed care organizations, which in turn subcontracted with
staffing providers, including Team Health. The change made by
the military was to primarily contract directly with health care
staffing providers through each branch of service. The
re-contracting of such services across all branches of the
military was completed on approximately November&nbsp;1, 2004.
Based on the results of such re-contracting, we concluded that
our revenue and operating margins would be materially adversely
affected and that a portion of goodwill related to our military
business had been impaired. An impairment loss of
$73.2&nbsp;million was recorded in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our revenues derived from military health care staffing totaled
approximately $74.7&nbsp;million in the first six months of 2005
compared to approximately $123.9&nbsp;million in the same period
in 2004. Revenues for the full year 2004 totaled approximately
$207.5&nbsp;million, reflecting our staffing revenues as both a
subcontractor and a direct contractor during the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net revenues and cash flow in the six months ended
June&nbsp;30, 2005, have been affected as a result of the
re-contracting process. We won through competitive bidding a
number of new contracts. The staffing of such new contracts
requires locating, recruiting and hiring new healthcare staff,
some of whom, such as nurses, are in significant demand in
today&#146;s workforce. Our realization of net revenues in the
initial months of certain of the new contracts has been
adversely affected by unfilled staffing positions either due to
worker shortages or due to higher rates of turnover in certain
positions, leaving periods of vacancies in such positions.
Additionally, the billing process for our military staffing
services has changed following completion of the re-contracting
period. Our services are now billed directly to the respective
military treatment facilities or as a subcontractor to a
third-party direct contract holder who requires payment from the
military prior to reimbursing us. The change in military billing
practices and payment flow has caused a slow-down in the payment
cycle for our military staffing services. The average days
outstanding for our military staffing accounts receivable
totaled 79.1&nbsp;days at June&nbsp;30, 2005. Prior to the new
contracting process, our average days outstanding for military
staffing accounts receivable was 56.1&nbsp;days.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Approximately $64.8&nbsp;million of estimated annual revenue won
by us as part of the military&#146;s contract bidding process in
2004 was awarded to us on a one-year contract basis and is
subject to re-bid and award on or about October&nbsp;1, 2005.
Approximately $79.1&nbsp;million of estimated annual revenue won
during the bidding process in 2004 was awarded to us on a
two-five year contract basis which gives the government the
option to exercise available option years. We anticipate an
estimated $100.0&nbsp;million of annual revenue derived from
contracts presently held by other staffing providers will also
be up for re-bid and award on or about October&nbsp;1, 2005.
However, we expect to be ineligible to bid on a substantial
portion of the business held by other staffing providers due to
the government&#146;s practice of reserving a substantial
portion of its contracts for award to small businesses. Our
ability to participate in such small business bid awards will be
limited to the extent we can serve as a sub-contractor to small
businesses that win such bids. We are unable at this time to
estimate the outcome of such expected bidding process or its
impact on the results of our operations subsequent to such award
dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have remaining goodwill related to our military staffing
business of $54.7&nbsp;million. The outcome of the
military&#146;s re-bidding of its staffing contracts through
October&nbsp;1, 2005 could impact our valuation of the remaining
goodwill once the bid awards are known.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Radiology Related Services</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have historically provided several types of radiology related
services, including the operation of diagnostic imaging centers,
teleradiology physician services and providing radiologist
staffing services to hospital radiology departments. Some of
these operations have not achieved earnings targets resulting in
management&#146;s assessment of the various components of these
services for purposes of improving operating results derived
from radiology related services. As a result of such assessment,
a decision was reached on
</DIV>

<P align="center" style="font-size: 10pt;">37

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<DIV align="left" style="font-size: 10pt;">
July&nbsp;1, 2005, to cease operations at our two remaining
imaging centers and to end the provision of physician staffing
and related billing services for five hospital staffing
contracts that have failed to meet targeted levels of
profitability. We intend to cease operations relative to the
imaging center locations by August&nbsp;31, 2005, and to give
contract termination notices to identified hospitals during the
third quarter of 2005 and, following discussions with such
affected hospitals, to cease the provision of services as soon
as practical thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues less provision for uncollectibles related to
radiology operations planned for closure or termination are
approximately $8.8&nbsp;million for the six months ended
June&nbsp;30, 2005. The operating losses related to such
operations are not directly identifiable as the result of back
office billing and support costs not being totally allocated to
such operations on an historical basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the three months ended June&nbsp;30, 2005, we recorded an
impairment loss related to imaging center equipment and other
property in the estimated amount of $1.6&nbsp;million. We are
currently evaluating the potential for additional costs relating
to the remaining estimated future lease payments and other
property used in the provision of such radiology related
services. Any impairment loss related to future lease payments
and other property related items will be recorded in the period
that operations cease (currently anticipated to be in the three
months ended September&nbsp;30, 2005). As of June&nbsp;30, 2005,
future lease payments, not reduced for potential sub-lease
proceeds, are approximately $1.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The termination of imaging center operations and hospital
contracts will result in the payment of severance and other
related employee costs once such operations and services cease
at various dates beginning in the third quarter of 2005. We have
not yet determined the amount of such severance costs, however,
on a preliminary basis, such costs are estimated to be
approximately $1.0&nbsp;million. The determination of the amount
of such actual costs is subject to the results of negotiations
with affected hospitals and by the results of any potential sale
of the imaging centers. The amount of such costs will be
recorded in periods subsequent to June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion provides an analysis of our results of
operations and should be read in conjunction with our unaudited
consolidated financial statements. The operating results of the
periods presented were not significantly affected by general
inflation in the U.S.&nbsp;economy. Net revenues less the
provision for uncollectibles is an estimate of future cash
collections and as such it is a key measurement by which
management evaluates performance of individual contracts as well
as our company as a whole. The following table sets forth the
components of net earnings (loss) as a percentage of net
revenues less provision for uncollectibles for the periods
indicated:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Ended June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues less provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional services expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management fee and other expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Refinancing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment loss/impairment of intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3.7</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9.6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision from income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.3</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4.9</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.7</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5.2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11.5</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.9</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">38
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Six Months Ended June&nbsp;30, 2005 Compared to the Six
    Months Ended June&nbsp;30, 2004</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues.</I> Net revenues in the six months ended
June&nbsp;30, 2005 increased $13.6&nbsp;million, or 1.7%, to
$799.7&nbsp;million from $786.0&nbsp;million in the six months
ended June&nbsp;30, 2004. The increase in net revenues of
$13.6&nbsp;million included an increase of $50.0&nbsp;million in
fee-for-service revenue and $0.9&nbsp;million in other revenue.
Such increases were partially offset by a decrease in contract
revenue of $37.3&nbsp;million. In the six months ended
June&nbsp;30, 2005, fee-for-service revenue was 76.9% of net
revenues compared to 71.9% in 2004, contract revenue was 21.1%
of net revenues compared to 26.2% in 2004 and other revenue was
2.0% in 2005 compared to 1.9% in 2004. The change in the mix of
net revenues is primarily due to a reduction in military
staffing contract revenues between periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision for Uncollectibles.</I> The provision for
uncollectibles was $291.4&nbsp;million in the six months ended
June&nbsp;30, 2005 compared to $268.6&nbsp;million in the
corresponding period in 2004, an increase of $22.8&nbsp;million
or 8.5%. The provision for uncollectibles as a percentage of net
revenues was 36.4% in 2005 compared with 34.2% in 2004. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts that is not expected
to be fully collected. Excluding the effect of the reduction in
military staffing contract net revenues between periods, the
provision for uncollectibles as a percentage of net revenues was
40.2% in 2005 and 40.6% in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues Less Provision for Uncollectibles.</I> Net
revenues less provision for uncollectibles in the six months
ended June&nbsp;30, 2005 decreased $9.1&nbsp;million, or 1.8%,
to $508.3&nbsp;million from $517.4&nbsp;million in the six
months ended June&nbsp;30, 2004. The $9.1&nbsp;million decrease
is primarily related to a net reduction of $49.2&nbsp;million in
military staffing business as a result of the military&#146;s
re-contracting process completed in 2004. Excluding the impact
of the re-contracting process, net revenues less provision for
uncollectibles increased $40.1&nbsp;million. Same contract
revenues, which consists of contracts under management in both
periods, increased $46.4&nbsp;million, or 13.2%, to
$397.4&nbsp;million in 2005 compared to $351.1&nbsp;million in
2004. The increase in same contract revenue of 13.2% consists of
an increase in estimated net revenues per billing unit as well
as an increase in overall patient dollar volume between periods.
Approximately 8.2% of this increase was due to higher estimated
net revenues per billing unit. Approximately 2.5% of the
increase in estimated net revenues per billing unit is due to an
increase in estimated amounts to be collected for periods prior
to 2005, including new start-up contracts in 2004, and favorable
resolution of third-party insurer payment disputes. The
remainder of the increase between periods is principally due to
rate and level of acuity increases.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Service Expenses.</I> Professional service
expenses, which include physician costs, billing and collection
expenses, and other professional expenses, totaled
$366.6&nbsp;million in the six months ended June&nbsp;30, 2005
compared to $385.9&nbsp;million in the six months ended
June&nbsp;30, 2004, a decrease of $19.3&nbsp;million or 5.0%.
The decrease of $19.3&nbsp;million is primarily due to the
reduction in military staffing business offset by increases in
other staffing areas due to higher volumes as well as an
increase in average rates paid per hour of provider service on a
same contract basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Liability Costs.</I> Professional liability
costs were $18.4&nbsp;million in the six months ended
June&nbsp;30, 2005 compared with $29.9&nbsp;million in the six
months ended June&nbsp;30, 2004 for a decrease of
$11.5&nbsp;million or 38.5%. Professional liability costs
include reductions in professional liability reserves relating
to prior years resulting from actuarial studies completed in
April of each year of $7.6&nbsp;million in 2005 and
$1.6&nbsp;million in 2004. Also contributing to the decrease is
a lowering of coverage limits for certain contracts and lower
costs relating to the military staffing business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Gross Profit.</I> Gross profit was $123.3&nbsp;million in the
six months ended June&nbsp;30, 2005 compared to
$101.6&nbsp;million in the same period in 2004 for an increase
of $21.7&nbsp;million between periods. Included in the
$21.7&nbsp;million increase is a $7.6&nbsp;million reduction in
professional liability costs as the result of a 2005 actuarial
study. The remaining increase in gross profit is attributable to
higher patient volumes and average estimated collection rates
per patient encounter increasing faster than professional
expenses and billing and collection related costs. Gross profit
as a percentage of revenue less provision for uncollectibles
increased to 24.3% in 2005 compared with 19.6% in 2004.
Excluding the effect of the actuarial adjustment of
$7.6&nbsp;million, the gross profit percentage was 22.8% in the
six months ended June&nbsp;30, 2005.
</DIV>

<P align="center" style="font-size: 10pt;">39

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative Expenses.</I> General and
administrative expenses increased $1.9&nbsp;million to
$50.8&nbsp;million in the six months ended June&nbsp;30, 2005
from $48.8&nbsp;million in the six months ended June&nbsp;30,
2004. General and administrative expenses as a percentage of net
revenues less provision for uncollectibles were 10.0% in 2005
compared to 9.4% in 2004. Included in the $1.9&nbsp;million
increase in general and administrative expenses in 2005 is a
$2.0&nbsp;million increase in management incentive plan costs as
well as increases related to inflationary growth in salaries
offset by $1.2&nbsp;million of expense related to a bonus to
stock option holders in 2004 in connection with the refinancing
of the our debt structure and a decrease in professional
consulting expenses between periods of $1.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Management Fee and Other Expenses.</I> Management fee and
other operating expenses were $2.2&nbsp;million in the six
months ended June&nbsp;30, 2005 and $0.6&nbsp;million in the
corresponding period in 2004 for an increase of
$1.6&nbsp;million. The $1.6&nbsp;million increase is primarily
related to costs associated with the purchase and retirement of
9%&nbsp;subordinated debentures in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Impairment Loss.</I> Estimated impairment loss totaled
$1.6&nbsp;million in 2005 and $65.8&nbsp;million in 2004. The
$1.6&nbsp;million impairment loss in 2005 is with respect to
equipment and other property costs associated with the planned
disposition of two radiology imaging centers. The impairment
loss in 2004, which was not deductible for tax purposes,
resulted from contracting changes in the military&#146;s TRICARE
program with a resulting negative impact on such business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization was $6.2&nbsp;million in the six months ended
June&nbsp;30, 2005 compared to $6.9&nbsp;million in the six
months ended June&nbsp;30, 2004. Depreciation and amortization
expense decreased due to such related assets becoming fully
depreciated or fully amortized, respectively, between periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Interest Expense.</I> Net interest expense decreased
$0.4&nbsp;million to $13.9&nbsp;million in 2005, compared to
$14.3&nbsp;million in 2004. The decrease in net interest expense
includes approximately a $2.0&nbsp;million decrease related to a
realized hedge instrument loss as part of a debt refinancing in
2004 partially offset by increases due to higher interest rates
as well as an increased level of net outstanding debt between
periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Refinancing Costs.</I> We expensed $14.7&nbsp;million in the
six months ended June&nbsp;30, 2004 of deferred financing costs
and bond repayment premiums related to its previously
outstanding bank and bond borrowings that were refinanced in
2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Earnings (loss) before Income Taxes.</I> Earnings before
income taxes for the six months ended June&nbsp;30, 2005 were
$48.7&nbsp;million compared to a loss of $49.7&nbsp;million for
the corresponding period in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision for Income Taxes.</I> The provisions for income
taxes were $18.6&nbsp;million in 2005 compared to
$6.3&nbsp;million in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Earnings (Loss).</I> Net earnings were $30.1&nbsp;million
for the six months ended June&nbsp;30, 2005 compared to a net
loss of $56.0&nbsp;million for the six months ended
June&nbsp;30, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends on Preferred Stock.</I> We recognized
$3.6&nbsp;million of dividends for the six months ended
June&nbsp;30, 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Year Ended December&nbsp;31, 2004 Compared to the Year
    Ended December&nbsp;31, 2003</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues.</I> Net revenues in 2004 increased
$93.2&nbsp;million or 6.3%, to $1,572.2&nbsp;million from
$1,479.0&nbsp;million in 2003. The increase in net revenues of
$93.2&nbsp;million included an increase of $127.1&nbsp;million
in fee-for-service revenue and $0.3&nbsp;million in other
revenue, partially offset by a decrease in contract revenue of
$34.2&nbsp;million. In 2004, fee-for-service revenue was 74.3%
of net revenues compared to 70.4% in 2003, contract revenue was
23.8% of net revenues compared to 27.6% in 2003 and other
revenue was 1.9% of net revenues compared to 2.0% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision for Uncollectibles.</I> The provision for
uncollectibles was $563.5&nbsp;million in 2004 compared to
$479.3&nbsp;million in 2003, an increase of $84.2&nbsp;million
or 17.6%. The provision for uncollectibles as a percentage of
net revenues was 35.8% in 2004 compared to 32.4% in 2003. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts that is not expected
to be fully collected. The increase in the provision for
uncollectibles as a percentage of net revenues resulted from fee
schedule and average acuity pricing increases in excess of
increased average collection rates for self-pay patients. In
addition, the increase in the provision for uncollectibles as a
percentage of revenue was affected
</DIV>

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<DIV align="left" style="font-size: 10pt;">
by an estimated 1.0% payer mix shift toward more self-insured
patient encounters in 2004 and a reduction in contract revenues
between years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues Less Provision for Uncollectibles.</I> Net
revenues less provision for uncollectibles in 2004 increased
$8.9&nbsp;million, or 0.9%, to $1,008.7&nbsp;million from
$999.7&nbsp;million in 2003. Same contract revenue less
provision for uncollectibles, which consists of contracts under
management in both periods, increased $28.4&nbsp;million, or
4.2%, to $710.6&nbsp;million in 2004 from $682.2&nbsp;million in
2003. The increase in same contract revenue of 4.2% is
principally due to increased net revenues per billing unit
offset by a decrease in overall patient dollar volumes between
periods. Same contract revenue increased approximately 6.6%
between periods due to higher estimated net revenues per billing
unit. Billing volume for same contract fee-for-service decreased
0.6% between periods while contract revenues declined due to
lower billable hours in our locum tenens and radiology staffing
contracts based services, principally as a result of terminating
certain operating services and contracts in these staffing
areas. Acquisitions contributed $7.6&nbsp;million between
periods. The aforementioned increases were partially offset by a
net $27.1&nbsp;million of revenue derived from contracts that
terminated during the periods less revenue obtained through new
sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Service Expenses.</I> Professional service
expenses, which includes physician costs, billing and collection
expenses and other professional expenses, totaled
$754.2&nbsp;million in 2004 compared to $746.4&nbsp;million in
2003, an increase of $7.8&nbsp;million or 1.0%. The increase of
$7.8&nbsp;million in professional service expenses included an
increase of approximately $15.0&nbsp;million which resulted
principally from increases in average rates paid per hour of
provider service on a same contract basis. Acquisitions
contributed $6.2&nbsp;million of the increase. These increases
were partially offset by a net decrease of approximately
$13.4&nbsp;million due to terminated contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Liability Costs.</I> Professional liability
costs were $59.8&nbsp;million in 2004 compared with
$116.0&nbsp;million in 2003 for a decrease of
$56.1&nbsp;million. The decrease in professional liability
expenses is due primarily to a provision for losses in excess of
an aggregate insured limit for periods prior to March&nbsp;12,
2003 of $50.8&nbsp;million in 2003. Excluding the
$50.8&nbsp;million provision, professional liability expenses
decreased $5.3&nbsp;million or 8.1% between periods. The
decrease of $5.3&nbsp;million includes a reduction of
$2.0&nbsp;million in 2004 in self-insured retention reserves for
excess limits provided for certain physicians in prior years as
a result of a review of remaining outstanding claims pertaining
to such coverage periods and approximately $1.6&nbsp;million in
2004 resulting from favorable actuarial results related to 2003
initial self-insured loss year reserves. Also contributing to
the decrease is a reduction in exposure associated with the
termination of staffing contracts in higher risk territories or
specialties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Gross Profit.</I> Gross profit was $194.6&nbsp;million in
2004, compared to $137.4&nbsp;million in 2003 for an increase of
$57.2&nbsp;million. The increase in gross profit is attributable
to the effect of the aggregate provision for professional
liability insurance losses of $50.8&nbsp;million in 2003 and
increased contribution from steady state operations, partially
offset by the net effect of terminated contracts between
periods. Gross profit as a percentage of revenue less provision
for uncollectibles in 2004 was 19.3% compared to 18.8% before
the provision for excess professional liability losses in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative Expenses.</I> General and
administrative expenses increased $4.9&nbsp;million in 2004 to
$100.5&nbsp;million from $95.6&nbsp;million in 2003. General and
administrative expenses as a percentage of net revenues less
provision for uncollectibles were 10.0% in 2004 compared to 9.6%
in 2003. Included in general and administrative expenses in 2004
is approximately $1.7&nbsp;million related to a bonus to stock
option holders in connection with a refinancing of our debt
structure. Excluding the effect of the stock option bonus
expense, general and administrative expenses increased
approximately $3.2&nbsp;million, or 3.3%. The remaining increase
in general and administrative expenses between years was
principally due to increases in salaries and benefits of
approximately $1.0&nbsp;million, net of a decrease in cost of
approximately $1.0&nbsp;million under our management incentive
plan, an increase in professional consulting expenses between
years of $1.7&nbsp;million (including in 2004 approximately
$2.4&nbsp;million related to improving our billing and
collection processes), with the remainder of the increase due to
an increase in travel related and lease costs, respectively, of
approximately $0.5&nbsp;million each.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Management Fee and Other Expenses.</I> Management fee and
other operating expenses were $1.4&nbsp;million in 2004 and
$0.5&nbsp;million for the corresponding period in 2003. Other
operating expenses in 2004 included a loss on asset disposals
totaling $0.9&nbsp;million.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Impairment Loss.</I> During 2004, an impairment loss in the
amount of $73.2&nbsp;million was recorded related to goodwill
associated with our military staffing business. The results of a
re-bidding of our healthcare staffing contracts under the
military&#146;s TRICARE Program indicated a net loss of contract
revenues and margin related to such staffing services. Based on
the results of the re-bidding, an impairment analysis using
expected future cash flows and estimated fair values relating to
the underlying business to which the goodwill applies indicated
that the goodwill previously recorded in the amount of
$127.9&nbsp;million was impaired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization was $13.7&nbsp;million in 2004 and
$22.0&nbsp;million in 2003. Amortization expense decreased by
$7.7&nbsp;million between periods due to certain of the our
intangibles becoming fully amortized in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Interest Expense.</I> Net interest expense increased
$5.6&nbsp;million to $28.9&nbsp;million in 2004, compared to
$23.3&nbsp;million in 2003. The increase in net interest expense
includes approximately $7.8&nbsp;million due to an increased
level of net outstanding debt between periods and a realized
hedge instrument loss of approximately $1.0&nbsp;million in 2004
partially offset by lower interest rates and non-cash
amortization of loan costs between periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Refinancing Costs.</I> We expensed $14.7&nbsp;million of
deferred financing costs and bond repayment premiums related to
its previously outstanding bank and bond borrowings that were
refinanced in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Loss before Income Taxes.</I> Loss before income taxes in
2004 was $37.8&nbsp;million compared to $4.2&nbsp;million in
2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision (Benefit) for Income Taxes.</I> Provision for
income taxes in 2004 was $11.4&nbsp;million compared to a
benefit of $1.4&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Loss.</I> Net loss for 2004 was $49.2&nbsp;million
compared to a net loss of $2.8&nbsp;million in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends on Preferred Stock.</I> We recognized
$3.6&nbsp;million of dividends in 2004 and $14.4&nbsp;million in
2003, on our Class&nbsp;A mandatorily redeemable preferred stock.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Year Ended December&nbsp;31, 2003 Compared to the Year
    Ended December&nbsp;31, 2002</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues.</I> Net revenues in 2003 increased
$248.3&nbsp;million, or 20.2%, to $1,479.0&nbsp;million from
$1,230.7&nbsp;million in 2002. The increase in net revenues of
$248.3&nbsp;million included an increase of $133.4&nbsp;million
in fee-for-service revenue and $115.4&nbsp;million in contract
revenue, offset by a decrease of $0.5&nbsp;million in other
revenue. Fee-for-service revenue was 70.4% of net revenues in
2003 compared to 73.7% in 2002, contract revenue was 27.6% of
net revenues in 2003 compared to 23.8% in 2002 and other revenue
was 2.0% of net revenues in 2003 compared to 2.5% in 2002. The
change in the mix of revenues is principally due to an
acquisition in 2002. The acquired operation derives a higher
percentage of its revenues from hourly contract billings than
fee-for-service contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision for Uncollectibles.</I> The provision for
uncollectibles was $479.3&nbsp;million in 2003 compared to
$396.6&nbsp;million in 2002, an increase of $82.7&nbsp;million
or 20.9%. As a percentage of net revenues, the provision for
uncollectibles was 32.4% in 2003 compared to 32.2% in 2002. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts which is not expected
to be fully collected. The increase in the provision for
uncollectibles percentage resulted from increased patient
visits, fee schedule increases and a continued payer mix shift
toward more self-insured patients.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Revenues Less Provision for Uncollectibles.</I> Net
revenues less provision for uncollectibles in 2003 increased
$165.6&nbsp;million, or 19.9% to $999.7&nbsp;million from
$834.1&nbsp;million in 2002. Same contract revenue less
provision for uncollectibles, which consists of contracts under
management from the beginning of the prior period through the
end of the subsequent period, increased $61.9&nbsp;million or
8.9%, to $757.7&nbsp;million in 2003 from $695.8&nbsp;million in
2002. The increase in same contract revenue of 8.9% includes the
effects of both increased billing volume and higher estimated
net revenues per billing unit between periods. Overall, same
contract revenue increased approximately 4.0% between periods
due to an increase in billing volume and physician mix.
Acquisitions contributed $55.1&nbsp;million and new contracts
obtained through internal sales contributed $105.5&nbsp;million
of the remaining increase. The increases noted above were
partially offset by $56.9&nbsp;million of revenue derived from
contracts that terminated during the periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Service Expenses.</I> Professional service
expense, which includes physician costs, billing and collection
expenses and other professional expenses, totaled
$746.4&nbsp;million in 2003 compared to
</DIV>

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<DIV align="left" style="font-size: 10pt;">
$635.6&nbsp;million in 2002 for an increase of
$110.8&nbsp;million or 17.4%. The increase of
$110.8&nbsp;million included $43.5&nbsp;million resulting from
acquisitions between periods. The remaining increase in
professional service expenses was principally due to increases
in provider hours as the result of new contract sales,
principally for staffing within military treatment facilities,
including increases resulting from troop deployments in 2003, as
well as increases in average rates paid per hour of provider
service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Professional Liability Costs.</I> Professional liability
costs were $116.0&nbsp;million in 2003, including a provision
for losses in excess of an aggregate insured limit for periods
prior to March&nbsp;12, 2003 of $50.8&nbsp;million. The total
professional liability cost of $116.0&nbsp;million in 2003
compared with $37.0&nbsp;million in 2002 increased
$79.0&nbsp;million (76.2% excluding the effect of the
$50.8&nbsp;million provision for excess insurance losses). The
increase in professional liability costs, in addition to
increases resulting from the provision for excess losses
($50.8&nbsp;million) and from acquisitions ($1.3&nbsp;million)
is due to an increase between periods in our commercial
insurance program premium through its expiration date of
March&nbsp;11, 2003, plus an increased level of cost resulting
from an estimate of our losses on a self-insured basis
subsequent to March&nbsp;11, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Gross Profit.</I> Gross profit decreased to
$137.4&nbsp;million in 2003 from $161.5&nbsp;million in 2002.
The decrease in gross profit is attributable to the effect of
the provision for excess losses of $50.8&nbsp;million partially
offset by the effect of acquisitions, net new contract growth
and increased profitability of steady state operations between
periods. Gross profit as a percentage of revenue less provision
for uncollectibles was 18.8% before the provision for excess
losses for prior periods compared to 19.4% for 2002. The
decrease was principally due to increases in professional
liability costs increasing faster than growth in revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General and Administrative Expenses.</I> General and
administrative expenses in 2003 increased to $95.6&nbsp;million
from $81.7&nbsp;million in 2002, for an increase of
$13.8&nbsp;million, or 16.9% between years. General and
administrative expenses as a percentage of net revenues less
provision for uncollectibles were 9.6% in 2003 compared to 9.8%
in 2002. The increase in general and administrative expenses
between years included expenses associated with acquired
operations of $4.9&nbsp;million accounting for 6.0% of the 16.9%
increase between periods. The remaining net increase of 10.9% or
$8.9&nbsp;million was principally due to increases in salaries
and benefits of approximately $7.8&nbsp;million. Included in the
increase in salaries and benefits between periods was an
increase of approximately $3.3&nbsp;million related to our
management incentive plan. Non salary related general and
administrative expenses increased $1.1&nbsp;million between
years principally due to costs related to a disputed contract
settlement of approximately $0.6&nbsp;million and a net increase
in outside consulting and services fees of approximately
$0.6&nbsp;million. Other general and administrative expenses
remained approximately unchanged between years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Management Fee and Other Expenses.</I> Management fee and
other expenses were $0.5&nbsp;million in 2003 and 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Impairment of Intangibles.</I> Impairment of intangibles was
$0.2&nbsp;million and $2.3&nbsp;million in 2003 and 2002,
respectively. During 2003 an ED contract with a noncompete
intangible terminated and two of our contracts were determined
to be impaired during 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization expense was $22.0&nbsp;million in 2003 compared to
$20.0&nbsp;million in 2002. Depreciation expense decreased by
$0.4&nbsp;million between years while amortization expense
increased $2.4&nbsp;million between years. The increase in
amortization expense is principally due to acquisitions between
periods.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Interest Expense.</I> Net interest expense decreased
$0.6&nbsp;million to $23.3&nbsp;million in 2003 compared to
$23.9&nbsp;million in 2002. The decrease in net interest expense
is due to lower interest rates on outstanding debt and increased
investment income in 2003 offset by an increase in debt
outstanding resulting from acquisitions in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Refinancing Costs.</I> We expensed in 2002 $3.4&nbsp;million
of deferred financing costs related to its previously
outstanding bank debt which was refinanced in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Earnings (Loss) before Income Taxes and Cumulative Effect of
Change in Accounting Principle.</I> Earnings (loss) before
income taxes and cumulative effect of change in accounting
principle was a loss of $4.2&nbsp;million in 2003 compared with
earnings of $29.6&nbsp;million in 2002.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Provision (Benefit) for Income Taxes.</I> Provision for
income taxes in 2003 was a benefit of $1.4&nbsp;million compared
to a provision of $13.2&nbsp;million in 2002. The decrease in
the provision for income taxes in 2003 from 2002 was due to the
decreased level of earnings before income taxes in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Earnings (Loss) before Cumulative Effect of Change in
Accounting Principle.</I> Earnings (loss) before cumulative
effect of change in accounting principle in 2003 was a loss of
$2.8&nbsp;million compared with earnings of $16.4&nbsp;million
in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cumulative Effect of Change in Accounting Principle.</I> In
connection with implementing SFAS&nbsp;No.&nbsp;142, Goodwill
and Other Intangible Assets, as of January&nbsp;1, 2002, we
completed a transitional impairment test of existing goodwill
and concluded that a portion of our goodwill was impaired.
Accordingly, an impairment loss of $0.5&nbsp;million
($0.3&nbsp;million net of taxes) was recorded as the cumulative
effect of a change in accounting principle in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Earnings (Loss).</I> Net loss in 2003 was
$2.8&nbsp;million compared to net earnings of $16.1&nbsp;million
in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends on Preferred Stock.</I> We accrued
$14.4&nbsp;million and $13.1&nbsp;million of dividends in 2003
and 2002, respectively, on our outstanding Class&nbsp;A
mandatory redeemable preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our principal ongoing uses of cash are to meet working capital
requirements, fund debt obligations and to finance our capital
expenditures and acquisitions. Funds generated from operations
during the past two years have been sufficient to meet the
aforementioned cash requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, we restructured our capital structure. The
restructuring resulted in the following transactions occurring:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Our Board of Directors authorized the redemption of our 10%
    Cumulative Preferred Stock in the amount of approximately
    $162.4&nbsp;million, including accrued dividends.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We completed a tender offer for our outstanding 12% Senior
    Subordinated Notes resulting in $100.0&nbsp;million of such
    bonds being repaid, plus payment of a call premium of
    $8.2&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We issued new 9% Senior Subordinated Notes in the amount of
    $180.0&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We retired our existing bank debt in the amount of
    $199.4&nbsp;million and entered into a new senior bank credit
    facility, including a $250.0&nbsp;million senior secured term
    loan and an $80.0&nbsp;million revolving credit facility.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    We incurred and paid approximately $8.2&nbsp;million in costs
    (in addition to an $8.2&nbsp;million call premium on our
    previously outstanding 12% Senior Subordinated Bonds) to
    complete the above transactions.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Board of Directors declared and paid to our
shareholders a cash dividend of approximately $27.6&nbsp;million
on March&nbsp;23, 2004. The Board of Directors also authorized a
cash payment to holders of stock options in the form of a
compensatory bonus in the approximate amount of
$1.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result of the above transactions, we had total debt
outstanding of $428.1&nbsp;million as of December&nbsp;31, 2004,
compared to $299.4&nbsp;million as of December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective April&nbsp;6, 2005, we and our lenders agreed to an
amendment of the terms of our senior credit facility. As a
result of such amendment, the following occurred or was agreed
to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we made a voluntary prepayment of our term debt in the amount of
    $30.0&nbsp;million</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our existing term loan&nbsp;B was converted to a new term
    loan&nbsp;C in the amount of $203.1&nbsp;million</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our senior credit facility lenders agreed to a reduction in the
    pricing for term loan borrowings to LIBOR plus 275&nbsp;basis
    points, a reduction of 50&nbsp;basis points</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a further reduction or increase of up to 50&nbsp;basis points in
    the pricing for term loan borrowings from LIBOR plus
    275&nbsp;basis points in the event that the credit ratings for
    our borrowings are increased or decreased, respectively,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability was granted to us to repurchase at our option up to
    $35.0&nbsp;million of our outstanding 9%&nbsp;Subordinated Bonds
    so long as we are in compliance with the terms and covenants of
    our senior credit facility agreement.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">44

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the six months ended June&nbsp;30, 2005, we reduced our
outstanding long-term debt by $80.1&nbsp;million. The repayment
of such debt was made through the use of available cash in the
form of liquidated marketable securities as well as operating
cash flow. The debt repaid consisted of a $15.8&nbsp;million
prepayment required under the terms of the underlying senior
credit facility agreement due to &#147;excess cash flow,&#148;
as defined therein, a voluntary prepayment of our term debt of
$30.0&nbsp;million and the repurchase and redemption of
$34.3&nbsp;million of our 9%&nbsp;senior subordinated notes. As
a result of the foregoing repayments, we had total debt
outstanding of $348.0&nbsp;million as of June&nbsp;30, 2005,
compared to $428.1&nbsp;million as of December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash provided from operating activities in 2004 was
$64.6&nbsp;million compared to cash provided by operating
activities in 2003 of $101.7&nbsp;million. The
$37.1&nbsp;million decrease in cash provided by operating
activities was principally due to an increase in interest and
tax payments between periods and operating cash flows used in
the refinancing transaction. Cash used in investing activities
in 2004, was $75.8&nbsp;million compared to a use of cash in
2003 of $26.3&nbsp;million. The $49.5&nbsp;million change in
cash used in investing activities was principally due to the
purchase of short-term investments offset by the redemption of
assets held in a deferred compensation plan which were
liquidated as part of the refinancing as well as reduced levels
of capital expenditures in 2004. Cash used in financing
activities in 2004 and 2003 was $71.8&nbsp;million and
$22.3&nbsp;million, respectively. The $49.5&nbsp;million
decrease in cash resulting from financing activities was due to
the debt restructuring and dividend paid in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash provided by operating activities in the six months ended
June&nbsp;30, 2005 was $28.0&nbsp;million compared to
$26.2&nbsp;million in the corresponding period in 2004. The
$1.8&nbsp;million increase in cash provided by operating
activities was principally due to improved profitability between
periods as well as cash used in 2004 for the payout of a
deferred compensation plan which was part of a refinancing,
partially offset by an increase in accounts receivable and tax
payments between years. Cash provided by investing activities in
the six months ended June&nbsp;30, 2005, was $49.9&nbsp;million
compared to a use of cash of $2.3&nbsp;million in 2004. The
$52.2&nbsp;million increase in cash provided by investing
activities was principally due to an increase resulting from the
redemption of short-term investments offset by the redemption of
assets held in a deferred compensation plan which were
liquidated as part of a refinancing in 2004, as well as
increased levels of capital expenditures in 2005 and earnout
payments related to previous acquisitions in 2005. Cash used in
financing activities in the six months ended June&nbsp;30, 2005
and 2004 was $80.6&nbsp;million and $70.0&nbsp;million,
respectively. The $10.6&nbsp;million increase in cash used in
financing activities was due to a voluntary partial prepayment
of our term debt as well as the early redemption of a portion of
our 9%&nbsp;senior subordinated notes in 2005 offset by a debt
restructuring, preferred stock redemption and common stock
dividend paid in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We spent $6.7&nbsp;million in 2004 and $9.0&nbsp;million in 2003
for capital expenditures. We spent $4.6&nbsp;million in the
first six months of 2005 and $2.6&nbsp;million in the first six
months of 2004 for capital expenditures. These expenditures were
primarily for information technology investments and related
development projects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have historically been an acquirer of other physician
staffing businesses and interests. Such acquisitions in recent
years have been completed for cash. Cash payments made in
connection with acquisitions, including contingent payments,
were $3.2&nbsp;million in 2004 and $2.5&nbsp;million in 2003.
Cash payments made in connection with acquisitions, including
contingent payments, were $5.8&nbsp;million during the six
months ended June&nbsp;30, 2005 and $2.3&nbsp;million in the
corresponding period in 2004. Future contingent payment
obligations are approximately $3.0&nbsp;million as of
June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We made scheduled debt maturity payments of $1.9&nbsp;million in
2004 in accordance with its applicable term loan facilities in
effect at the time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our senior credit facility at June&nbsp;30, 2005 provides for up
to $80.0&nbsp;million of borrowings under a senior revolving
credit facility and $202.3&nbsp;million of term loans.
Borrowings outstanding under the senior credit facility mature
in various years with a final maturity date of March&nbsp;31,
2011. The senior credit facility agreement contains both
affirmative and negative covenants, including limitations on our
ability to incur additional indebtedness, sell material assets,
retire, redeem or otherwise reacquire our capital stock, acquire
the capital stock or assets of another business, pay dividends.
It also requires us to meet or exceed certain coverage, leverage
and indebtedness ratios. The senior credit agreement also
includes a provision for the prepayment of a portion of the
outstanding term loan amounts at any year-end if we generate
&#147;excess cash
</DIV>

<P align="center" style="font-size: 10pt;">45

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<DIV align="left" style="font-size: 10pt;">
flow,&#148; as defined in the agreement. During the six months
ended June&nbsp;30, 2005, we made prepayments totaling
$15.8&nbsp;million on our bank term debt under the excess cash
flow provision calculation for 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We began providing effective March&nbsp;12, 2003, for
professional liability risks in part through a captive insurance
company. Prior to such date we insured such risks principally
through the commercial insurance market. The change in the
professional liability insurance program has resulted in
increased cash flow due to the retention of cash formerly paid
out in the form of insurance premiums to a commercial insurance
company coupled with a long period (typically 2-4&nbsp;years or
longer on average) before cash payout of such losses occurs. A
portion of such cash retained is retained within our captive
insurance company and therefore not immediately available for
general corporate purposes. As of June&nbsp;30, 2005, cash or
cash equivalents and related investments held within the captive
insurance company totaled approximately $28.6&nbsp;million.
Based on the results of our most recent actuarial report,
anticipated cash outflow to the captive insurance company or
third-party insurance providers for the period July&nbsp;1, 2005
to December&nbsp;31, 2005 is estimated at $16.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We had as of December&nbsp;31, 2004, total cash, cash
equivalents and short-term investments of approximately
$82.6&nbsp;million and a revolving credit facility borrowing
availability of $76.2&nbsp;million. Our ongoing cash needs in
2004 were met from internally generated operating sources and
there were no borrowings under our revolving credit facility. We
had as of June&nbsp;30, 2005, total cash and cash equivalents of
approximately $15.2&nbsp;million and a revolving credit facility
borrowing availability of $74.9&nbsp;million. Our ongoing cash
needs in the six months ended June&nbsp;30, 2005, were met from
internally generated operating sources. Borrowings under our
revolving credit facility were limited in the period to
$6.7&nbsp;million for a total of six days as the result of
needing cash to meet bank funding obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On July&nbsp;19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was $13.0&nbsp;million in excess of
third-party insurance coverage in effect at the date of the
incident. The jury award is subject to the issuance of a final
judgment by the court. When the trial court renders its final
judgment with respect to the jury award, the amount in excess of
applicable insurance coverage, if any, plus interest for two
years related to such amount, will be required to be posted as
an appeal bond with the court while an appeal of the
court&#146;s decision runs its course. Management at this time
is unable to estimate the cash flow effect, if any, related to
this matter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our cash needs, other than for significant
acquisitions, will continue to be met through the use of our
remaining existing available cash, cash flows derived from
future operating results and cash generated from borrowings
under our senior revolving credit facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following tables reflect a summary of obligations,
commitments outstanding and estimated uses of nonrestricted cash
to meet estimated professional liability insurance obligations
as of December&nbsp;31, 2004, after giving effect to the
refinancing transactions (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Payments Due by Period</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>After</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1-3 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>4-5 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>5 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contractual cash obligations:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>403,633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>428,125</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating leases</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,626</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,889</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Subtotal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,462</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>458,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>663,640</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Amount of Commitment Expiration Per Period</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>After</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1-3 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>4-5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>5 years</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other commitments:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Standby letters of credit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,831</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contingent acquisition payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,773</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,604</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">46

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Amount of Actuarily Estimated Payments for</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap><B>Professional Liability Losses(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="18" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>After</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1&nbsp;year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>1-3 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>4-5 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>5 years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Excess of aggregate under insured plan ended March&nbsp;11, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>60,073</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Captive insurance subsidiary funding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,271</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total estimated payments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,552</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>146,344</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total obligations, commitments and estimated use of
    nonrestricted cash to fund professional liability losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>114,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>146,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>95,575</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>466,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>822,588</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Amounts represent estimated use of unrestricted cash to pay
    claims in excess of an insured $130&nbsp;million aggregate plan
    limit in existence prior to March&nbsp;11, 2003, and amounts
    estimated to be funded into the Company&#146;s captive insurance
    subsidiary for self-insured claims subsequent to March&nbsp;11,
    2003. The amounts represent estimated payments for loss
    reporting periods prior to January&nbsp;1, 2005.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Inflation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not believe that general inflation in the
U.S.&nbsp;economy has had a material impact on our financial
position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Seasonality</B>
</DIV>

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Historically, our revenues and operating results have reflected
minimal seasonal variation due to the significance of revenues
derived from patient visits to emergency departments, which are
generally open on a 365&nbsp;day basis, and also due to our
geographic diversification. Revenue from our non-emergency
department staffing lines is dependent on a healthcare facility
being open during selected time periods. Revenue in such
instances will fluctuate depending upon such factors as the
number of holidays in the period.
</DIV>

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<B>Recently Issued Accounting Standards</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In June 2005, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standard, or SFAS,
No.&nbsp;154, <I>Accounting Changes and Error
Corrections&nbsp;&#151; a replacement of APB Opinion No.&nbsp;20
and FASB Statement No.&nbsp;3.</I> This standard replaces APB
Opinion No.&nbsp;20, <I>Accounting Changes,</I> and FASB
Statement No.&nbsp;3, <I>Reporting Accounting Changes in Interim
Financial Statements,</I> and changes the requirements for the
accounting and reporting of a change in accounting principle.
SFAS&nbsp;No.&nbsp;154 applies to all voluntary changes in
accounting principle and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions.
SFAS&nbsp;No.&nbsp;154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle.
SFAS&nbsp;No.&nbsp;154 requires that the change in accounting
principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings for that period rather than being reported in
an income statement. In the event of a change in accounting
principle, SFAS&nbsp;No.&nbsp;154 will require a restatement of
previously issued financial statements to reflect the effect of
the change in accounting principle on prior periods presented.
SFAS&nbsp;No.&nbsp;154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December&nbsp;15, 2005. The adoption of SFAS&nbsp;No.&nbsp;154
is not expected to have a material effect on our consolidated
financial position, results of operations or cash flows.
</DIV>

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On December&nbsp;16, 2004, the FASB issued
SFAS&nbsp;No.&nbsp;123 (revised 2004), <I>Share-Based
Payment,</I> which is a revision of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation.</I>
SFAS&nbsp;No.&nbsp;123(R) supersedes APB Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees,</I> and amends
SFAS&nbsp;No.&nbsp;95, <I>Statement of Cash Flows.</I>
Generally, the approach in SFAS&nbsp;No.&nbsp;123(R) is similar
to the approach described in SFAS&nbsp;No.&nbsp;123. However,
SFAS&nbsp;No.&nbsp;123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
</DIV>

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The provisions of SFAS&nbsp;No.&nbsp;123(R) are effective for us
beginning January&nbsp;1, 2006. Early adoption is permitted in
periods in which financial statements have not been issued. We
expect to adopt SFAS&nbsp;No.&nbsp;123(R) beginning
January&nbsp;1, 2006.
</DIV>

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We adopted the fair-value-based method of accounting for
share-based payments effective January&nbsp;1, 2003 using the
prospective method described in SFAS&nbsp;No.&nbsp;148,
<I>Accounting for Stock-Based Compensation&nbsp;&#151;
Transition and Disclosure.</I> Currently, we use the minimum
value method to estimate the value of stock options granted to
employees. In accordance with the transition provisions of
SFAS&nbsp;No.&nbsp;123(R) we will continue to account for
nonvested awards outstanding at the date of adoption of
SFAS&nbsp;No.&nbsp;123(R) in the same manner as they had been
accounted for prior to adoption for financial statement
recognition purposes. For those options that are granted after
the adoption of SFAS&nbsp;No.&nbsp;123(R), we will no longer be
permitted to use the minimum-value method and instead will be
required to use an acceptable option-pricing model. We have not
yet determined which specific option-pricing model we will use.
</DIV>

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SFAS&nbsp;No.&nbsp;123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While we cannot estimate what
those amounts will be in the future (because they depend on,
among other things, when employees exercise stock options), the
amounts recognized in operating cash flows for such excess tax
deductions were $463,000 and $59,000 for the six months ended
June&nbsp;30, 2005 and 2004, respectively.
</DIV>

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<B>BUSINESS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Team Health is the largest provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States, based upon revenues
and patient visits. We serve more than 470 hospital clients and
their affiliated clinics and surgical centers in 44&nbsp;states
with a team of approximately 4,700 physicians, mid-level
practitioners and nurses. Since our inception in 1979, we have
focused primarily on providing outsourced services to hospital
emergency departments, which accounted for 72% of our net
revenues less provision for uncollectibles in the six months
ended June&nbsp;30, 2005. We also provide comprehensive programs
for inpatient services, radiology, anesthesiology, pediatrics
and other healthcare services, by providing permanent staffing
that enables the management teams of hospitals and other
healthcare facilities to outsource their recruiting, hiring,
payroll, billing and collection and benefits functions.
</DIV>

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Emergency departments, or EDs, generate approximately 40% of all
hospital admissions, making this department critical to a
hospital&#146;s patient satisfaction rates and overall success.
This dynamic, combined with the challenges involved in billing
and collections and physician recruiting and retention, is a
primary driver for hospitals to outsource their clinical
staffing and management services to companies such as Team
Health. Our revenues from ED contracts increased by
approximately 22% from 2001 to 2004. The emergency departments
that we staff generally are located in larger hospitals that
treat over 15,000&nbsp;patients annually in the ED. We believe
that our experience and expertise in managing the complexity of
higher volume emergency departments enables our hospital clients
to provide higher quality and more efficient physician and
administrative services. In this type of environment we can
establish stable long-term relationships, recruit and retain
high quality physicians and other providers and staff, and
obtain attractive payer mixes and profit margins.
</DIV>

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We recruit and hire or subcontract with healthcare professionals
who then provide professional services within the healthcare
facilities with which we contract. The range of physician and
non-physician staffing and administrative services that we
provide to our clients includes the following:
</DIV>

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    recruiting, scheduling and credentials coordination for clinical
    and non-clinical medical professionals,</TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
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    coding, billing and collection of fees for services provided by
    medical professionals,</TD>
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    <TD>&#149;&nbsp;</TD>
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    administrative support services, such as payroll, insurance
    coverage, continuing medical education services and management
    training,&nbsp;and</TD>
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    <TD>&#149;&nbsp;</TD>
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    claims and risk management services.</TD>
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We are a national company delivering our services through 13
regional operating offices located in key geographic markets.
This operating model enables us to provide a localized presence
combined with the benefits of scale in centralized
administrative and other back office functions that accrue to a
larger, national company. The teams in our regional offices have
responsibility for managing our customer and physician
relationships and providing administrative healthcare services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Overview</B>
</DIV>

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With the increasing complexity of clinical, regulatory, managed
care and reimbursement matters in today&#146;s healthcare
environment, healthcare facilities are under significant
pressure from the government and private payers both to improve
the quality and reduce the cost of care. Furthermore, most
healthcare facilities do not have billing systems that properly
handle the large volumes of payments that are typical in the
emergency and other specialty departments. They may also lack
the infrastructure and personnel necessary to recruit physicians
and other providers. In response to these factors, healthcare
facilities have increasingly outsourced the staffing and
management of multiple clinical areas to companies with
specialized skills, standardized models and information
technology to improve service, increase the overall quality of
care and reduce administrative costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We target certain clinical areas within healthcare facilities
including, emergency medicine, hospitalist, radiology,
anesthesiology and pediatrics, as well as civilian medical
staffing within military treatment facilities. Each of these
clinical areas currently faces severe physician shortages, and
many healthcare
</DIV>

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facilities lack the resources necessary to identify and attract
specialized, career-oriented physicians. Moreover, physician
shortages are exacerbated by growing demand for services in
these clinical areas. For example:
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    <I>Emergency Medicine.</I> We believe that the healthcare
    industry in general is experiencing an increasing trend toward
    outpatient treatment rather than traditional inpatient
    treatment. Additionally, healthcare reform efforts in recent
    years have placed an increasing emphasis on reducing the time
    patients spend in hospitals. Finally, today&#146;s office-based
    physicians have far fewer office hours readily available to
    patients, especially on short notice. As a result, we believe
    that the frequency and severity of illnesses and injuries
    treated in an emergency department or other hospital setting is
    likely to continue to increase. Between 1999 and 2003, the
    number of patient visits per hospital emergency department
    increased 10.8%. This increase in ED visits, combined with the
    fact that approximately 40% of all hospital inpatient admissions
    originate in the emergency department, represents a significant
    contributing factor to the outsourcing of emergency departments
    since inpatient satisfaction is strongly tied to the
    patient&#146;s initial treatment in the emergency department.</TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Hospitalist.</I> Demand for hospitalists, or doctors whose
    primary professional focus is the general medical care of
    hospitalized patients, is driven by an increasing recognition
    that hospitalist-attended patients experience lower costs,
    shorter lengths of stay and better outcomes, including higher
    survival rates. According to the Society of Hospital Medicine,
    the number of hospitalists in the U.S.&nbsp;has steadily
    increased from 800 in the mid-1990s to approximately 10,000 in
    2005, and this workforce is projected to increase to 25,000 by
    2010. We believe that the hospitalist model will experience
    continued growth as a result of continued cost pressures on
    hospitals, physician groups and managed care organizations, the
    increased acuity of hospitalized patients and the accelerated
    pace of their hospitalizations, the time pressures on
    office-based primary care physicians and an increasing
    governmental focus on patient safety and comparative hospital
    metrics. We believe there is potential for significant growth in
    this service line over the coming years.</TD>
</TR>

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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Radiology.</I> Demand for radiology services is driven by a
    number of factors including population growth, shifting
    demographics, and advancements in radiological technology and
    procedures. Older patients utilize x-rays and other imaging
    modalities at three times the rate of younger people. Therefore,
    we expect that as the population ages, the demand for
    radiological services will continue to increase. A survey
    published in October 2004 by the American Medical Group
    Association indicated that from 1999-2003, radiologists saw
    larger percentages and dollar increases in their salaries than
    any of the other 27 medical specialties studied. Given that the
    single biggest driver of salaries is the availability of
    specialists, the rising salaries underscore the continuing
    shortage of radiologists. The national shortage of radiologists
    presents a significant opportunity for companies with the
    resources to recruit skilled, career-oriented radiologists
    effectively. The current market for radiologists and their
    services has altered traditional fee-for-service compensation
    arrangements with hospitals, making cost-plus arrangements more
    common. These arrangements reduce the economic risk for
    outsourced providers of such services in a time of escalating
    professional compensation for radiologists.</TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Anesthesiology.</I> Demand for anesthesiology services, like
    radiology services, is driven in part by technological advances,
    an increased number of reimbursable procedures and an aging
    population. As a result of these factors, demand is increasing
    for anesthesiology services not only for life-threatening
    conditions, but also cosmetic and other quality-of-life
    procedures. The market is served primarily by groups of
    physicians typically ranging in size from 10-20 physician
    anesthesiologists, or MDAs, and few groups have more than 60
    MDAs. The groups are largely self-governed, and many enjoy
    exclusive contracts with hospitals and outpatient centers. The
    majority of the groups require a variety of management services,
    and most of them outsource their billing needs to third-party
    providers.</TD>
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    <I>Pediatrics.</I> According to the American College of
    Emergency Physicians, emergency physicians and nurses treat more
    than 30.0&nbsp;million sick and injured children in
    America&#146;s emergency departments annually. Many of these
    cases are classified as nonemergent, indicating the growing need
    for alternative sites for pediatric urgent care. Changing
    demographics and lifestyles indicate a growing trend in the
    ability to receive medical care outside of
    &#147;traditional&#148; physician office hours. We believe all
    of these indicators result in a growing demand for freestanding,
    after-hours urgent care pediatric clinics.</TD>
</TR>

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    <I>Military Staffing.</I> Demand for healthcare services among
    military personnel has increased commensurately with growth in
    the number of military retirees and the use of services by
    active duty personnel and their dependents. Military treatment
    facilities today make extensive use of permanent civilian
    staffing due to an inability to recruit and retain sufficient
    numbers of physicians, nurses and other healthcare professionals
    and the goal of reducing the instances of military personnel
    seeking off-base civilian medical care that results in higher
    costs. Industry sources project the military permanent medical
    staffing market to increase from approximately $570&nbsp;million
    to at least $765&nbsp;million over the next five years,
    representing a 6% compounded annual growth rate.</TD>
</TR>

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The market for outsourced services in each of these areas tends
to be highly fragmented. However, local providers often lack the
operating capital, experience, breadth of services and
sophisticated information systems necessary to meet the
increasingly complex needs of hospitals. As a result, healthcare
facilities seek third-party physician staffing and
administrative service providers that can not only improve
department productivity and patient satisfaction while reducing
overall costs, but also offer a breadth of staffing and
management services, billing and reimbursement expertise, a
reputation for regulatory compliance, financial stability and a
demonstrated ability to recruit and retain qualified physicians,
technicians and nurses. In particular, emergency departments
face significant challenges with respect to capturing patient
billing data and billing and collecting a high volume of
relatively small dollar amounts. As a result, they seek
third-party providers with the billing expertise, IT
infrastructure and systems necessary to reduce their
administrative burden and complexity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competitive Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We help our more than 470 hospital clients and their affiliated
clinics&#146; and surgical centers to address these industry
challenges by providing them with a comprehensive range of
high-quality, integrated, cost-effective outsourced services for
their emergency medicine, inpatient services, radiology,
anesthesiology, pediatrics and related programs. We believe that
our competitive position is attributable to a number of key
strengths, including the following:
</DIV>

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    <I>Trusted Reputation for Consistent and Reliable Services.</I>
    Team Health helped found the clinical outsourcing industry and
    has over 25&nbsp;years of experience providing physician
    staffing and administrative services. Our current roster of
    hospital clients includes long-term relationships with some of
    the leading medical institutions in the country. We believe the
    strength of our reputation is evidenced by the fact that
    approximately one-third of our contracts have been in place for
    more than ten years. On average, we have held contracts with our
    current clients for eight years, and our overall emergency
    department contract retention rate is over 90%.</TD>
</TR>

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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    We have an equally outstanding reputation with our affiliated
    physicians. In our most recent emergency physician survey, 97%
    of respondents indicated that we were attending to business
    functions in ways that allowed them to focus on their patients
    and their clinical practices, and 95% of respondents said they
    would recommend us to a colleague.</TD>
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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Leading Market Position.</I> We were founded in 1979 and are
    affiliated with approximately 4,700 healthcare professionals and
    over 470 civilian and military hospitals. We are the largest
    national provider of outsourced physician staffing and
    administrative services in the United States, based on revenues
    and patient visits. We are also a significant provider of
    healthcare staffing on a permanent basis to military treatment
    facilities under the U.S.&nbsp;government&#146;s TRICARE
    Program. We believe our ability to spread the cost of our
    corporate infrastructure over a broad national contract and
    revenue base generates significant cost efficiencies that are
    generally not available to smaller competitors. As a
    full-service provider with a comprehensive understanding of
    changing healthcare regulations and policies and the management
    information systems that provide support to manage these
    changes, we believe we are well positioned to maintain and grow
    our market share from other service providers and from new
    outsourcing opportunities.</TD>
</TR>

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    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Regional Operating Models Supported by a National
    Infrastructure.</I> We service our clients from 13 regional
    management sites organized under eight operating units. Many of
    our current regional sites were independent local companies that
    we added through acquisition. These businesses have been fully
    integrated, but because they originated locally, have retained
    deep roots in their communities. This combination of local
    relationships and national infrastructure allows us to deliver
    locally focused services</TD>
</TR>

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    with the resources and sophistication of a national provider.
    For example, our local presence helps us foster community-based
    relationships with healthcare facilities, which we believe
    results in responsive service, high physician retention rates
    and an ability to market our services effectively to local
    hospital administrators, who generally are involved in making
    decisions regarding contract awards and renewals. Our regional
    operating units are supported by our national infrastructure,
    which includes integrated information systems and standardized
    procedures that enable us to manage the operations and billing
    and collections processes efficiently. Our national
    infrastructure allows us to provide broad economies of scale
    across all the services we provide at the local level, including
    recruiting, billing and collection, payroll administration,
    staffing support, purchasing, managed care contract negotiation,
    regulatory compliance, and risk management. We believe our
    regional operating models supported by our national
    infrastructure improve productivity and quality of care while
    reducing the cost of care.</TD>
</TR>

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    <I>Significant Investment in Information Systems and
    Procedures.</I> Our information systems link our billing,
    collections, recruiting, scheduling, credentials coordination
    and payroll functions among our regional management sites,
    allowing our best practices and procedures to be delivered and
    implemented nationally. These systems include:</TD>
</TR>

</TABLE>

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    <TD width="6%"></TD>
    <TD width="1%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    IDX Billing System, our coding, billing and accounts receivable
    system that contains fee schedules that vary for the level of
    care rendered, contractually agreed-upon allowances (in the case
    of commercial and managed care insurance payers) and
    reimbursement policy parameters (in the case of governmental
    payers) to allow us to bill such payers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Lawson is an integrated system which incorporates financial
    reporting, payroll and accounts payable functions and allows our
    regional managers to monitor contract-level profitability and
    operational trends;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    TeamWorks&#153; our proprietary national physician database and
    software package that facilitates the recruitment and retention
    of physicians and supports our contract requisition, credentials
    coordination, automated application generation, scheduling and
    payroll operations.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    The cumulative strengths of these systems have enhanced our
    ability to properly collect patient payments and reimbursements
    in an orderly and timely fashion, monitor and analyze our
    operating performance and attract and retain specialized,
    career-oriented professionals in short supply. As a result of
    our investments in information systems and the company-wide
    application of best practices policies, we believe our average
    cost per patient billed and average recruiting cost per
    physician and other healthcare professionals are among the
    lowest in the industry.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Financial Performance.</I> We believe that financial
    stability, including a demonstrated ability to pay healthcare
    professionals in a timely manner and provide adequate
    professional liability insurance, is one of the key
    discriminating factors used by clients in the healthcare
    industry when choosing outsourcing providers. We have generated
    positive operating cash flow for each of the last five years.
    Cash flow from operations for the six months ended June&nbsp;30,
    2005 was approximately $28.0&nbsp;million. We believe that our
    operating cash needs will continue to be met through cash
    generated from operations.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Risk Management.</I> We have a comprehensive risk management
    program designed to prevent or minimize medical errors and
    attendant professional liability claims. The program includes
    incident reporting and tracking systems, pre-hire testing and
    screening procedures, staff education, service and review
    programs, procedures for early intervention in professional
    liability claims, and a risk management quality assurance
    program. The breadth and depth of our efforts in this area are a
    critical component of our business strategy and our ability to
    meet our client retention and acquisition goals. Over the last
    two years we have significantly reduced the number of new
    patient claims filed. In 2003 and 2004, claims declined 12% and
    26%, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Ability to Recruit and Retain High Quality Physicians.</I> We
    believe our ability to recruit and retain high quality
    physicians to service our contracts. While our local presence
    provides us with the knowledge to properly match physicians with
    hospitals and military treatment facilities, our national
    presence and infrastructure enable us to provide physicians with
    a variety of attractive client locations, advanced information
    and reimbursement systems and standardized procedures.
    Furthermore, we offer</TD>
</TR>

</TABLE>

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    <TD width="3%"></TD>
    <TD width="97%"></TD>
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    <TD>&nbsp;</TD>
    <TD align="left">
    physicians substantial flexibility in terms of geographic
    location, type of facility, scheduling of work hours, benefit
    packages and opportunities for relocation and career
    development. This flexibility, combined with fewer
    administrative burdens, improves physician retention rates and
    stabilizes our contract base. We believe we have among the
    highest physician retention rates in the industry.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <I>Experienced Management Team with Significant Equity
    Ownership.</I> Our senior management team has extensive
    experience in the outsourced physician staffing and
    administrative services industries. Our chief executive officer,
    H. Lynn Massingale,&nbsp;M.D., co-founded Team Health&#146;s
    predecessor entity in 1979. Our senior corporate and affiliate
    executives have an average of over 20&nbsp;years of experience
    in the outsourced physician staffing and medical services
    industries. After the offering, members of our management team
    will have, with the inclusion of performance-based options, an
    indirect fully diluted ownership interest of
    approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of Team Health,
    Inc. As a result of this substantial equity interest, we believe
    our management team has a significant incentive to maintain and
    grow our client base, and increase our revenue and profitability.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Business Strategy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to utilize our competitive strengths to capitalize on
favorable industry trends and execute on the following business
strategies:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Increase Revenues from Existing Customers.</I> We have a
strong record of achieving growth in revenues from our existing
customer base. In 2004 and the six months ended June&nbsp;30,
2005, our net revenues less provision for uncollectibles from
same contracts, which consist of contracts under management from
the beginning of a period through the end of the subsequent
period, grew by approximately 4.2% and 13.2% on a year-over-year
and period-over-period basis, respectively. We plan to continue
to increase revenue from existing customers by:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    capitalizing on increasing patient volumes,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    implementing enhanced point of service capture of non-clinical
    patient data, resulting in improved billing and collection for
    services rendered,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    continuing to improve documentation of clinical care delivered,
    thereby capturing appropriate reimbursement for services
    provided,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    implementing fee schedule increases, where appropriate,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    cross-selling additional services within contracted healthcare
    facilities, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increasing staffing levels and expanding services at current
    military sites of service to recapture patients who might
    otherwise receive services off-base.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Capitalize on Outsourcing Opportunities to Win New
Contracts.</I> As hospitals and other healthcare providers
continue to experience pressure from managed care companies and
other payers to reduce costs while maintaining or improving the
quality of service, we believe hospitals and other contracting
parties will increasingly turn to a single-source with an
established track record of success for outsourced physician
staffing and administrative services. We believe we are well
positioned to capitalize on the growth in emergency department
medicine and our other target outsourcing markets, due to our:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    demonstrated ability to improve productivity, patient
    satisfaction and quality of care while reducing overall cost to
    the healthcare facility,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    successful record of recruiting and retaining high quality
    physicians and other healthcare professionals,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    national presence,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sophisticated information systems and standardized procedures
    that enable us to efficiently manage our core staffing and
    administrative services as well as the complexities of the
    billing and collections process,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    financial strength and resources.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Furthermore, we seek to obtain new contracts that meet our
financial targets by:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    replacing competitors at hospitals that currently outsource
    their services,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    obtaining new contracts from healthcare facilities that do not
    currently outsource,&nbsp;and</TD>
</TR>

</TABLE>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expanding our present base of military treatment facility
    contracts by successfully competing for new staffing contracts.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Increase Revenue from Additional Clinical Areas.</I> In
addition to pursuing growth in our core ED staffing business, we
believe significant opportunities exist to increase revenues
from our inpatient services, radiology, anesthesiology and
pediatrics offerings. We believe we are well positioned to
increase our market share in these areas due to our ability to
leverage our infrastructure and existing client relationships as
well as our recruiting and risk management expertise. We intend
to grow our presence in these sectors by increasing revenue from
existing clients, adding new clients with whom we do not
currently have a relationship with and marketing these services
to our existing ED clients.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Leverage Infrastructure to Enhance Profitability.</I> Our
revenue growth strategy along with our established regional and
corporate infrastructure is designed to allow for continued
enhancement of profitability. Our information systems and
economies of scale allow us to enhance profitability with
revenue growth without compromising the quality of operations or
clinical care. Our strategy is to continually seek to reduce
costs, improve efficiencies and provide employee incentives in
order to maximize our profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Focus on Risk Management.</I> Through our risk management
staff, quality assurance staff and medical directors, we conduct
an aggressive risk management program for loss prevention and
early intervention. We have a proactive role in promoting early
reporting, evaluation and resolution of serious incidents that
may evolve into claims or suits. The risk management function is
designed to prevent or minimize medical professional liability
claims and includes:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    incident reporting systems,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    tracking/trending the cause of accidents and claims,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pre-hire risk testing and screening, semi-annual risk review for
    all providers,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    risk management quality improvement programs,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    physician education and service programs, including peer review
    and monitoring,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    loss prevention information such as audio tapes and risk alert
    bulletins,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    early intervention of potential professional liability claims
    and pre-deposition review.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Pursue Selective Acquisitions.</I> Although we are the
largest provider of outsourced physician staffing and
administrative services in the U.S., based on revenues and
patient visits, our current market share is less than 10%. We
intend to acquire complementary businesses selectively in the
fragmented outsourcing market. We have successfully completed
and integrated four acquisitions in the period 2002-2004 for an
aggregate purchase price of approximately $21.3&nbsp;million, as
well as the acquisition of a military staffing company in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Service Lines</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We provide a full range of outsourced physician staffing and
administrative services in emergency medicine, inpatient
services, radiology, anesthesiology, pediatrics, and other
hospital-based functions. We also provide a full range of
healthcare management services to military treatment facilities
for the beneficiaries of U.S.&nbsp;military personnel through
the TRICARE program. In addition to physician related services
within a military treatment facility setting, we also provide
non-physician staffing services to military treatment
facilities, including such services as para-professional
providers, nursing, specialty technicians and administrative
staffing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Emergency Department.</I> We are the largest provider of
outsourced physician staffing and administrative services for
hospital emergency departments in the United States, based upon
revenues and patient visits. We contract with the hospitals to
provide qualified emergency physicians and other healthcare
providers for their emergency departments. In addition to the
core services of contract management, recruiting, credentials
coordination, staffing and scheduling, we provide our client
hospitals with enhanced services designed to improve the
efficiency and effectiveness of the emergency department.
Specific programs like the Operational Assessment, Patient
Throughput Program, and 60 to 0&nbsp;Door to Doc Program, apply
proven process improvement methodologies to departmental
operations. Physician documentation templates promote
</DIV>

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<DIV align="left" style="font-size: 10pt;">
compliance with federal documentation guidelines, enhance
patient care and risk management and allow for more accurate
patient billing. By providing these enhanced services, we
believe we increase the value of services we provide to our
clients and improve client relations. Additionally, we believe
these enhanced services also differentiate us in sales
situations and improve the chances of being selected in a
competitive bidding process. As of June&nbsp;30, 2005, we
independently contracted with or employed approximately 2,500
hospital emergency department physicians.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Inpatient Services.</I> We also provide physician staffing
and administrative functions for inpatient services, which
include hospitalist, intensivist, and house coverage services.
Our inpatient contracts with hospitals are generally on a
cost-plus or flat rate basis. As of June&nbsp;30, 2005, we
independently contracted with or employed approximately 140
inpatient physicians.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Radiology.</I> We provide outsourced radiology physician
staffing and administrative services in the U.S.,&nbsp;both on a
fee-for-service basis and a cost-plus basis. We contract
directly with radiologists to provide radiology physician
staffing and administrative services. A typical radiology
management team consists of clinical professionals,
board-certified radiologists that are trained in all modalities,
and non-clinical professionals and support staff that are
responsible for the scheduling, purchasing, billing and
collections functions. A component of our radiology business is
teleradiology support services. The customers for these services
are typically radiologists or radiology groups. The business
provides nighttime support to our customers from a centralized
reading location. As of June&nbsp;30, 2005, we independently
contracted with or employed approximately 50&nbsp;radiologists.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Anesthesiology.</I> We provide a wide range of management
services to anesthesia practices on a fee basis, including
strategic management, management information systems,
third-party payer contracting, financial and accounting support,
benefits administration and risk management, scheduling support,
operations management and quality improvement services using
proprietary anesthesia management practice software. We also
arrange for the provision of billing and other management
services on a management fee basis to anesthesia practices.
These services are organized under an operating unit called Team
Health Anesthesiology Management Services (THAMS). THAMS
currently provides management and/or billing services to 15
integrated anesthesia practices whose members number more than
600 providers. Overall, we are able to offer essential services
to anesthesia groups that enable them to focus on the clinical
practice of medicine while leaving the group&#146;s day-to-day
business management functions to us.
</DIV>

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<I>Pediatrics.</I> We provide outsourced pediatric physician
staffing and administrative services for general and pediatric
hospitals. These services include pediatric emergency medicine
and radiology, neonatal intensive care, pediatric intensive
care, urgent care centers, primary care centers, observation
units and inpatient services. We also operate seven after-hours
pediatric urgent care centers in Florida. We have experienced
growth of our contracts and net revenues less provision for
uncollectibles in our outsourced pediatric physician staffing
and administrative services business due primarily to new
contract sales and acquisitions, and, to a lesser extent, rate
increases on existing contracts. As of June&nbsp;30, 2005, we
independently contracted with or employed approximately
120&nbsp;pediatric physicians.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Temporary Staffing.</I> We provide temporary staffing (locum
tenens) of physicians and paraprofessionals to hospitals and
other healthcare organizations through our subsidiary Daniel and
Yeager, Inc. (D&#38;Y). Specialties placed through D&#38;Y
include anesthesiology, radiology and primary care among others.
Revenues from these services are generally derived from a
standard contract rate based upon the type of service provided.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Primary Care Clinics and Occupational Medicine.</I> We
provide primary care staffing and administrative services in
stand-alone primary care clinics and in clinics located within
the work-site of industrial clients. While such clinics are not
a primary focus of our business, they are complementary to our
hospital clients&#146; interests. We generally contract with
hospitals or industrial employers to provide cost-effective,
high quality primary care physician staffing and administrative
services.
</DIV>

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<I>Other Non-Physician Staffing Services.</I> Other
non-physician staffing services, including such services as
nursing, specialty technician and administrative staffing are
provided primarily in military treatment facilities. These
services are currently provided on an hourly contract basis. Net
revenues less provision for
</DIV>

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uncollectibles derived from such non-physician staffing services
were approximately 12% of our revenues less provision for
uncollectibles in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Medical Call Center Services.</I> Through our subsidiary,
Access Nurse, we provide medical call center services to
hospitals, physician groups and managed care organizations. Our
24-hour medical call center is staffed by registered nurses and
specially trained telephone representatives with backup support
from board-certified, practicing physicians.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The services provided by Access Nurse include:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    physician after-hours call coverage;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    community nurse lines;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    ED advice calls;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    physician referral;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    class scheduling;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    appointment scheduling;</TD>
</TR>

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    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    web response; and</TD>
</TR>

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    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    nurse chat.</TD>
</TR>

</TABLE>

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In addition, Access Nurse can provide for our emergency
department clients with outbound follow-up calls to patients who
have been discharged from the ED. We believe this service
results in increased patient satisfaction and decreased
liability for the hospital.
</DIV>

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Access Nurse is one of the few call centers nationwide that is
accredited by URAC, an independent nonprofit organization that
provides accreditation and certification programs for call
centers.
</DIV>

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<B>Contractual Arrangements</B>
</DIV>

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We earn revenues from both fee-for-service arrangements and from
flat-rate or hourly contracts. Neither form of contract requires
any significant financial outlay, investment obligation or
equipment purchase by us other than the professional expenses
associated with obtaining and staffing the contracts.
</DIV>

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Our contracts with hospitals generally have terms of three
years. Our present contracts with military treatment facilities
are generally for one year. Both types of contracts often
include automatic renewal options under similar terms and
conditions unless either party gives notice of an intent not to
renew. Despite the fact that most contracts are terminable by
either party upon notice of as little as 30&nbsp;days, the
average tenure of our existing hospital contracts is
approximately eight years. The termination of a contract is
usually due to either an award of the contract to another
staffing provider as a result of a competitive bidding process
or termination of the contract by us due to a lack of an
acceptable profit margin on fee-for-service patient volumes
coupled with inadequate contract subsidies. Less frequently,
contracts may be terminated as a result of a hospital facility
closing due to facility mergers or a hospital attempting to
insource the service being provided by us.
</DIV>

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<I>Hospitals.</I> We provide outsourced physician staffing and
administrative services to hospitals under fee-for-service
contracts and flat-rate contracts. Hospitals entering into
fee-for-service contracts agree, in exchange for granting
exclusivity to us for such services, to authorize us to bill and
collect the professional component of the charges for such
professional services. Under the fee-for-service arrangements,
we bill patients and third party payers for services rendered.
Depending on the underlying economics of the services provided
to the hospital, including its payer mix, we may also receive
supplemental revenue from the hospital. In a fee-for-service
arrangement, we accept responsibility for billing and
collections.
</DIV>

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Under flat-rate contracts, the hospital performs the billing and
collection services of the professional component and assumes
the risk of collectibility. In return for providing the
physician staffing and administrative services, the hospital
pays us a contractually negotiated fee, often on an hourly basis.
</DIV>

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<I>Military Treatment Facilities.</I> Our present contracts to
provide staffing for military treatment facilities provide such
staffing on an hourly or fee basis.
</DIV>

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<I>Physicians.</I> We contract with physicians as independent
contractors or employees to provide services to fulfill our
contractual obligations to our hospital clients. We typically
pay physicians: (1)&nbsp;an hourly rate for each hour of
coverage provided at rates comparable to the market in which
they work; (2)&nbsp;a relative value unit, or RVU, based
payment, or (3)&nbsp;a combination of both a fixed rate and an
RVU-based component. The
</DIV>

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hourly rate varies depending on whether the physician is
independently contracted or an employee. Independently
contracted physicians are required to pay a self-employment tax,
social security, and workers&#146; compensation insurance
premiums. In contrast, we pay these taxes and expenses for
employed physicians.
</DIV>

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Our contracts with physicians generally have
&#147;evergreen&#148; provisions and can be terminated at any
time under certain circumstances by either party without cause,
typically upon 180&nbsp;days notice. In addition, we generally
require physicians to sign non-compete and non-solicitation
agreements. Although the terms of our non-compete agreements
vary from physician to physician, they generally have terms of
two years after the termination of the agreement. We also
generally require our employed physicians to sign similar
non-compete agreements. Under these agreements, the physician is
restricted from divulging confidential information, soliciting
or hiring our employees and physicians, inducing termination of
our agreements and competing for and/or soliciting our clients.
As of June&nbsp;30, 2005, we had working relationships with
approximately 2,800 physicians, of which approximately 2,300
were independently contracted. See &#147;Risk
Factors&nbsp;&#151; Risks Related to Our Business&nbsp;&#151; We
may not be able to successfully recruit and retain qualified
physicians to serve as our independent contractors or
employees.&#148;
</DIV>

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<I>Other Healthcare Professionals.</I> We provide
para-professionals, nurses, specialty technicians and
administrative support staff on a long-term contractual basis to
military treatment facilities. These healthcare professionals
under our current military staffing contracts are compensated on
an hourly or fee basis. As of June&nbsp;30, 2005, we employed or
contracted with approximately 2,900 other healthcare
professionals.
</DIV>

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<B>Services</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We provide a full range of outsourced physician and
non-physician healthcare professional staffing and
administrative services including the following:
</DIV>

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<I>Contract Management.</I> Our delivery of services for a
clinical area of a healthcare facility is led by an experienced
contract management team of clinical and other healthcare
professionals. The team includes a regional medical director, an
on-site medical director and a client services manager. The
on-site medical director is a physician with the primary
responsibility of managing the physician component of a clinical
area of the facility. The medical director works with the team,
in conjunction with the nursing staff and private medical staff,
to improve clinical quality and operational effectiveness.
Additionally, the medical director works closely with the
regional operating unit&#146;s operations staff to meet the
client&#146;s ongoing recruiting and staffing needs.
</DIV>

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<I>Staffing.</I> We provide a full range of staffing services to
meet the unique needs of each healthcare facility. Our dedicated
clinical teams include qualified, career-oriented physicians and
other healthcare professionals responsible for the delivery of
high quality, cost-effective care. These teams also rely on
managerial personnel, many of whom have clinical experience, who
oversee the administration and operations of the clinical area.
As a result of our staffing services, healthcare facilities can
focus their efforts on improving their core business of
providing healthcare services for their communities as opposed
to recruiting and managing physicians. We also provide temporary
staffing services of physicians and other healthcare
professionals to healthcare facilities on a national basis.
</DIV>

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<I>Recruiting.</I> Many healthcare facilities lack the resources
necessary to identify and attract specialized, career-oriented
physicians. We have a staff of approximately 68 professionals
dedicated to the recruitment of qualified physicians and other
clinicians. These professionals are regionally located and focus
on matching qualified, career-oriented physicians with
healthcare facilities. Common recruiting methods include the use
of our proprietary national physician database, attendance at
trade shows, the placement of website and professional journal
advertisements and telemarketing efforts.
</DIV>

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We have committed significant resources to the development of a
proprietary national physician database to be shared among our
regional operating units. This database is utilized at all of
our operating units. The database uses the American Medical
Association master file, which contains more than 690,000
physicians as the initial data source on potential candidates.
Recruiters contact prospects through telemarketing, direct mail,
conventions, journal advertising and our Internet site to
confirm and update physicians&#146; information. Prospects
expressing interest in one of our practice opportunities then
provide more extensive background on their training, experience,
and references, all of which is added to our database. Our goal
is to ensure that the practitioner is a good match with both the
facility and the community before proceeding with an interview.
</DIV>

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<I>Credentials Coordination.</I> We gather primary source
information regarding physicians to facilitate the review and
evaluation of physicians&#146; credentials by the healthcare
facility.
</DIV>

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<I>Scheduling.</I> Our scheduling department assists the on-site
medical directors in scheduling physicians and other healthcare
professionals within the clinical area on a monthly basis.
</DIV>

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<I>Payroll Administration and Benefits.</I> We provide payroll
administration services for the physicians and other healthcare
professionals with whom we contract. Our clinical employees
benefit significantly from our ability to aggregate physicians
and other healthcare professionals to negotiate more favorable
employee benefit packages and to provide professional liability
coverage at lower rates than many hospitals or physicians could
negotiate individually. Additionally, healthcare facilities
benefit from the elimination of the overhead costs associated
with the administration of payroll and, where applicable,
employee benefits.
</DIV>

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<I>Information Systems.</I> We have invested in advanced
information systems and proprietary software packages designed
to assist hospitals in lowering administrative costs while
improving the efficiency and productivity of a clinical area.
These systems include TeamWorks&#153;, our national physician
database and software package that facilitates the recruitment
and retention of physicians and supports our contract
requisition, credentials coordination, automated application
generation, scheduling and payroll operations.
</DIV>

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While the entering of patient data remains principally manual in
nature, the strength of our IDX Billing System and other
information systems has enhanced our ability to properly collect
patient payments and reimbursements in an orderly and timely
fashion and has increased our billing and collections
productivity. As a result of our investments in information
systems and the company-wide application of best practices
policies, we believe our average cost per patient billed and
average recruiting cost per physician and other healthcare
professionals are among the lowest in the industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Billing and Collections.</I> Our billing and collection
services are a critical component of our business. Excluding the
military staffing business, which has its own proprietary
billing processes, our billing and collections operations are
conducted through five billing facilities and operate on a
uniform billing system&nbsp;&#151; the IDX software system. The
IDX system is a powerful billing and accounts receivable
software package with comprehensive reporting capabilities. We
maintain within our IDX billing system fee schedules that vary
for the level of care rendered. In addition, within our IDX
billing system we maintain contractually agreed upon allowances
(in the case of commercial and managed care insurance payers)
and reimbursement policy parameters (in the case of governmental
payers) to allow us to bill such payers at levels that are less
than the gross charges resulting from our fee schedules. Our IDX
billing system calculates the contractual allowances at the time
of processing of third-party payer remittances. The contractual
allowance calculation within the IDX system is used principally
to determine the propriety of subsequent third-party payer
payments. The nature of emergency care services and the
requirement to treat all patients in need of such care and often
times under circumstances where complete and accurate billing
information is not readily available at the time of discharge,
precludes the use of the IDX system to accurately determine
contractual allowances for financial reporting purposes. As a
result, management estimates net revenues less provision for
uncollectibles, which is our revenue estimated to be collected
after considering our contractual allowance obligations and our
estimates of doubtful accounts, as further discussed in detail
in the &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operation&#148; section of
this prospectus.
</DIV>

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We have interfaced a number of other software systems with the
IDX system to further improve productivity and efficiency.
Foremost among these is an electronic registration interface
that has the capability to gather registration information
directly from a hospital&#146;s management information system.
Additionally, we have invested in electronic submission of
claims, as well as electronic remittance posting. These programs
have resulted in lower labor and postage expenses. At the
present time, approximately 97% of over six&nbsp;million
fee-for-service annual patient visits are processed by one of
the five billing facilities.
</DIV>

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We also operate an internal collection agency. Substantially all
collection placements generated from our billing facilities are
sent to the agency. Comparative analysis has shown that the
internal collection agency is more cost effective than the use
of outside agencies and has improved the collectibility of
existing placements. Our advanced comprehensive billing and
collection systems allow us to have full control of accounts
receivable at each step of the process.
</DIV>

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<I>Risk Management.</I> Through our risk management staff,
quality assurance staff and our medical directors, we conduct an
aggressive risk management program for loss prevention and early
intervention. We are proactive in promoting early reporting,
evaluation and resolution of serious incidents that may evolve
into claims or suits. Our risk management function is designed
to prevent or minimize medical professional liability claims and
includes:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    incident reporting systems through which we monitor errors that
    may potentially become claims,</TD>
</TR>

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    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    tracking/trending the cause of errors and claims looking for
    preventable sources of erroneous medical treatment or
    decision-making,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pre-hire risk assessment and screening and semi-annual risk
    review for all providers seeking to offer hospitals the
    highest-quality physicians,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    risk management quality improvement programs providing clinical
    guidelines for consideration by the clinician,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    physician education and service programs, including peer review
    and monitoring and the provision of approximately
    100,000&nbsp;hours of continuing medical education in 2004,</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    loss prevention information via audio tapes and risk alert
    bulletins enabling providers to review current topics in medical
    care at their convenience,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    early intervention of potential professional liability claims
    and pre-deposition review to minimize negative outcomes in
    malpractice cases.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, we are in the process of converting our risk
management database over to the STARS&nbsp;8.5 Risk Management
Information System (RMIS). The STARS system is one of the most
comprehensive RMIS on the market, and will be used to enhance
our physician risk management assessments, malpractice
claims/litigation management, and the analysis of claims data to
identify loss patterns/trends. Claim and serious event data will
be linked with provider profile data to benchmark the
provider&#146;s loss performance. The collection and analysis of
claims data will enable us to identify the actual cause of
losses, and target risk management intervention to proactively
address potential liability exposures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Continuing Medical Education Services.</I> The Team Health
Institute for Education and Patient Safety is fully accredited
by the Accreditation Council for Continuing Medical Education.
This allows us to grant our physicians and nurses continuing
medical education credits for both externally and internally
developed educational programs at a lower cost than if such
credits were earned through external programs. In addition to
providing life support certification courses, we have designed a
series of client support seminars entitled <I>Successful
Customer Relations and Beyond Clinical Competence</I> for
physicians, nurses and other personnel to learn specific
techniques for becoming effective communicators and delivering
top-quality customer service. These seminars help the clinical
team sharpen its customer service skills, further develop
communication skills and provide techniques to help deal with
people in many critical situations.
</DIV>

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<I>Consulting Services.</I> We have a long history of providing
outsourced physician staffing and administrative services to
healthcare facilities and, as a result, have developed extensive
knowledge in the operations of certain areas of the facilities
we service. As such, we provide consulting services to
healthcare facilities to improve the productivity, quality and
cost of care delivered by them. These services include:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Process Improvement.</I> We have developed a number of
    utilization review programs designed to track patient flow and
    identify operating inefficiencies. To rectify such
    inefficiencies, we have developed a Fast Track system to
    expedite patient care in the hospital emergency department and
    urgent care center by separating patients who can be treated in
    a short period of time from patients who have more serious or
    time-consuming problems. Fast Track patients, once identified
    through appropriate triage categorization, are examined and
    treated in a separate area of the hospital emergency department
    or urgent care center, controlled by its own staff and
    operational system. We have substantial experience in all phases
    of development and management of Fast Track programs, including
    planning, equipping, policy and procedure development, and
    staffing. In addition, we employ
    WaitLoss<SUP style="font-size: 85%; vertical-align: text-top"><FONT style="font-variant:SMALL-CAPS">tm</FONT></SUP>,
    a proprietary process improvement system designed to assist the
    hospital in improving the efficiency and productivity of a
    department.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Quality Improvement.</I> We provide a quality improvement
    program designed to assist a healthcare facility in maintaining
    a consistent level of high quality care. We periodically measure
    the</TD>
</TR>

</TABLE>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD></TD>
    <TD align="left">
    performance of the healthcare facility, based on a variety of
    benchmarks, including patient volume, quality indicators and
    patient satisfaction. This program is typically integrated into
    our process improvement program to ensure seamless delivery of
    high quality, cost-effective care.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Managed Care Contracting.</I> We have developed extensive
    knowledge of the treatment protocols and related documentation
    requirements of a variety of managed care payers. As a result,
    we often participate in the negotiation of managed care
    contracts to make those managed care relationships effective for
    patients, payers, physicians and hospitals. We provide managed
    care consulting services in the areas of contracting,
    negotiating, reimbursement analysis/projections, payer/hospital
    relations, communications and marketing. We have existing
    managed care agreements with health maintenance organizations,
    preferred provider organizations and integrated delivery systems
    for commercial, Medicaid and Medicare products. While the
    majority of our agreements with payers continue to be
    traditional fee-for-service contracts, we are experienced in
    providing managed, prepaid healthcare to enrollees of managed
    care plans.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Nursing Services.</I> We maintain highly regarded,
    experienced nurse consultants on our client support staff. These
    nurse consultants provide assistance to nurse managers and
    medical directors of the client healthcare facility on a variety
    of issues, including risk management and overall performance
    improvement. In addition, the nurse consultants are available to
    make site visits to client facilities on request to assess
    overall operations, utilization of personnel and patient flow.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Sales and Marketing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Contracts for outsourced physician staffing and administrative
services are generally obtained either through direct selling
efforts or requests for proposals. We have a team of eight sales
professionals located throughout the country. Each sales
professional is responsible for developing sales and acquisition
opportunities for the operating unit in their territory. In
addition to direct selling, the sales professionals are
responsible for working in concert with the regional operating
unit president and corporate development personnel to respond to
a request for proposal or take other steps to develop new
business relationships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although practices vary, healthcare facilities generally issue a
request for proposal with demographic information of the
facility department, a list of services to be performed, the
length of the contract, the minimum qualifications of bidders,
the selection criteria and the format to be followed in the bid.
Supporting the sales professionals is a fully integrated
marketing campaign comprised of a telemarketing program,
Internet website, journal advertising, and a direct mail and
lead referral program.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently operate through eight operating units with
management located at thirteen regional sites. Our regional
sites are listed in the table below. The operating units are
managed semi-autonomously, in most cases by senior physician
leaders, and are operated as profit centers with the
responsibility for pricing new contracts, recruiting and
scheduling physicians and other healthcare professionals,
marketing locally and
</DIV>

<P align="center" style="font-size: 10pt;">60

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<DIV align="left" style="font-size: 10pt;">
conducting day-to-day operations. The management of corporate
functions such as accounting, payroll, billing and collection,
capital spending, information systems and legal are centralized.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 18pt; ">

<TR style="font-size: 1pt;">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Location</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Principal Service Lines</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    After Hours Pediatrics</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Tampa, FL</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Pediatrics</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Daniel and Yeager</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Huntsville, AL</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Locum Tenens</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Emergency Coverage Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Knoxville, TN</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Emergency Physician Associates</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Woodbury, NJ</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Emergency Professional Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Middleburg Heights, OH</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Health Care Financial Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Plantation, FL</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Billing</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    InPhyNet Medical Management</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Ft.&nbsp;Lauderdale, FL</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Northwest Emergency Physicians</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Seattle, WA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Spectrum Healthcare Resources</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>St.&nbsp;Louis, MO</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Military Staffing</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Southeastern Emergency Physicians</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Knoxville, TN</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Team Health Anesthesia Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Knoxville, TN</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Anesthesiology</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Team Health West</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Pleasanton, CA</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Emergency Department</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Team Radiology</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom" nowrap>Knoxville, TN</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>Radiology</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We require the physicians with whom we contract to obtain
professional liability insurance coverage. For both our
independently contracted and employed physicians, we typically
arrange the provision of claims-made coverage with per incident
and annual aggregate per physician limits and per incident and
annual aggregate limits for all corporate entities. These limits
are deemed appropriate by management based upon historical
claims, the nature and risks of the business and standard
industry practice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Beginning in 2003, we began providing for a significant portion
of our professional liability loss exposures through the use of
a captive insurance company and through greater utilization of
self-insurance reserves. We base a substantial portion of our
provision for professional liability losses on periodic
actuarial estimates of such losses for periods subsequent to
March&nbsp;11, 2003. An independent actuary firm is responsible
for preparation of the periodic actuarial studies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are usually obligated to arrange for the provision of
&#147;tail&#148; coverage for claims against our physicians for
incidents that are incurred but not reported during periods for
which the related risk was covered by claims-made insurance.
With respect to those physicians for whom we are obligated to
provide tail coverage, we accrue professional insurance expenses
based on estimates of the cost of procuring tail coverage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also maintain general liability, vicarious liability,
automobile liability, property and other customary coverages in
amounts deemed appropriate by management based upon historical
claims and the nature and risks of the business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of June&nbsp;30, 2005, we had approximately 5,700 employees,
of which approximately 3,400 were physicians and other
clinicians, with remaining employees working in billing and
collections, operations and administrative support functions.
Our employees are not covered by any labor agreements nor are
they affiliated with any unions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The market for outsourced emergency department staffing and
related management services is highly fragmented, with more than
800 national, regional and local providers handling over
113.9&nbsp;million patient visits in 2003. There are more than
3,900&nbsp;hospitals in the United States with emergency
departments, of which 67% currently outsource physician
services. Of these hospitals that outsource, we believe
approximately 50% contract with a local provider, 25% contract
with a regional provider and 25% contract with a national
provider.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Emergency Medical Services Corporation has the second largest
share of the emergency department services market based upon
revenues. Other national providers of outsourced emergency
department services
</DIV>

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<DIV align="left" style="font-size: 10pt;">
include Sterling Healthcare, National Emergency Service and the
Schumacher Group, all of which tend to focus on hospitals with
low to medium volume emergency departments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Regulatory Matters</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>General.</I> As a participant in the healthcare industry, our
operations and relationships with healthcare providers such as
hospitals are subject to extensive and increasing regulations by
numerous federal and state governmental entities as well as
local governmental entities. The management services provided by
us under contracts with hospitals and other clients include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the identification and recruitment of physicians and other
    healthcare professionals for the performance of emergency
    medicine, radiology and other services at hospitals, outpatient
    imaging facilities and other facilities,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    utilization and review of services and administrative overhead,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    scheduling of staff physicians and other healthcare
    professionals who provide clinical coverage in designated areas
    of healthcare facilities,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    administrative services such as billing and collection of fees
    for professional services.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All of the above services are potentially subject to scrutiny
and review by federal, state and local governmental entities and
are subject to the rules and regulations promulgated by these
governmental entities. Specifically, but without limitation, the
following laws and regulations may affect our operations and
contractual relationships.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>State Laws Regarding Prohibition of Corporate Practice of
Medicine and Fee Splitting Arrangements.</I> We currently
provide outsourced physician staffing and administrative
services to healthcare facilities in 44&nbsp;states. The laws
and regulations relating to our operations vary from state to
state. The laws of many states, prohibit general business
corporations, such as us, from practicing medicine, controlling
physicians&#146; medical decisions or engaging in some practices
such as splitting professional fees with physicians. The laws of
other states, including Florida, do not prohibit non-physician
entities from practicing medicine but may retain a ban on some
types of fee splitting arrangements. In 2004, we derived
approximately 18% of our net revenues less provision for
uncollectibles from services rendered in the state of Florida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
While we seek to comply substantially with existing applicable
laws relating to the corporate practice of medicine and fee
splitting, we cannot assure you that our existing contractual
arrangements, including non-competition agreements with
physicians, professional corporations and hospitals will not be
successfully challenged in certain states as unenforceable or as
constituting the unlicensed practice of medicine or prohibited
fee-splitting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Debt Collection Regulation.</I> Some of our operations are
subject to compliance with the Fair Debt Collection Practices
Act and comparable statutes in many states. Under the Fair Debt
Collection Practices Act, a third-party collection company is
restricted in the methods it uses in contacting consumer debtors
and eliciting payments with respect to placed accounts.
Requirements under state collection agency statutes vary;
however, most require compliance similar to that required under
the federal Fair Debt Collection Practices Act. We believe that
we are in substantial compliance with the federal Fair Debt
Collection Practices Act and comparable state statutes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Anti-Kickback Statutes.</I> We are subject to the federal
healthcare fraud and abuse laws including the federal
anti-kickback statute. The federal anti-kickback statute at
section&nbsp;1128B(b) of the Social Security Act, or SSA,
(&#147;Anti-Kickback Statute&#148;) prohibits the knowing and
willful offering, payment, solicitation or receipt of any bribe,
kickback, rebate or other remuneration in return for referring
an individual to a person for the furnishing (or arranging for
the furnishing) of any item or service, or in return for the
purchasing, leasing, ordering, or arranging for or recommending
the purchasing, leasing, or ordering of any good, facility,
service, or item for which payment may be made, in whole or in
part, by a federal healthcare program. These fraud and abuse
laws define federal healthcare programs to include plans and
programs that provide health benefits, whether directly, through
insurance, or otherwise, which are funded directly by the United
States government or any state healthcare program. These
programs include Medicare and Medicaid, and TRICARE (formerly
the Civilian Health and Medical Program of the Uniformed
Services), among others. Violations of the Anti-Kickback statute
may result in civil and criminal penalties and exclusion from
participation in federal and state healthcare programs.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As authorized by Congress, the United States Department of
Health and Human Services has issued &#147;safe harbor&#148;
regulations which describe some of the conduct and business
relationships immune from prosecution under the Anti-Kickback
Statute. The fact that a given business arrangement does not
fall within one of these &#147;safe harbor&#148; provisions does
not render the arrangement illegal, but business arrangements of
healthcare service providers that fail to satisfy the applicable
safe harbor criteria are reviewed based upon a facts and
circumstances analysis to determine whether a violation may have
occurred. Some of the financial arrangements that we may
maintain may not meet all of the requirements for safe harbor
protection. The authorities that enforce the Anti-Kickback
Statute may in the future determine that one or more of these
financial arrangements violate the Anti-Kickback Statute or
other federal or state laws. A determination that a financial
arrangement violates the Anti-Kickback Statute could subject us
to liability under the Social Security Act, including criminal
and civil penalties, as well as exclusion from participation in
government programs such as Medicare and Medicaid or other
federal healthcare programs. In addition, an increasing number
of states in which we operate have laws that prohibit some
direct or indirect payments, similar to the anti-kickback
statute, if those payments are designed to induce or encourage
the referral of patients to a particular provider. Possible
sanctions for violation of these restrictions include exclusion
from state funded healthcare programs, loss of licensure, and
civil and criminal penalties. Statutes vary from state to state,
are often vague, and have seldom been interpreted by courts or
regulatory agencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In order to obtain additional clarification on the federal
Anti-Kickback statute, a provider can obtain written
interpretative advisory opinions from the Department of Health
and Human Services, or HHS, regarding existing or contemplated
transactions. Advisory opinions are binding as to the Department
of Health and Human Services but only with respect to the
requesting party or parties. The advisory opinions are not
binding as to other governmental agencies, e.g., the Department
of Justice, and certain matters (e.g., whether certain payments
made in conjunction with conduct seeking to meet certain safe
harbor protection are at fair market value) are not within the
purview of an advisory opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 1998, the Office of Inspector General, or OIG, of HHS issued
an advisory opinion in which it concluded that a proposed
management services contract between a medical practice
management company and a physician practice, which provided that
the management company would be reimbursed for the fair market
value of its operating services and its costs and paid a
percentage of net practice revenues, may constitute illegal
remuneration under the federal Anti-Kickback statute. The
OIG&#146;s analysis focused on the marketing activities
conducted by the management company and concluded that the
management services arrangement described in the advisory
opinion included financial incentives to increase patient
referrals, contained no safeguards against over utilization, and
included financial incentives that increased the risk of abusive
billing practices. We believe that our contractual relationships
with hospitals and physicians are distinguishable from the
arrangement described in this advisory opinion with regard to
both the types of services provided and the risk factors
identified by the Inspector General. We provide outsourced
physician staffing and administrative services to hospitals and
other healthcare providers through contractual arrangements with
physicians and hospitals. In some instances, we may enter into a
contractual arrangement that provides that, as compensation for
staffing a hospital department, we will receive a percentage of
charges generated by the physician services rendered to patients
seeking treatment in that department. However, the nature of our
business distinguishes us from the management company in the
advisory opinion. We do not perform marketing or any other
management services for the hospital or the physicians by which
we can influence the number of patients who seek treatment at
the hospital department and thereby increase the compensation
received by us from the hospital or paid by us to physicians.
Additionally, in any percentage compensation arrangement we have
with a hospital, the compensation paid to us by that hospital
takes into account only the professional services rendered by
our physicians and does not contain financial incentives to
increase the referrals of patients by our physicians to the
hospital for hospital services. Nevertheless, we cannot assure
you that HHS will not be able to successfully challenge our
arrangements under the federal Anti-Kickback statute in the
future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Physician Self-Referral Laws.</I> Our contractual
arrangements with physicians and hospitals may implicate the
federal physician self-referral statute commonly known as
Stark&nbsp;II. In addition, a number of the states in which we
operate have similar prohibitions on physician self-referrals.
In general, these state prohibitions track Stark&nbsp;II&#146;s
prohibitions and exceptions. Stark&nbsp;II prohibits the
referral of Medicare and (in
</DIV>

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certain contexts) Medicaid patients by a physician to an entity
for the provision of particular &#147;designated health
services&#148; if the physician or a member of such
physician&#146;s immediate family has a &#147;financial
relationship&#148; with the entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stark&nbsp;II provides that the entity which renders the
&#147;designated health services&#148; may not present or cause
to be presented a claim for &#147;designated health
services&#148; furnished pursuant to a prohibited referral. A
person who engages in a scheme to circumvent
Stark&nbsp;II&#146;s prohibitions may be fined up to $100,000
for each applicable arrangement or scheme. In addition, anyone
who presents or causes to be presented a claim in violation of
Stark&nbsp;II is subject to payment denials, mandatory refunds,
monetary penalties of up to $15,000&nbsp;per service, an
assessment of up to three times the amount claimed, and possible
exclusion from participation in federal healthcare programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The term &#147;designated health services&#148; includes
services commonly performed or supplied by hospitals (including
inpatient and outpatient hospital services) or medical clinics
to which we provide physician staffing. In addition, the term
&#147;financial relationship&#148; is broadly defined to include
any direct or indirect ownership or investment interest or
compensation arrangement. There are a number of exceptions to
the self-referral prohibition, including exceptions for many of
the customary financial arrangements between physicians and
providers, such as employment contracts, leases, professional
services agreements, non-cash gifts having a value less than
$300 and recruitment agreements. On January&nbsp;4, 2001, the
Centers for Medicare&nbsp;&#38; Medicaid Services, or CMS,
issued a final rule, subject to a comment period, intended to
clarify parts of the Stark Law and some of the exceptions to it.
The majority of the regulations contained in this rule became
effective on or before January&nbsp;4, 2002. On March&nbsp;26,
2004, CMS issued an interim final rule subject to a comment
period intended to clarify the remaining portions of the Stark
Law. These rules, known as &#147;phase two&#148; of the Stark
Law rulemaking, became effective July&nbsp;26, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
While these phase two rules help clarify the requirements of the
exceptions to the Stark Law, it is difficult to determine fully
their effect until the government begins enforcement of the
rules. Evolving interpretations of current laws and regulations,
or the adoption of new federal or state laws or regulations,
could affect many of the arrangements entered into by each of
the hospitals with which we contract. In addition, courts,
Congress, and law enforcement authorities, including the OIG,
are increasing the scrutiny of arrangements between healthcare
providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to improperly pay
for patient referrals and/or other business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, we are subject to state statutes and regulations
that prohibit, among other things, payments for referral of
patients and referrals by physicians to healthcare providers
with whom the physicians have a financial relationship.
Violations of these state laws may result in prohibition of
payment for services rendered, loss of licenses, fines, and
criminal penalties. State statutes and regulations also may
require physicians or other healthcare professionals to disclose
to patients any financial relationship the physicians or
healthcare professionals have with a healthcare provider that is
recommended to the patients. These laws and regulations vary
significantly from state to state, are often vague, and, in many
cases, have not been interpreted by courts or regulatory
agencies. Exclusions and penalties, if applied to us, could
result in significant loss of reimbursement to us, thereby
significantly affecting our financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Healthcare Fraud and Abuse Laws.</I> For example,
section&nbsp;1128B(a)(3) of SSA imposes criminal liability on
individuals who or entities which, having knowledge of the
occurrence of any event affecting their initial or continued
right to a benefit or payment under a Federal health program, or
the initial or continued right to any such benefit or payment of
any other individual in whose behalf they have applied for or
are receiving such benefit or payment, conceal or fail to
disclose such event with an intent fraudulently to secure such
benefit or payment either in a greater amount or quantity than
is due or when no such benefit or payment is authorized. A
violation of this section by a healthcare provider is a felony,
and may result in fines up to $25,000 and exclusion from
participation in federal healthcare programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The federal Civil False Claims Act imposes civil liability on
individuals and entities that submit or cause to be submitted
false or fraudulent claims for payment to the government.
Violations of the Civil False Claims Act may include treble
damages and penalties of up to $11,000&nbsp;per false or
fraudulent claim.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to actions being brought under the Civil False
Claims Act by government officials, the False Claims Act also
allows a private individual with direct knowledge of fraud to
bring a &#147;whistleblower&#148; or qui
</DIV>

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<DIV align="left" style="font-size: 10pt;">
tam suit on behalf of the government against a healthcare
provider for violations of the Civil False Claims Act. In that
event, the whistleblower is responsible for initiating a lawsuit
that sets in motion a chain of events that may eventually lead
to the recovery of money by the government. After the
whistleblower has initiated the lawsuit, the government must
decide whether to intervene in the lawsuit and to become the
primary prosecutor. In the event the government declines to join
the lawsuit, the whistleblower plaintiff may choose to pursue
the case alone, in which case the whistleblower will have
primary control over the prosecution, although the government
must be kept apprised of the progress of the lawsuit and will
still receive at least 70% of any recovered amounts. In return
for bringing a whistleblower suit on the government&#146;s
behalf, the whistleblower plaintiff receives a statutory amount
of up to 30% of the recovered amount from the government&#146;s
litigation proceeds if the litigation is successful. Recently,
the number of whistleblower suits brought against healthcare
providers has increased dramatically.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the federal Civil False Claims Act, eleven states
and the District of Columbia have enacted false claims laws that
allow these jurisdictions to recover money which was
fraudulently obtained by a healthcare provider from the
jurisdiction, such as Medicaid funds provided by the state.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the Civil False Claims Act, under the Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
there are five additional federal criminal statutes:
&#147;Healthcare fraud,&#148; &#147;False statements relating to
healthcare matters,&#148; &#147;Theft or embezzlement in
connection with healthcare,&#148; &#147;Obstruction of criminal
investigations of healthcare offenses,&#148; and
&#147;Laundering of monetary instruments.&#148; These HIPAA
criminal statutes ostensibly encompass fraud against private
payers. Violations of these statutes constitute felonies and may
result in fines, imprisonment, and/or exclusion from
government-sponsored programs. The &#147;healthcare fraud&#148;
provisions of HIPAA prohibit knowingly and willfully executing a
scheme or artifice to defraud any healthcare benefit program,
including private payers. The &#147;false statements&#148;
provisions of HIPAA prohibit knowingly and willfully falsifying,
concealing or covering up a material fact by any trick, scheme
or device or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or
payment for healthcare benefits, items or services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to criminal and civil monetary penalties, healthcare
providers that are found to have defrauded the federal
healthcare programs may be excluded from participation in these
programs. Providers that are excluded are not entitled to
receive payment under Medicare, or other federal healthcare
programs for items or services provided to program
beneficiaries. Exclusion for a minimum of five years is
mandatory for a conviction with respect to the delivery of a
healthcare item or service. The presence of aggravating
circumstances in a case can lead to a longer period of
exclusion. The OIG also has the discretion to exclude providers
for certain conduct even absent a criminal conviction. Such
conduct includes participation in a fraud scheme, the payment or
receipt of kickbacks, and failing to provide services of a
quality that meets professionally recognized standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The federal government has made a policy decision to
significantly increase the financial resources allocated to
enforcing the general fraud and abuse laws. In addition, private
insurers and various state enforcement agencies have increased
their level of scrutiny of healthcare claims in an effort to
identify and prosecute fraudulent and abusive practices in the
healthcare area. We are subject to these increased enforcement
activities and may be subject to specific subpoenas and requests
for information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Administrative Simplification.</I> HIPAA mandates the
adoption of standards for the exchange of electronic health
information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of
the healthcare industry. Ensuring privacy and security of
patient information was one of the key factors behind the
legislation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In August 2000, HHS issued final regulations establishing
electronic data transmission standards that healthcare providers
must use when submitting or receiving certain healthcare data
electronically. Most affected entities, including us, were
required to comply with these regulations by October&nbsp;16,
2002 or request an extension to comply with these regulations by
October&nbsp;16, 2003 from CMS. We received confirmation from
CMS of CMS&#146;s receipt of our request and were therefore
required to comply with these regulations by October&nbsp;16,
2003. We have completed the necessary actions to comply with
these new standards and are ready to convert electronic data
into this new format as carriers notify us of their ability to
accept the format.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2000, HHS issued final regulations concerning the
privacy of healthcare information which were subsequently
clarified in August 2002. These regulations regulate the use and
disclosure of individuals&#146; healthcare information, whether
communicated electronically, on paper or verbally. Most affected
entities, including us, were required to comply with these
regulations by April 2003. The regulations also provide patients
with significant new rights related to understanding and
controlling how their health information is used or disclosed.
We have entered into business associate agreements with our
affiliated providers, including physicians, hospitals and other
covered entities, and have entered into business associate
agreements with our vendors and believe we are in substantial
compliance with the final regulations concerning the privacy of
healthcare information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In February 2003, CMS issued final regulations concerning the
security of electronic protected healthcare information and
data. These regulations mandate the use of certain
administrative, physical and technical safeguards to protect the
confidentiality, integrity, and availability of electronic
protected healthcare information. Most affected entities,
including us, were required to comply with these regulations by
April&nbsp;21, 2005. We believe we are currently in compliance
with the regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April 2003, CMS issued interim final regulations relating to
the enforcement and imposition of penalties on entities that
violate the HIPAA administrative simplification standards. These
regulations are the first installment of enforcement regulations
which, when issued in complete form, will set forth procedural
and substantive requirements for the enforcement and imposition
of penalties under HIPAA. Sanctions under the statute include
criminal penalties and civil sanctions. We have established a
plan and engaged the resources necessary to comply with the
administrative simplification requirements of HIPAA. At this
time, we believe our operations are currently conducted in
substantial compliance with these HIPAA requirements. Based on
the existing and proposed administrative simplification HIPAA
regulations, we believe that the cost of our compliance with
HIPAA will not have a material adverse effect on our business,
financial condition, or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Related Laws and Guidelines.</I> Because we perform services
at hospitals, outpatient facilities and other types of
healthcare facilities, we and our affiliated physicians may be
subject to laws, which are applicable to those entities. For
example, our operations are impacted by the Emergency Medical
Treatment and Active Labor Act of 1986 which prohibits
&#147;patient dumping&#148; by requiring hospitals and hospital
emergency department physicians or urgent care center physicians
to provide care to any patient presenting to the hospital&#146;s
emergency department or urgent care center in an emergent
condition regardless of the patient&#146;s ability to pay. Many
states in which we operate have similar state law provisions
concerning patient dumping.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to the Emergency Medical Treatment and Active Labor
Act of 1986 and its state law equivalents, significant aspects
of our operations are subject to state and federal statutes and
regulations governing workplace health and safety, dispensing of
controlled substances and the disposal of medical waste. Changes
in ethical guidelines and operating standards of professional
and trade associations and private accreditation commissions
such as the American Medical Association and the Joint
Commission on Accreditation of Healthcare Organizations may also
affect our operations. We believe our operations as currently
conducted are in substantial compliance with these laws and
guidelines.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Properties</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We lease approximately 38,000&nbsp;square feet at 1900 Winston
Road, Knoxville, Tennessee for our corporate headquarters. We
also lease or sublease facilities for the operations of the
clinics, billing centers, and certain regional operations. We
believe our present facilities are adequate to meet our current
and projected needs. The leases and subleases have various terms
primarily ranging from one to ten years and monthly rents
ranging from approximately $1,000 to $55,000. Our aggregate
monthly lease payments total approximately $670,000. We expect
to be able to renew each of our leases or to lease comparable
facilities on terms commercially acceptable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Legal Proceedings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are currently a party to various legal proceedings, including
those noted below. While we currently believe that the ultimate
outcome of such proceedings, individually and in the aggregate,
will not have a material adverse effect on our financial
position or overall trends in results of operations, litigation
is subject to inherent uncertainties. If an unfavorable ruling
were to occur, there exists the possibility of a material
</DIV>

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adverse impact on our net earnings in the period in which the
ruling occurs. The estimate of the potential impact from such
legal proceedings on our financial position or overall results
of operations could change in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;30, 2004, we received a subpoena from the
Department of HHS Office of Inspector General, or OIG, located
in Concord, California, requesting certain information for the
period 1999 to present relating to our billing practices. To
date, we have produced and delivered to the OIG and the
Department of Justice certain requested information. We have
learned that the basis for the issuance of the subpoena is a
complaint filed in the United States District Court for the
Northern District of California by an individual on behalf of
the government. The identity of the qui tam relator and portions
of the qui tam complaint remain sealed by the Court pending the
government&#146;s investigation. The portions of the complaint
not under seal allege that we engaged in certain billing
practices that resulted in our receipt of duplicate payments for
the same medical service and that we misled certain providers
about the entities that were performing their billing services.
Additionally, the portions of the complaint not under seal
allege that we terminated the employment of the individual who
filed the complaint in retaliation for that individual&#146;s
bringing of these allegations to our attention. We deny these
allegations and do not believe that any of our current or prior
billing practices would form the basis for a violation of
federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are fully cooperating with the federal authorities in the
request described herein and have been producing and delivering
to the federal authorities the requested documents. However, due
to lack of more specific information available to us at this
time, we are unable to ascertain the full scope of the
government&#146;s inquiry or the qui tam relator&#146;s
complaint. Since cooperating with the federal authorities with
respect to the original realtor complaint, we have complied with
numerous federal authorities&#146; requests for additional
information relative to our billing polices and practices for
all payers and have made members of our management available to
them for purposes of their further understanding of our billing
polices and practices. We cannot predict the outcome of this
investigation or suit or their respective durations. The federal
government has informed us that it intends to file a notice of
intention to intervene. If this investigation results in current
or prior billing practices being identified as violative of
applicable laws or regulations, results in penalties being
imposed upon us, or results in an adverse determination in the
qui tam relator&#146;s complaint against us, the impact could
have a material adverse effect on our business and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On July&nbsp;19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was in the amount of
$15.0&nbsp;million of which $2.0&nbsp;million is covered under
an insurance policy in effect at the date of the incident. The
jury award is subject to the issuance of a final judgment by the
court. We do not believe the facts, circumstances or the law
presented in this case support the jury&#146;s award. We have
filed motions for a new trial and remitteur with the trial
court. If these motions are not granted, we intend to pursue a
request for relief through the appellate process.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
When the trial court renders its final judgment with respect to
the jury award and if such judgment results in an amount payable
to the plaintiff by us in excess of our insurance coverage
limits, such excess will be recorded in our statement of
operations in the period when such final judgment is rendered.
In such event, there will be a requirement that we post an
appeal bond with the court while an appeal of the court&#146;s
decision runs its course. At this time, a loss amount relating
to this matter, if any, is not estimable.
</DIV>

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<A name='112'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MANAGEMENT</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Directors and Executive Officers</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information concerning our
directors and executive officers at June&nbsp;30, 2005.
</DIV>

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    <TD width="3%">&nbsp;</TD>
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<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Age</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Position</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Executive Officer and Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Greg Roth</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President and Chief Operating Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert J. Abramowski</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President, Finance and Administration</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert C. Joyner</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President, General Counsel</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Compliance Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David P. Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Financial Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nicholas W. Alexos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Glenn A. Davenport</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earl P. Holland</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dana J. O&#146;Brien</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Kenneth W. O&#146;Keefe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Timothy P. Sullivan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Lynn Massingale,&nbsp;M.D. has been Chief Executive Officer and
Director of Team Health since 1994 and also held the title of
President until October 2004. Prior to that, Dr.&nbsp;Massingale
served as President and Chief Executive Officer of Southeastern
Emergency Physicians, a provider of emergency physician services
to hospitals in the Southeast and the predecessor of Team
Health, which Dr.&nbsp;Massingale co-founded in 1979.
Dr.&nbsp;Massingale served as the director of Emergency Services
for the state of Tennessee from 1989 to 1993.
Dr.&nbsp;Massingale is a graduate of the University of Tennessee
Medical Center for Health Services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Greg Roth joined Team Health in November 2004 as President and
Chief Operating Officer. Mr.&nbsp;Roth previously was employed
by HCA&nbsp;&#151; The Healthcare Company since January 1995.
Beginning in July 1998, Mr.&nbsp;Roth served as President of
HCA&#146;s Ambulatory Surgery Division. Prior to his appointment
as President, Mr.&nbsp;Roth served in the capacity of Senior
Vice President of Operations, Western Region from May 1997 to
July 1998 and the Western Region&#146;s Chief Financial Officer
from January 1995 to May 1997. Prior to joining HCA,
Mr.&nbsp;Roth held various financial positions at Ornda
HealthCorp from July 1994 to January 1995 and at EPIC Healthcare
Group from April 1988 to July 1994. Prior to these positions,
Mr.&nbsp;Roth held various positions in the healthcare industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Robert J. Abramowski, CPA, joined Team Health in October 2000 as
its Executive Vice President, Finance and Administration. Prior
to joining Team Health, Mr.&nbsp;Abramowski was Senior Vice
President of Finance and Chief Financial Officer of ProVantage
Health Services, Inc., a publicly-traded pharmacy benefits
management company, from October 1999 until its sale to
Merck&nbsp;&#38; Co., Inc. in June 2000. Mr.&nbsp;Abramowski
served with Extendicare Health Services, Inc. as Vice President
and Controller from October 1983 to December 1989, and as Vice
President of Finance and Chief Financial Officer from January
1990 to March 1998. Following his tenure with Extendicare,
Mr.&nbsp;Abramowski served as Chief Financial Advisor to
Americor Management Services, L.L.C. Mr.&nbsp;Abramowski also
spent 11&nbsp;years with Arthur Andersen&nbsp;&#38; Co.
Mr.&nbsp;Abramowski is a graduate of the University of
Wisconsin-Milwaukee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Robert C. Joyner joined Team Health in August 1999 as Executive
Vice President and General Counsel. Prior to joining Team
Health, Mr.&nbsp;Joyner had a private practice of law from
September 1998 to July 1999, and from May 1997 to September 1998
he served as the Senior Vice President and General Counsel for
American Medical Providers, a regional physician practice
management company. From May 1986 to May 1997, Mr.&nbsp;Joyner
served as the Senior Vice President and General Counsel for
Paracelsus Healthcare Corporation, a privately held hospital
ownership and management company which became public in 1996 and
is now known as Clarent Hospital Corporation. Mr.&nbsp;Joyner
graduated with a B.S.B.A. degree in 1969 and a J.D. in 1972,
both from the University of Florida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stephen Sherlin was named Chief Compliance Officer effective
July&nbsp;1, 2004. Mr.&nbsp;Sherlin previously served as
Executive Vice President, Healthcare Financial Services since
February 2000. Mr.&nbsp;Sherlin joined Team Health in January
1997 as Senior Vice President, Finance and Administration, and
was promoted to
</DIV>

<P align="center" style="font-size: 10pt;">68

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
Executive Vice President, Finance and Administration in July
1998. From 1993 until 1996 Mr.&nbsp;Sherlin served as Vice
President and Chief Financial Officer of the Tennessee Division
of Columbia/ HCA. Mr.&nbsp;Sherlin has also served as Chief
Financial Officer for the Athens Community Hospital in Athens,
Tennessee; Park West Medical Center in Knoxville, Tennessee; and
Doctors Hospital in Little Rock, Arkansas. Mr.&nbsp;Sherlin is a
graduate of Indiana University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
David P. Jones, CPA has been our Chief Financial Officer since
May 1996. From 1994 to 1996, Mr.&nbsp;Jones was our Controller.
Prior to that, Mr.&nbsp;Jones worked at Pershing, Yoakley and
Associates, a regional healthcare audit and consulting firm, as
a Supervisor. Before joining Pershing, Yoakley and Associates,
Mr.&nbsp;Jones worked at KPMG Peat Marwick as an Audit Senior.
Mr.&nbsp;Jones received a B.S. in Business Administration from
the University of Tennessee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Nicholas W. Alexos became a director in 1999. Prior to
co-founding Madison Dearborn Partners, LLC, Mr.&nbsp;Alexos was
with First Chicago Venture Capital for four years. Previously,
he was with The First National Bank of Chicago. Mr.&nbsp;Alexos
concentrates on investments in the healthcare and food
manufacturing industries and currently serves on the Boards of
Directors of Milnot Holding Corporation, National Mentor, Inc.,
Pierre Holding Corp. and Sirona Dental Systems GmbH.
Mr.&nbsp;Alexos received a B.B.A. from Loyola University and an
M.B.A. from the University of Chicago Graduate School of
Business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Glenn A. Davenport became a director in 2001. Mr.&nbsp;Davenport
serves as President and Chief Executive Officer of Morrison
Management Specialists, which was acquired by Compass Group in
April 2001. Mr.&nbsp;Davenport has served in this role since
Morrison Management Specialists was spun off from Morrison
Restaurants, Inc. in 1996. Prior thereto, he served in various
management capacities with Morrison Restaurants, Inc. since
1973. Mr.&nbsp;Davenport also serves on the board of directors
of several other organizations associated with the food service
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Earl P. Holland became a director of our company in 2001.
Mr.&nbsp;Holland has over 32&nbsp;years of experience working in
the healthcare industry. Prior to his retirement in January,
2001, Mr.&nbsp;Holland held several positions with Health
Management Associates, including the positions of Vice Chairman
and Chief Operating Officer at the time of his retirement.
Mr.&nbsp;Holland also serves on the board of directors of
several other companies engaged in the business of providing
healthcare services as well as other business services.
Mr.&nbsp;Holland graduated from Southeast Missouri State
University with a B.S. degree in business administration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dana J. O&#146;Brien became a director in 1999.
Mr.&nbsp;O&#146;Brien co-founded Prudential Equity Investors,
Inc. in 1984. Mr.&nbsp;O&#146;Brien and the other principals of
Prudential Equity Investors, Inc. co-founded Cornerstone Equity
Investors, LLC in 1996. Mr.&nbsp;O&#146;Brien currently serves
on the Boards of Directors of a number of private companies.
Mr.&nbsp;O&#146;Brien received a B.A. from Hobart College and an
M.B.A. from the Wharton School of the University of Pennsylvania.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Kenneth W. O&#146;Keefe became a director in 1999.
Mr.&nbsp;O&#146;Keefe is a founding member of Beecken Petty
O&#146;Keefe&nbsp;&#38; Company, LLC, a private equity
investment firm focused in the healthcare industry.
Mr.&nbsp;O&#146;Keefe currently serves on the Boards of
Directors of Valitas Healthcare Services, Inc., PerfectServe,
Inc. and Jazz Pharmaceuticals, Inc. Mr.&nbsp;O&#146;Keefe
received a B.A. from Northwestern University and an M.B.A. from
the University of Chicago Graduate School of Business
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Timothy P. Sullivan became a director in 1999. Prior to
co-founding Madison Dearborn Partners, LLC Mr.&nbsp;Sullivan was
with First Chicago Venture Capital. Mr.&nbsp;Sullivan
concentrates on investments in the healthcare industry and, in
addition to Team Health, currently serves on the Boards of
Directors of Milnot Holding Corporation, National Mentor, Inc.,
Sirona Dental Systems GmbH and Valitas Healthcare Services, Inc.
In addition, Mr.&nbsp;Sullivan serves as a member of the Board
of Trustee&#146;s for Cristo Rey Jesuit High School and
Northlight Theatre, and is a member of the WAVE committee for
Northwestern University. Mr.&nbsp;Sullivan received a B.S. from
the United States Naval Academy, an M.S. from the University of
Southern California and an M.B.A. from Stanford University
Graduate School of Business.
</DIV>

<P align="center" style="font-size: 10pt;">69

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information concerning the annual
and long-term compensation for services in all capacities to us
for 2004 of those persons who served as
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;the chief executive officer during 2004&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;our other five most highly compensated executive
    officers for 2004, who we refer to as the Named Executive
    Officers:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Long-Term</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Awards</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Annual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Special</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>All Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2" align="left" nowrap><B>Name and Principal Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus(2)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>532,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>487,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>50,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>82,209</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,153,193</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President and Chief</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>516,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>164,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,550</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>758,613</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>418,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,813</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,922</TD>
    <TD align="left" valign="bottom" nowrap>(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>778,757</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert J. Abramowski</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>362,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>239,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,189</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>706,335</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President,</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>289,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,247</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>370,158</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Finance and Administration</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>288,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,295</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>443,217</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert C. Joyner</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>255,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,914</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497,616</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Executive Vice President,</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,290</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>305,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    General Counsel</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>224,766</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>63,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,059</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>343,688</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David P. Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>216,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,950</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,793</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>435,857</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>188,850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,703</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>253,837</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 9pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>183,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,386</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>304,324</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>206,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>184,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,948</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,814</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Compliance Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>236,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,679</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,836</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>322,900</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 9pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>93,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,106</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>353,809</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael L. Hatcher*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>477,115</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>307,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,479</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>838,114</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 9pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>324,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,530</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>435,970</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 9pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>270,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>106,509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,666</TD>
    <TD align="left" valign="bottom" nowrap>(4)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>427,827</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="2%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Hatcher&#146;s employment with us ended effective
    February, 2004. Mr.&nbsp;Hatcher had served with us in the
    position of Chief Operating Officer&nbsp;&#151; Specialty
    Services.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Represents options granted under the Team Health Option Plan (as
    defined below).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The 2004 Special Bonus represents cash payments authorized and
    approved by our Board of Directors to holders of stock options
    as a compensatory bonus in conjunction with dividends declared
    on our common stock. The 2002 Special Bonus represents bonuses
    authorized and approved by our Board of Directors in conjunction
    with a successful acquisition.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    All other compensation for Dr.&nbsp;Massingale includes the
    following:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Life insurance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,210</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,712</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Life insurance represents premiums paid by us on behalf of
    Dr.&nbsp;Massingale. Such premiums are secured by a collateral
    interest in the policy and are repayable to us at the time any
    benefits under the policy are realized.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    All other compensation for Mr.&nbsp;Abramowski, Mr.&nbsp;Joyner.
    Mr.&nbsp;Jones, Mr.&nbsp;Sherlin and Mr.&nbsp;Hatcher is less
    than 10% of their annual compensation each year.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Additionally, Dr.&nbsp;Massingale provides professional medical
    services to client hospitals under independent contractor
    agreements with our subsidiaries. During 2004, 2003, and 2002,
    Dr.&nbsp;Massingale was paid $0, $1,500 and $834, respectively.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">70

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    During 2004, the following named Executive Officers received a
    distribution in the following amounts from the Team Health
    Equity Deferred Compensation Plan in conjunction with a
    refinancing that occurred during the year:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,515,546</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>341,593</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>273,274</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael L. Hatcher</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>519,992</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    Such amounts represent the payment of compensation originally
    deferred during 1999 in conjunction with our recapitalization.
    The deferred amounts had been invested in preferred stock of
    Team Health Holdings, LLC.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stock Option Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 1999, we adopted the Team Health Inc. Stock Option
Plan. See &#147;Team Health Inc. Stock Option Plan.&#148;
Information for the Team Health Option Plan is presented below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Option Grants In Last Fiscal Year</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
No options were granted to the Named Executive Officers under
the Team Health Option Plan during 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. The following table sets forth the number of shares
underlying unexercised options held by each of the Named
Executive Officers and the value of such options at the end of
2004.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Securities Underlying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value of Unexercised In-</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Unexercised Options at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>The-Money Options at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fiscal Year-End (#)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fiscal Year-End ($)</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares Acquired</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>on Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Value Realized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable/Unexercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable/Unexercisable(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,000/27,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert J. Abramowski</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,550/16,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert C. Joyner</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,530/12,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David P. Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,867/9,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,534/12,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Michael L. Hatcher</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>136,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;/&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Value of unexercised options at fiscal year-end represents the
    difference between the exercise price of any
    outstanding-in-the-money options and the fair market value of
    such options on December&nbsp;31, 2004.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Pension Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Substantially all of the salaried employees, including our
executive officers, participate in our 401(k) savings plan.
Employees are permitted to defer a portion of their income under
our 401(k) plan. At the discretion of our Board of Directors, we
may make a matching contribution up to 50% of the first 6% of
employees&#146; contributions under the Plan. Our Board of
Directors authorized the maximum discretionary amount as a match
on employees&#146; 401(k) Plan contributions for 2004, including
the Named Executive Officers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the Named Executive Officers are eligible to
participate in the Team Health, Inc. non-qualified Supplemental
Executive Retirement plan (SERP). Eligible employees are
permitted to defer a portion of their income under the SERP. At
the discretion of our Board of Directors, we may make a
contribution to participants in the SERP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employment Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We entered into employment and non-compete agreements with
certain members of our senior management, including the Named
Executive Officers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The employment agreements for the Named Executive Officers
include five-year terms beginning March&nbsp;11, 1999 for
Dr.&nbsp;Massingale, Mr.&nbsp;Jones, and Mr.&nbsp;Sherlin, and
beginning August&nbsp;1, 1999 for Mr.&nbsp;Joyner and beginning
October&nbsp;2, 2000 for Mr.&nbsp;Abramowski. The employment
agreements include provision for the payment of an annual base
salary, subject to annual review and adjustment, as well as the
payment of a bonus based upon the achievement of certain
financial performance criteria. The base bonus
</DIV>

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<DIV align="left" style="font-size: 10pt;">
pool is established as a percentage of the employee&#146;s base
salary. Adjustments to the base bonus pool can occur based upon
over or under performance against established financial targets.
The maximum performance against the target is 105%, which can
result in an upward adjustment to the base bonus pool to 150%.
The minimum performance against the target is 95%, which can
result in a downward adjustment to the base bonus pool of 50%.
Financial performance between the maximum and minimum targets
results in a linear adjustment to the base bonus pool. The
annual base salaries as of December&nbsp;31, 2004 and the base
bonus that can be earned by each of the named Executive officers
is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Annual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Base</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Base Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus %</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert J. Abramowski</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>331,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert C. Joyner</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David P. Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>215,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The terms of the employment agreements include that, if the
executive is terminated by us without cause, or under certain
conditions, such as death or disability, by the executive, the
executive will receive a multiple of his base salary and may
receive a portion of his bonus for the year of termination. The
multiple of base salary in the case of Dr.&nbsp;Massingale is
two years and in the case of Mr.&nbsp;Sherlin, Mr.&nbsp;Jones,
Mr.&nbsp;Joyner and Mr.&nbsp;Abramowski is one year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The executive, as a result of the non-compete agreements entered
into by us with each of the Named Executive Officers, has agreed
not to disclose our confidential information, solicit our
employees or contractors, or compete with us or interfere with
our business for two years after his employment with us has been
terminated. Dr.&nbsp;Massingale&#146;s agreement, however,
allows Dr.&nbsp;Massingale to practice medicine at any hospital
that we do not staff.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Team Health, Inc. Stock Option Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has adopted a stock option plan, which
provides for the grant to some of our key employees and/or
directors of stock options that are non-qualified options for
federal income tax purposes. The compensation committee of our
board of directors administers the stock option plan. The
compensation committee has broad powers under the stock option
plan, including exclusive authority (except as otherwise
provided in the stock option plan) to determine:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;who will receive awards,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;the type, size and terms of awards,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (3)&nbsp;the time when awards will be granted,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (4)&nbsp;vesting criteria, if any, of the awards.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Options awarded under the plan are exercisable into shares of
our common stock. The total number of shares of common stock as
to which options may be granted may not exceed
1,245,926&nbsp;shares of common stock. Options may be granted to
any of our employees, directors or consultants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If we undergo a reorganization, recapitalization, stock dividend
or stock split or other change in shares of our common stock,
the compensation committee may make adjustments to the plan in
order to prevent dilution of outstanding options. The
compensation committee may also cause options awarded under the
plan to become immediately exercisable if we undergo specific
types of changes in the control of our company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>2005 Long-Term Incentive Plan</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will adopt our 2005 Long-Term Incentive Plan effective upon
the completion of this offering. The plan provides for grants of
stock options, restricted stock and performance awards. Our
directors, officers and other employees and persons who engage
in services for us are eligible for grants under the plan. The
purpose of the plan is to provide these individuals with
incentives to maximize shareholder value and otherwise
contribute to our success and to enable us to attract, retain
and reward the best available persons for positions of
responsibility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A total
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock,
representing &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our common stock outstanding upon completion of this
offering, will be available for issuance under the plan, subject
to adjustment in the
</DIV>

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<DIV align="left" style="font-size: 10pt;">
event of a reorganization, stock split, merger or similar change
in our corporate structure or the outstanding shares of common
stock. Our compensation committee will administer the plan. Our
board also has the authority to administer the plan and to take
all actions that the compensation committee is otherwise
authorized to take under the plan. The terms and conditions of
each award made under the plan, including vesting requirements,
will be set forth consistent with the plan in a written
agreement with the grantee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Options.</I> Under the plan, the compensation committee
or the board may award grants of incentive stock options and
other non-qualified stock options. The compensation committee
also has the authority to grant options that will become fully
vested and exercisable automatically upon a change in control.
The compensation committee may not, however, award to any one
person in any calendar year options to purchase common stock
equal to more than 10% of the total number of shares authorized
under the plan, and it may not award incentive options first
exercisable in any calendar year whose underlying shares have a
fair market value greater than $100,000, determined at the time
of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The compensation committee will determine the exercise price and
term of any option in its discretion. The exercise price of an
incentive option, however, may not be less than 100% of the fair
market value of a share of common stock on the date of grant and
the option must be exercised within 10&nbsp;years of the date of
grant. The exercise price of an incentive option awarded to a
person who owns stock constituting more than 10% of our voting
power may not be less than 110% of such fair market value on
such date and the option must be exercised within five years of
the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Restricted Stock.</I> Under the plan, the compensation
committee may award restricted stock subject to the conditions
and restrictions, and for the duration that it determines in its
discretion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Performance Awards.</I> The compensation committee may grant
performance awards contingent upon achievement by the grantee or
by us, of set goals and objectives regarding specified
performance criteria, over a specified performance cycle. Awards
may include specific dollar-value target awards, performance
units, the value of which is established at the time of grant,
and/or performance shares, the value of which is equal to the
fair market value of a share of common stock on the date of
grant. The value of a performance award may be fixed or
fluctuate on the basis of specified performance criteria. A
performance award may be paid out in cash and/or shares of
common stock or other securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Amendment and Termination of the Plan.</I> The board may
amend or terminate the plan in its discretion, except that no
amendment will become effective without prior approval of our
shareholders if such approval is necessary for continued
compliance with the performance-based compensation exception of
Section&nbsp;162(m) of the Internal Revenue Code or any stock
exchange listing requirements. If not previously terminated by
the board, the plan will terminate on the tenth anniversary of
its adoption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Board Composition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
According to the current terms of our restated charter and
bylaws, the board of directors of Team Health is unclassified,
and is currently comprised of 7&nbsp;directors. Following this
offering, our charter will provide for a classified board of
directors consisting of three staggered classes of directors. At
each annual meeting of shareholders, a class of directors will
be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the
directors will expire upon election and qualification of
successor directors at the annual meeting of shareholders to be
held during the years 2006 for the Class I directors, 2007 for
the Class II directors and 2008 for the Class III directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our by-laws, as in effect immediately prior to this offering,
will provide that the authorized number of directors may be
changed by a resolution adopted by at least a majority of our
directors then in office. Any additional directorships resulting
from an increase in the number of directors may only be filled
by the directors and will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of our board of
directors could have the effect of delaying or preventing
changes in control or changes in our management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Following this offering, our Class I directors will
be&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
our Class II directors will
be&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
and our Class III directors will
be&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Board of Directors and Committees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will be a controlled company under New&nbsp;York Stock
Exchange rules, and will therefore not need to have an
independent board, compensation committee or nominating and
governance committee. A company of which more than 50% of the
voting power is held by an individual, a group or another
company is considered to be a controlled company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Compensation Committee.</I> The compensation committee of the
board is authorized to review our compensation and benefits
plans to ensure they meet our corporate objectives, approve the
compensation structure of our executive officers and evaluate
our executive officers&#146; performance before setting salary,
bonus and other incentive and equity compensation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Nominating and Governance Committee.</I> We intend to have a
nominating and governance committee to assist the board in
identifying individuals qualified to become board members,
making recommendations for nominees for committees and develops,
recommending to the board and reviewing our corporate governance
principles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Audit Committee.</I> The audit committee of the board
consists of three members. The committee assists the board in
its oversight responsibilities relating to the integrity of our
financial statements, the qualifications, independence and
performance of our independent auditors, the performance of our
internal audit function and the compliance of our company with
any reporting and regulatory requirements we may be subject to.
Upon the consummation of this offering, we will have one
independent director serving on our audit committee. We intend
to have two independent directors within 90&nbsp;days and a
completely independent audit committee within one year of the
effectiveness of our registration statement. Our audit committee
currently consists of Nicholas W. Alexos (Chairman), Glenn A.
Davenport and Kenneth W. O&#146;Keefe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Ethics Committee.</I> We intend to have an ethics committee
to assist the board with compliance procedures for our employee
code of business conduct.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation Of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We reimburse directors for any out-of-pocket expenses incurred
by them in connection with services provided in such capacity.
Two of our directors, Mr.&nbsp;Davenport and Mr.&nbsp;Holland,
are compensated for services they provide in their capacities as
directors. The compensation for Mr.&nbsp;Davenport and
Mr.&nbsp;Holland includes an annual stipend of $12,000 as well
as $3,000 for each meeting attended. Additionally, during 2004,
Mr.&nbsp;Davenport utilized our airplane for non-company related
travel in the amount of $2,111.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation Committee Interlocks And Insider
Participation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The compensation committee of our board of directors is
comprised of Dana J. O&#146;Brien, Timothy P. Sullivan and Earl
P. Holland, none of which are officers of Team Health.
Mr.&nbsp;O&#146;Brien and Mr.&nbsp;Sullivan are directors of
Team Health and principals of Cornerstone Equity Investors, LLC
and Madison Dearborn Partners, LLC, respectively. Cornerstone
and Madison Dearborn are two of our equity sponsors.
</DIV>

<P align="center" style="font-size: 10pt;">74

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<DIV align="left" style="font-size: 10pt;">
<A name='113'></A>
</DIV>

<!-- link1 "PRINCIPAL AND SELLING SHAREHOLDERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PRINCIPAL AND SELLING SHAREHOLDERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth information known to us with
respect to the beneficial ownership of our common stock as of
August&nbsp;15, 2005. The table reflects the beneficial
ownership and sale of common stock in this offering, by
(i)&nbsp;each shareholder known by us to own beneficially more
than 5% of our common stock, (ii)&nbsp;each of the named
executive officers, (iii)&nbsp;each of our directors,
(iv)&nbsp;each other shareholder selling in this offering and
(v)&nbsp;all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission. Such rules provide
that in calculating the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of
common stock subject to options held by that person that are
currently exercisable or will become exercisable within
60&nbsp;days after August&nbsp;15, 2005 are deemed outstanding.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>and Nature</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Being Sold</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Beneficial</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>in the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Name of Beneficial Owner</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ownership(1)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Class</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned After the Closing(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>% of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>#</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares Outstanding</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lynn Massingale,&nbsp;M.D.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>348,151</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Greg Roth</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,541</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert J. Abramowski</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,050</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Robert C. Joyner</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,935</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen Sherlin</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,378</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    David P. Jones</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,636</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Nicholas W. Alexos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Glenn A. Davenport</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,834</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earl P. Holland</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,834</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dana J. O&#146;Brien</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Kenneth W. O&#146;Keefe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>782,182</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(12)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Timothy P. Sullivan</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(13)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Team Health Holdings, LLC</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,940,240</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(14)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Madison Dearborn Partners II, L.P.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,519,813</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(15)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Three First National Plaza<BR>
    Suite 3800<BR>
    Chicago, Illinois 60602</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cornerstone Equity Investors IV, L.P.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,519,813</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(16)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    717 Fifth Avenue<BR>
    Suite 1100<BR>
    New York, New York 10022</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Beecken Petty O&#146;Keefe and Company</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>782,182</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(17)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    200 W. Madison Street<BR>
    Suite 1910<BR>
    Chicago, Illinois 60606</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pacific Physician Services, Inc.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>732,727</TD>
    <TD align="left" valign="bottom" nowrap><SUP style="font-size: 85%; vertical-align: text-top">(18)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    3000 Galleria Tower<BR>
    Suite 1000<BR>
    Birmingham, Alabama 35244</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All directors and executive officers as a group (12&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,406,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>(1)</TD>
    <TD align="left">
    For purposes of this table, information as to the percentage of
    shares beneficially owned is calculated based on
    9,782,235&nbsp;shares of common stock outstanding on
    August&nbsp;15, 2005. Under the rules of the Securities and
    Exchange Commission, a person is deemed to be a &#147;beneficial
    owner&#148; of a security if that person has or shares voting
    power, which includes the power to vote or direct the voting of
    such security, or investment power, which includes the power to
    dispose of or to direct the disposition of such security. Except
    as otherwise indicated in these footnotes, each of the
    beneficial owners has, to our</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">75
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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    knowledge, sole voting and investment power with respect to the
    indicated shares of common stock. Unless otherwise noted, the
    address of each beneficial owner is 1900&nbsp;Winston Road,
    Suite&nbsp;300, Knoxville, Tennessee 37919.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>(2)</TD>
    <TD align="left">
    Includes 27,000 shares of directly held common stock and options
    to purchase 23,600 common shares (23,600 of which will vest upon
    this offering). Also includes (i)&nbsp;291,551 indirectly held
    shares and (ii)&nbsp;6,000 shares held by a family member and
    various family trusts that are represented by 297,527 common
    units of Team Health Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)</TD>
    <TD align="left">
    Includes options to purchase 17,800 common shares (all of which
    will vest upon this offering) 23,741 indirectly held shares that
    are represented by 23,739 common units of Team Health Holdings,
    LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)</TD>
    <TD align="left">
    Includes 30,000 shares of common stock and options to purchase
    13,050 common shares (6,000 of which will vest upon this
    offering).</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)</TD>
    <TD align="left">
    Includes 25,934 options to purchase common shares and 10,001
    indirectly held shares that are represented by 10,000 common
    units of Team Health Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)</TD>
    <TD align="left">
    Includes 24,667 options to purchase common shares (4,733 of
    which will vest upon this offering) and 33,711 indirectly held
    shares that are represented by 33,708 common units of Team
    Health Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)</TD>
    <TD align="left">
    Includes 20,000 shares of directly held common stock options to
    purchase 10,000 common shares (3,000 of which will vest upon
    this offering) and 31,636 indirectly held shares that are
    represented by 31,633 common units of Team Health Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(8)</TD>
    <TD align="left">
    Mr.&nbsp;Alexos&#146; address is Three First National Plaza,
    Suite&nbsp;3800, Chicago, Illinois 60602.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(9)</TD>
    <TD align="left">
    Includes 12,833 options to purchase common shares (6,000 of
    which will vest upon this offering) and 11,001 indirectly held
    shares that are represented by 11,000 common units of Team
    Health Holdings, LLC.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(10)&nbsp;</TD>
    <TD align="left">
    Includes 12,833 options to purchase common shares (6,000 of
    which will vest upon this offering) and 11,001 indirectly held
    shares that are represented by 11,000 common units of Team
    Health Holdings, LLC.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(11)&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;O&#146;Brien&#146;s address is
    717&nbsp;5<SUP style="font-size: 85%; vertical-align: text-top">th</SUP>
    Avenue, Suite&nbsp;1100, New York, New York 10022.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(12)&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;O&#146;Keefe shares investment and voting control of
    shares beneficially owned by Beecken Petty O&#146;Keefe and
    Company.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(13)&nbsp;</TD>
    <TD align="left">
    Mr.&nbsp;Sullivan&#146;s address is Three First National Plaza,
    Suite&nbsp;3800, Chicago, Illinois 60602.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(14)&nbsp;</TD>
    <TD align="left">
    Includes 8,940,240 shares of common stock.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(15)&nbsp;</TD>
    <TD align="left">
    Includes 3,519,813 indirectly held shares that are represented
    by 3,519,529 common units of Team Health Holdings, LLC. The
    shares held by Madison Dearborn Capital Partners&nbsp;II, L.P.
    may be deemed to be beneficially owned by Madison Dearborn
    Partners&nbsp;II, L.P., its general partner. Messrs.&nbsp;Alexos
    and Sullivan are Managing Directors of Madison Dearborn
    Partners, Inc., the general partner of Madison Dearborn
    Partners&nbsp;II, L.P. They disclaim any beneficial ownership of
    the shares hold by Madison Dearborn Capital Partners&nbsp;II,
    L.P.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(16)&nbsp;</TD>
    <TD align="left">
    Includes 3,519,813 indirectly held shares that are represented
    by 3,519,529 common units of Team Health Holdings, LLC.
    Cornerstone&nbsp;IV, LLC, as the general partner of Cornerstone
    Equity Investors&nbsp;IV, L.P., has voting and investmetn
    control of the shares held by Cornerstone Equity&nbsp;IV, L.P.
    Dana OBrien is managing member of Cornerstone&nbsp;IV, LLC. He
    disclaims beneficial ownership of the shares held by Cornerstone
    Equity Investors&nbsp;IV,&nbsp;L.P.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(17)&nbsp;</TD>
    <TD align="left">
    Includes 782,182 indirectly held shares that are represented by
    782,119 common units of Team Health Holdings, LLC. Investment
    and voting control is shared with Mr.&nbsp;O&#146;Keefe.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>(18)</TD>
    <TD align="left">
    Includes 732,727 shares of common stock. Pacific Physician
    Services Inc. is a wholly-owned subsidiary of Caremark Rx, Inc.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">76
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<DIV align="left" style="font-size: 10pt;">
<A name='114'></A>
</DIV>

<!-- link1 "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Recapitalization Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under a recapitalization agreement, on March&nbsp;12, 1999 we
were acquired by the equity sponsors and members of its
management team from Pacific Physician Services, Inc., a wholly
owned subsidiary of Caremark&nbsp;Rx, Inc. formerly known as
MedPartners, Inc. The recapitalization agreement contains
customary provisions for such agreements, including the
execution of a registration rights agreement and a shareholder
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Acquisition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May&nbsp;1, 2002, we acquired all of the operations of
Spectrum Health Resources, or SHR, a provider of physician and
other professional medical staffing to military treatment
facilities for a purchase price of approximately
$145.7&nbsp;million. Our three equity sponsors control a
majority of our voting common stock. Those three equity sponsors
were also controlling equity investors in SHR prior to and at
the time of entering into the definitive purchase agreement.
Prior to negotiating the final purchase price and entering into
the definitive purchase agreement to acquire SHR, the Board of
Directors took the following steps:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors appointed
    a Special Committee, consisting of three Directors who are not
    affiliated with the equity sponsors. The Special Committee was
    authorized to (i)&nbsp;consider, negotiate and approve the
    acquisition of SHR, (ii)&nbsp;retain such legal counsel and
    advisers and consultants as they deem appropriate,
    (iii)&nbsp;consider, negotiate and approve the terms of any
    financing related to the transaction, and (iv)&nbsp;expend any
    funds in furtherance of the duties granted to it. The final
    authority to approve the acquisition and financing rested with
    the full Board of Directors, but the Board of Directors could
    not approve any transaction not recommended by the Special
    Committee.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two of the three equity sponsors
    along with our management members assisted the Special Committee
    in the evaluations and negotiations of the transaction on our
    behalf. The largest common equity sponsor in SHR and our company
    represented SHR in its evaluation and negotiation of the
    transaction.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Special Committee obtained
    an opinion by the investment banking firm of SunTrust Robinson
    Humphrey, a division of SunTrust Capital Markets, Inc., that the
    purchase price paid for SHR was fair from a financial point of
    view to our equity holders as well as our bond holders.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the acquisition of SHR, subject to certain
limitations, the previous shareholders of SHR and related
entities have indemnified us up to a limit of $10.0&nbsp;million
against any claims asserted against SHR during the three years
subsequent to the date of SHR&#146;s acquisition related to tax
matters whose origin was attributable to tax periods prior to
May&nbsp;1, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Security Holders Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the recapitalization, both Team Health and
our shareholder, Team Health Holdings and Pacific Physician
Services, and Team Health Holdings and all of its unit holders,
entered into two separate security holders agreements. The
security holders agreements:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;restrict the transfer of the equity interests of Team
    Health and Team Health Holdings, respectively;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;grant tag-along rights on certain transfers of equity
    interests of Team Health and Team Health Holdings, respectively.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some of the foregoing provisions of the security holders
agreements will terminate upon the consummation of an initial
public offering.
</DIV>

<P align="center" style="font-size: 10pt;">77
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Registration Rights Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the recapitalization, both Team Health and
our shareholder, Team Health Holdings and Pacific Physician
Services, and Team Health Holdings and all of its unit holders,
entered into two separate registration rights agreements. Under
the registration rights agreements, some of the holders of
capital stock owned by Team Health Holdings (with respect to our
shares) and Cornerstone, Madison Dearborn and Beecken Petty
O&#146;Keefe (with respect to units of Team Health Holdings),
respectively, have the right, subject to various conditions, to
require us or Team Health Holdings, as the case may be, to
register any or all of their common equity interests under the
Securities Act of 1933, at our or Team Health Holdings&#146;
expense. In addition, all holders of registrable securities are
entitled to request the inclusion of any common equity interests
of Team Health or Team Health Holdings covered by the
registration rights agreements in any registration statement at
our or Team Health Holdings&#146; expense, whenever we or the
Team Health Holdings propose to register any of our common
equity interests under the Securities Act of 1933. In connection
with all such registrations, we or Team Health Holdings have
agreed to indemnify all holders of registrable securities
against some liabilities, including liabilities under the
Securities Act of 1933.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Management Services Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have also entered into a management services agreement dated
March&nbsp;12, 1999 with Cornerstone, Madison Dearborn and
Beecken Petty O&#146;Keefe under which each of Cornerstone,
Madison Dearborn and Beecken Petty O&#146;Keefe have agreed to
provide us with:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;general management services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;assistance with the identification, negotiation and
    analysis of acquisitions and dispositions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (3)&nbsp;assistance with the negotiation and analysis of
    financial alternatives;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (4)&nbsp;other services agreed upon by us and each of
    Cornerstone, Madison Dearborn and Beecken Petty O&#146;Keefe.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In exchange for such services, Cornerstone, Madison Dearborn and
Beecken Petty O&#146;Keefe collectively receive an annual
advisory fee of $500,000, plus reasonable out-of-pocket expenses
(payable quarterly). The management services agreement has an
initial term of three years, subject to automatic one-year
extensions unless we or Cornerstone, Madison Dearborn or Beecken
Petty O&#146;Keefe provides written notice of termination. The
management services agreement will automatically terminate upon
the consummation of the initial public offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Team Health Holdings Amended And Restated Limited Liability
Company Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cornerstone, Madison Dearborn, Beecken Petty O&#146;Keefe and
some of the members of our management and board of directors
(collectively, the &#147;Members&#148;) entered into an Amended
and Restated Limited Liability Company Agreement. The Limited
Liability Company Agreement governs the relative rights and
duties of the Members.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Membership Interests.</I> The ownership interests of the
members in Team Health Holdings consist of preferred units and
common units. The common units represent the common equity of
Team Health Holdings and the preferred units represent the
preferred equity of Team Health Holdings. Holders of the
preferred units are entitled to return of capital contributions
prior to any distributions made to holders of the common units.
In connection with our 2004 refinancing all preferred units were
redeemed and no preferred units are currently outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Distributions.</I> Subject to any restrictions contained in
any financing agreements to which Team Health Holdings or any of
its affiliates is a party, the board of managers of Team Health
Holdings may make
</DIV>

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<DIV align="left" style="font-size: 10pt;">
distributions, whether in cash, property or securities of Team
Health Holdings at any time or from time to time in the
following order of priority:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    First, to the holders of preferred units, if any, the aggregate
    unpaid amount accrued on such preferred units on a daily basis,
    at a rate of 10%&nbsp;per annum.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Second, to the holders of preferred units, if any, an amount
    determined by the aggregate Unreturned Capital (as defined and
    described in the Limited Liability Company Agreement).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    Third, to the holders of common units, an amount equal to the
    amount of such distribution that has not been distributed
    pursuant to clauses First through Second above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Team Health Holdings may distribute to each holder of units
within 75&nbsp;days after the close of each fiscal year such
amounts as determined by the board of managers of Team Health
Holdings to be appropriate to enable each holder of units to pay
estimated income tax liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Other Related Party Transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We lease office space for our corporate headquarters from
Winston Road Properties, an entity that is owned 50% by Park Med
Properties. Two of our executive officers during 2004,
Dr.&nbsp;Massingale and Mr.&nbsp;Hatcher, each own 20% of Park
Med Properties. We paid $676,741 in 2004 to Winston Road
Properties in connection with the lease agreement. In addition,
Park Med Properties owns a building, which houses a medical
clinic that is operated by our consolidated affiliate. In 2004,
the consolidated affiliate paid $123,761 to Park Med Properties
in connection with the lease agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We purchase automated call answering services from Perfect
Serve, Inc., which is 40% owned by one of our shareholders,
Beecken Petty O&#146;Keefe and Company. Purchases from Perfect
Serve were $267,848 in 2004 and $146,484 in the first six months
of 2005.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='115'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>DESCRIPTION OF CAPITAL STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a description of terms of our charter and
by-laws, the forms of which have been filed with the Securities
and Exchange Commission, or SEC, as exhibits to the registration
statement of which this prospectus is part and which will become
effective prior to the offering contemplated by this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Authorized Capitalization</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our authorized capital stock consists of:
</DIV>

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<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    12,000,000&nbsp;shares of common stock, par value $0.01&nbsp;per
    share;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    200,000&nbsp;shares of preferred stock, par value $0.01&nbsp;per
    share.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After this offering there will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock and no shares of our preferred stock
outstanding. All shares of common stock to be outstanding upon
completion of this offering will be validly issued, fully paid
and nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends.</I> Holders of shares of our common stock will be
entitled to receive such dividends and other distributions in
cash, stock or property of ours as may be declared by our board
of directors from time to time out of our assets or funds
legally available for dividends or other distributions. See
&#147;Dividend Policy.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Rights Upon Liquidation.</I> In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share equally in
our assets remaining after payment of all debts and other
liabilities, subject to the liquidation preference of any
outstanding preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Voting Rights.</I> Shares of our common stock carry one vote
per share. Our bylaws provide that the presence of holders of a
majority of the outstanding shares entitled to vote at a
shareholders meeting shall constitute a quorum. When a quorum is
present, the affirmative vote of the holders of a majority of
shares present in person or by proxy is required to take action,
unless otherwise specified by law or our charter, and except for
the election of directors, which is determined by a plurality
vote. Holders of shares of our common stock have no cumulative
voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Rights.</I> Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has the authority to issue shares of
preferred stock from time to time on terms that it may
determine, to divide shares of preferred stock into one or more
series and to fix the designations, voting powers, preferences
and relative participating, optional or other special rights of
each series, and the qualifications, limitations or restrictions
of each series, to the fullest extent permitted by the Tennessee
Business Corporation Act, or TBCA. The issuance of shares of
preferred stock could have the effect of decreasing the market
price of our shares of common stock, impeding or delaying a
possible takeover and adversely affecting the voting and other
rights of the holders of shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Certain Takeover Considerations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to the application of the Tennessee Business Combination
Act and the Tennessee Control Share Acquisition Act, the
affirmative vote of the holders of a majority of our issued and
outstanding capital stock is generally required with respect to
a merger, exchange offer or the sale of all or substantially all
of our assets.
</DIV>

<P align="center" style="font-size: 10pt;">80

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Various antitakeover protections for Tennessee corporations are
set forth in the TBCA, the Business Combination Act, the Control
Share Acquisition Act, the Greenmail Act and the Investor
Protection Act. Because our common stock is registered with the
SEC under the Securities Exchange Act of 1934, the Business
Combination Act automatically applies to us unless our
shareholders adopt a charter or bylaw amendment which expressly
excludes us from the anti-takeover provisions of the Business
Combination Act two years prior to a proposed takeover. Our
Board of Directors has no present intention of recommending such
charter or bylaw amendment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Business Combination Act imposes a five-year standstill on
transactions such as mergers, share exchanges, sales of
significant assets, liquidations and other interested party
transactions between Tennessee corporations and &#147;interested
shareholders&#148; and their associates or affiliates, unless
the business combination or the transaction that resulted in the
shareholders becoming an interested shareholder is approved by
the Board of Directors before the shareholder acquires 10% or
more of the beneficial ownership of any class of the
corporation&#146;s voting securities. After that five-year
standstill, such transactions maybe authorized only if a
two-thirds vote of the shareholders other than the interested
shareholder is obtained or the transaction satisfies certain
fair price standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Business Combination Act also provides exculpatory
protection for the Board of Directors in refusing to waive the
protections afforded us under the Business Combination Act
and/or Control Share Act, or for resisting mergers, exchanges,
tender offers and similar transactions based on criteria other
than price. A Tennessee corporation&#146;s charter may
specifically authorize the members of its board of directors, in
the exercise of their judgment, to give due consideration to
factors other than price and to consider whether a merger,
exchange, tender offer or significant disposition of assets
would adversely affect the corporation&#146;s employees,
customers, suppliers, the communities in which the corporation
operates or any other relevant factor in the exercise of their
fiduciary duty to the shareholders. Our Charter authorizes our
Board of Directors to take into consideration, in addition to
price, the following factors in connection with a merger, tender
offer or other proposed business combination:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (a)&nbsp;the business, financial condition and earnings
    prospects of the acquiring person;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (b)&nbsp;the competence, experience and integrity of the
    acquiring person;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (c)&nbsp;our prospects as an independent entity;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (d)&nbsp;the social and economic impact of the proposed
    transaction on us and our employers, depositors, loan and other
    customers, creditors and the communities in which we operate.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provisions of our Charter may have the effect of protecting
us from hostile takeover bids because the Board of Directors is
permitted by the Charter to take into account in good faith all
relevant factors in performing its duly authorized duties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Control Share Acquisition Act limits the voting rights of
shares owned by a person above certain percentage thresholds
(beginning at 20%) unless the noninterested shareholders of the
corporation approve the acquisition of additional shares by the
interested shareholder above the designated threshold. However,
the Control Share Acquisition Act applies only to corporations
whose charter or bylaws contain an express declaration that
control share acquisitions are to be governed by the Control
Share Acquisition Act. In addition, the charter or bylaws may
specifically provide for the redemption of the control shares
(shares in excess of the designated threshold) or appraisal
rights for dissenting shareholders in a control share
transaction. Neither our Charter nor our Bylaws currently
contain a provision which subjects us to the provisions of the
Control Share Acquisition Act, and our Board of Directors has no
present intention of adopting any such bylaw amendment. However,
our Board of Directors could adopt such a bylaw amendment at any
future time by majority vote based on facts and circumstances
then present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Greenmail Act applies to a Tennessee corporation that has a
class of voting stock registered or traded on a national
securities exchange or registered with the SEC pursuant to
Section&nbsp;12(g) of the Securities Exchange Act of 1934. Under
the Greenmail Act, we may not purchase any of our shares at a
price above the market value of such shares from any person who
holds more than 3% of the class of securities to
</DIV>

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<DIV align="left" style="font-size: 10pt;">
be purchased if such person has held such shares for less than
two years, unless the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by us or we make an offer, of at
least equal value per share, to all shareholders of such class.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Investor Protection Act generally requires the registration,
or an exemption from registration, before a person can make a
tender offer for shares of a Tennessee corporation which, if
successful, would result in the offeror beneficially owning more
than 10% of any class of shares of the offeree company.
Registration requires the filing with the Tennessee Commissioner
of Commerce and Insurance of a registration statement, a copy of
which must be sent to the offeree company, and the public
disclosure of the material terms of the proposed offer. The
Investor Protection Act also prohibits fraudulent and deceptive
practices in connection with takeover offers, and provides
remedies for violations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Investor Protection Act does not apply to an offer involving
a vote by holders of equity securities of the offeree company,
pursuant to its charter, on a merger, consolidation or sale of
corporate assets in consideration of the issuance of securities
of another corporation, or on a sale of its securities in
exchange for cash or securities of another corporation. Also
excluded from the Investor Protection Act are tender offers that
are open on substantially equal terms to all shareholders, are
recommended by the board of directors of the offeree company and
include full disclosure of all terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provisions described above, to the extent applicable, will
have the general effect of discouraging, or rendering more
difficult, unfriendly takeover or acquisition attempts.
Consequently, such provisions would be beneficial to current
management in an unfriendly takeover attempt but could have an
adverse effect on shareholders who might wish to participate in
such a transaction. However, we believe that such provisions are
advantageous to our shareholders in that they will permit
management and the shareholders to carefully consider and
understand a proposed acquisition, lead to higher offering
prices, and require a higher level of shareholder participation
in the decision if the transaction is not approved by our Board
of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Transfer Agent and Registrar</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The transfer agent and registrar for our common stock
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Listing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply for listing on the New York Stock Exchange
under the symbol &#147;THH&#148;.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='116'></A>
</DIV>

<!-- link1 "SHARES ELIGIBLE FOR FUTURE SALE" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SHARES ELIGIBLE FOR FUTURE SALE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities. Upon completion
of this
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock will be outstanding. The shares of common
stock sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of
1933. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding, including the shares owned by our
existing equity investors, will be restricted securities within
the meaning of Rule&nbsp;144 under the Securities Act of 1933
but will be eligible for resale subject to applicable volume,
manner of sale, holding period and other requirements of
Rule&nbsp;144. Upon completion of this offering, our existing
equity investors will
own &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock representing an
aggregate &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
ownership interest in us after the offering
(or &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock representing
a &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
aggregate ownership interest in us, assuming the underwriters
exercise their over-allotment option in full).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We may issue shares of common stock from time to time as
consideration for future acquisitions, investments or other
corporate purposes. In the event that any such acquisition,
investment or other transaction is significant, the number of
shares of common stock that we may issue may in turn be
significant. In addition, we may also grant registration rights
covering those shares of common stock issued in connection with
any such acquisitions and investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stock Options</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this offering, we intend to file a
registration statement under the Securities Act of 1933 to
register the shares of common stock to be issued under the Team
Health Inc. Stock Option Plan and the Team Health, Inc. 2005
Long-Term Incentive Plan and, as a result, all shares of common
stock acquired upon exercise of stock options will also be
freely tradable under the Securities Act of 1933 unless such
common stock is held by our affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Lock-Up Arrangements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, certain of our existing shareholders, our executive officers
and our directors have agreed, with specified exceptions, not to
sell or transfer any of our common stock for 180&nbsp;days after
the date of this prospectus without first obtaining the written
consent of each of Lehman Brothers Inc. and Merrill Lynch,
Pierce, Fenner &#38; Smith Incorporated on behalf of the
underwriters. Specifically, we and these other individuals have
agreed not to directly or indirectly:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    offer, pledge, sell, contract to sell, sell any option or
    contract to purchase, purchase any option or contract to sell,
    grant any option, right or warrant to purchase, or otherwise
    transfer or dispose of, directly or indirectly, any shares of
    our common stock, or any securities convertible into or
    exercisable or exchangeable for any shares of our common stock
    or any right to acquire shares of our common stock;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    enter into any swap or other arrangement that transfers to
    another, in whole or in part, any of the economic consequences
    of ownership of the common stock, whether any such transaction
    described above is to be settled by delivery of common stock or
    such other securities, in cash or otherwise.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Notwithstanding the foregoing, if the 180th&nbsp;day after the
date of this prospectus occurs within 17&nbsp;days following an
earnings release by us or the occurrence of material news or a
material event related to us, or if we intend to issue an
earnings release within 16&nbsp;days following the
180th&nbsp;day, the 180-day period will be extended to the
18th&nbsp;day following such earnings release or the occurrence
of the material news or material event unless such extension is
waived by each of Lehman Brothers Inc. and Merrill Lynch,
Pierce, Fenner &#38; Smith Incorporated on behalf of the
underwriters.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Rule&nbsp;144</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, under Rule&nbsp;144, as currently in effect,
beginning 90&nbsp;days after the date of this prospectus, any
person, including an affiliate, who has beneficially owned
shares of our common stock for a period of at
</DIV>

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<DIV align="left" style="font-size: 10pt;">
least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    1% of the then-outstanding shares of common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the average weekly trading volume in the common stock on the New
    York Stock Exchange during the four calendar weeks preceding the
    date on which the notice of the sale is filed with the
    Securities and Exchange Commission.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Sales under Rule&nbsp;144 are also subject to provisions
relating to notice, manner of sale, volume limitations and the
availability of current public information about us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under Rule&nbsp;144(k), a person who is not deemed to have been
one of our affiliates at any time during the 90&nbsp;days
preceding a sale, and who has beneficially owned the shares for
at least two years, including the holding period of any prior
owner other than an &#147;affiliate,&#148; is entitled to sell
the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of
Rule&nbsp;144.
</DIV>

<P align="center" style="font-size: 10pt;">84

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<DIV align="left" style="font-size: 10pt;">
<A name='117'></A>
</DIV>

<!-- link1 "MATERIAL U.S. FEDERAL TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF OUR COMMON STOCK" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>MATERIAL U.S.&nbsp;FEDERAL TAX CONSEQUENCES</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>FOR NON-U.S.&nbsp;HOLDERS OF OUR COMMON STOCK</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a general discussion of material
U.S.&nbsp;federal income and estate tax consequences of the
ownership and disposition of our common stock by a beneficial
owner thereof that is a non-U.S.&nbsp;holder. A
non-U.S.&nbsp;holder is a person or entity that, for
U.S.&nbsp;federal income tax purposes, is a non-resident alien
individual, a foreign corporation or a foreign estate or trust.
The test for whether an individual is a resident of the United
States for federal estate tax purposes differs from the test
used for federal income tax purposes. Some individuals,
therefore, may be non-U.S.&nbsp;holders for purposes of the
federal income tax discussion below, but not for purposes of the
federal estate tax discussion, and vice versa.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This discussion is based on the U.S.&nbsp;Internal Revenue Code
of 1986, as amended, judicial decisions and administrative
regulations and interpretations in effect as of the date of this
prospectus, all of which are subject to change, including
changes with retroactive effect. This discussion does not
address all aspects of U.S.&nbsp;federal income and estate
taxation that may be relevant to non-U.S.&nbsp;holders in light
of their particular circumstances (including, without
limitation, non-U.S.&nbsp;holders who are pass-through entities
or who hold their common stock through pass-through entities)
and does not address any tax consequences arising under the laws
of any state, local or non-U.S.&nbsp;jurisdiction. Prospective
holders are urged to consult their own tax advisors with respect
to the federal income and estate tax consequences of holding and
disposing of our common stock in light of their particular
situations and any consequences to them arising under the laws
of any state, local or non-U.S.&nbsp;jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividends</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to the discussion below, distributions, if any, made to
a Non-U.S.&nbsp;holder on our common stock out of our current or
accumulated earnings and profits generally will constitute
dividends for U.S.&nbsp;tax purposes and will be subject to
withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. To obtain a
reduced rate of withholding under a treaty, a
Non-U.S.&nbsp;holder generally will be required to provide us
with a properly-executed IRS Form&nbsp;W-8BEN certifying the
non-U.S.&nbsp;holder&#146;s entitlement to benefits under that
treaty. Treasury Regulations provide special rules to determine
whether, for purposes of determining the applicability of a tax
treaty, dividends paid to a non-U.S.&nbsp;holder that is an
entity should be treated as paid to the entity or to those
holding an interest in that entity. To the extent such
distributions exceed our current and accumulated earnings and
profits for U.S.&nbsp;tax purposes, they will constitute a
return of capital and will first reduce your basis in our common
stock, but not below zero, and then will be treated as gain from
the sale of stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There will be no withholding tax on dividends paid to a
non-U.S.&nbsp;holder that are effectively connected with the
non-U.S.&nbsp;holder&#146;s conduct of a trade or business
within the United States if a properly-executed IRS
Form&nbsp;W-8ECI, stating that the dividends are so connected,
is provided to us. Instead, the effectively connected dividends
will be subject to regular U.S.&nbsp;income tax, generally in
the same manner as if the non-U.S.&nbsp;holder were a
U.S.&nbsp;citizen or resident alien or a domestic corporation,
as the case may be, unless a specific treaty exemption applies.
A corporate non-U.S.&nbsp;holder receiving effectively connected
dividends may also be subject to an additional &#147;branch
profits tax,&#148; which is imposed, under certain
circumstances, at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of the corporate
non-U.S.&nbsp;holder&#146;s effectively connected earnings and
profits, subject to certain adjustments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you are eligible for a reduced rate of withholding tax
pursuant to a tax treaty, you may obtain a refund of any excess
amounts currently withheld if you file an appropriate claim for
refund with the U.S.&nbsp;Internal Revenue Service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Gain on Disposition of Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A non-U.S.&nbsp;holder generally will not be subject to
U.S.&nbsp;federal income tax with respect to gain realized on a
sale or other disposition of our common stock unless:
(i)&nbsp;the gain is effectively connected with a trade or
business of such holder in the United States and a specific
treaty exemption does not apply to eliminate the tax;
(ii)&nbsp;if a tax treaty would otherwise apply to eliminate the
tax, the gain is attributable to a permanent establishment of
the non-U.S.&nbsp;holder in the United States; (iii)&nbsp;in the
case of non-U.S.&nbsp;holders who are nonresident alien
individuals and hold our common stock as a capital asset, such
individuals are present in
</DIV>

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<DIV align="left" style="font-size: 10pt;">
the United States for 183 or more days in the taxable year of
the disposition and certain other conditions are met;
(iv)&nbsp;the non-U.S.&nbsp;holder is subject to tax pursuant to
the provisions of the Code regarding the taxation of
U.S.&nbsp;expatriates; or (v)&nbsp;we are or have been a
&#147;United States real property holding corporation&#148;
within the meaning of Code Section&nbsp;897(c)(2) at any time
within the shorter of the five-year period preceding such
disposition or such holder&#146;s holding period. We believe
that we are not, and do not anticipate becoming, a United States
real property holding corporation. Even if we are treated as a
United States real property holding corporation, gain realized
by a non-U.S.&nbsp;holder on a disposition of our common stock
will not be subject to U.S.&nbsp;federal income tax so long as:
(a)&nbsp;the non-U.S.&nbsp;holder owned directly or indirectly,
no more than five percent of our common stock at all times
within the shorter of (x)&nbsp;the five year period preceding
the disposition or (y)&nbsp;the holder&#146;s holding period;
and (b)&nbsp;our common stock is regularly traded on an
established securities market. There can be no assurance that
our common stock will or will continue to qualify as being
regularly traded on an established securities market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Information Reporting Requirements and Backup Withholding</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Generally, we must report annually to the U.S.&nbsp;Internal
Revenue Service the amount of dividends paid, the name and
address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to
tax treaties or certain other agreements, the U.S.&nbsp;Internal
Revenue Service may make its reports available to tax
authorities in the recipient&#146;s country of residence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Backup withholding will generally not apply to payments of
dividends made by us or our paying agents to a
non-U.S.&nbsp;holder if the holder has provided its federal
taxpayer identification number, if any, or the required
certification that it is not a U.S.&nbsp;person (which is
generally provided by furnishing a properly-executed IRS
Form&nbsp;W-8BEN), unless the payer otherwise has knowledge or
reason to know that the payee is a U.S.&nbsp;person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under current U.S.&nbsp;federal income tax law, information
reporting and backup withholding will apply to the proceeds of a
disposition of our common stock effected by or through a
U.S.&nbsp;office of a broker unless the disposing holder
certifies as to its non-U.S.&nbsp;status or otherwise
establishes an exemption. Generally, U.S.&nbsp;information
reporting and backup withholding will not apply to a payment of
disposition proceeds where the transaction is effected outside
the United States through a non-U.S.&nbsp;office of a
non-U.S.&nbsp;broker. However, U.S.&nbsp;information reporting
requirements (but not backup withholding) will apply to a
payment of disposition proceeds where the transaction is
effected outside the United States under certain circumstances.
Prospective holders are urged to consult their own tax advisors
with respect to the circumstances under which
U.S.&nbsp;information reporting requirements may apply. Backup
withholding will apply to a payment of disposition proceeds if
the broker has actual knowledge that the holder is a
U.S.&nbsp;person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in
an overpayment of taxes, a refund may be obtained, provided that
the required information is furnished timely to the
U.S.&nbsp;Internal Revenue Service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Federal Estate Tax</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The estates of nonresident alien individuals are subject to
U.S.&nbsp;federal estate tax on property with a U.S.&nbsp;situs.
Because we are a U.S.&nbsp;corporation, our common stock will be
U.S.&nbsp;situs property and therefore will be included in the
taxable estate of a nonresident alien decedent. This
U.S.&nbsp;federal estate tax liability of the estate of a
nonresident alien may be affected by a tax treaty between the
United States and the decedent&#146;s country of residence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
THE PRECEDING DISCUSSION OF U.S.&nbsp;FEDERAL TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH
PROSPECTIVE HOLDER ARE URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE PARTICULAR U.S.&nbsp;FEDERAL, STATE, LOCAL AND
NON-U.S.&nbsp;TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF OUR COMMON STOCK.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='118'></A>
</DIV>

<!-- link1 "UNDERWRITING" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>UNDERWRITING</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Lehman Brothers Inc. and Merrill Lynch, Pierce,
Fenner&nbsp;&#38;&nbsp;Smith Incorporated are acting as joint
book-running managers, and, along with J.P. Morgan Securities
Inc., are acting as representatives of the underwriters. Under
the terms of an underwriting agreement, which will be filed as
an exhibit to the registration statement, each of the
underwriters named below has severally agreed to purchase from
us and the selling shareholders the respective number of common
stock shown opposite its name below:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Underwriters</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Lehman Brothers Inc.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Merrill Lynch, Pierce, Fenner&nbsp;&#38;&nbsp;Smith<BR>
    Incorporated</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J.P. Morgan Securities Inc.</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriting agreement provides that the underwriters&#146;
obligation to purchase shares of common stock depends on the
satisfaction of the conditions contained in the underwriting
agreement including:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the obligation to purchase all of the shares of common stock
    offered hereby, if any of the shares are purchased;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the representations and warranties made by us and the selling
    shareholders to the underwriters are true;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    there is no material change in the financial markets;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we deliver customary closing documents to the underwriters.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Commissions and Expenses</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the underwriting discounts and
commissions we and the selling shareholders will pay to the
underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters&#146; option to purchase
additional shares. The underwriting fee is the difference
between the initial price to the public and the amount the
underwriters pay to us and the selling shareholders for the
shares.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Paid by the Selling</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Paid by us</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shareholder</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>No Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Full Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>No Exercise</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Full Exercise</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of common stock
directly to the public at the public offering price on the cover
of this prospectus and to selected dealers, which may include
the underwriters, at such offering price less a selling
concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. The underwriters may allow, and the selected dealers may
re-allow, a discount from the concession not in excess of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share to other dealers. After the offering, the representatives
may change the offering price and other selling terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The expenses of the offering that are payable by us and the
selling shareholders are estimated to be
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(exclusively
underwriting discounts and commissions). We have agreed to pay
expenses incurred by the selling shareholders in connection with
the offering, other than the underwriting discounts and
commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Option to Purchase Additional Shares</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The selling shareholders have granted the underwriters an option
exercisable for 30&nbsp;days after the date of the underwriting
agreement, to purchase, from time to time, in whole or in part,
up to an aggregate
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
at the public offering price less underwriting discounts and
commissions. This option may be exercised if the underwriters
sell more
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
in connection with this offering. To the extent that
</DIV>

<P align="center" style="font-size: 10pt;">87
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<DIV align="left" style="font-size: 10pt;">
this option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase its pro rata portion
of these additional shares based on the underwriter&#146;s
percentage underwriting commitment in the offering as indicated
in the table at the beginning of this Underwriting Section.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Lock-Up Agreements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, all of our directors and executive officers, holders of more
than 5% of our outstanding stock and the selling shareholders
have agreed that, without the prior written consent of each of
Lehman Brothers Inc. and Merrill Lynch, Pierce,
Fenner&nbsp;&#38;&nbsp;Smith Incorporated, we and they will not
directly or indirectly, offer, pledge, announce the intention to
sell, sell, contract to sell, sell an option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or
dispose of any common stock or any securities that may be
converted into or exchanged for any common stock, enter into any
swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the common stock,
make any demand for or exercise any right or file or cause to be
filed a registration statement with respect to the registration
of any shares of common stock or securities convertible,
exercisable or exchangeable into common stock or any of our
other securities or publicly disclose the intention to do any of
the foregoing for a period of 180&nbsp;days from the date of
this prospectus other than permitted transfers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 180-day restricted period described in the preceding
paragraph will be extended if:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    during the last 17&nbsp;days of the 180-day restricted period we
    issue an earnings release or announce material news or a
    material event;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    prior to the expiration of the 180-day restricted period, we
    announce that we will release earnings results during the 16-day
    period beginning on the last day of the 180-day period,</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day period beginning on the issuance of the earnings release
or the announcement of the material news or material event.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Offering Price Determination</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
negotiated between the representatives and us. In determining
the initial public offering price of our common stock, the
representatives will consider:
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the history and prospects for the industry in which we compete;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our financial information;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability of our management and our business potential and
    earning prospects;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the prevailing securities markets at the time of this
    offering;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the recent market prices of, and the demand for, publicly traded
    shares of generally comparable companies.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Indemnification</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 and liabilities incurred in
connection with the directed share program referred to below,
and to contribute to payments that the underwriters may be
required to make for these liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Directed Share Program</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At our request, the underwriters have reserved for sale at the
initial public offering price up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
offered hereby for officers, directors, employees and certain
other persons associated with us. The number of shares available
for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered
hereby.
</DIV>

<P align="center" style="font-size: 10pt;">88
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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stabilization, Short Positions and Penalty Bids</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common stock, in
accordance with Regulation&nbsp;M under the Securities Exchange
Act of 1934:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Stabilizing transactions permit bids to purchase the underlying
    security so long as the stabilizing bids do not exceed a
    specified maximum.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    A short position involves a sale by the underwriters of shares
    in excess of the number of shares the underwriters are obligated
    to purchase in the offering, which creates the syndicate short
    position. This short position may be either a covered short
    position or a naked short position. In a covered short position,
    the number of shares involved in the sales made by the
    underwriters in excess of the number of shares they are
    obligated to purchase is not greater than the number of shares
    that they may purchase by exercising their option to purchase
    additional shares. In a naked short position, the number of
    shares involved is greater than the number of shares in their
    option to purchase additional shares. The underwriters may close
    out any short position by either exercising their option to
    purchase additional shares and/or purchasing shares in the open
    market. In determining the source of shares to close out the
    short position, the underwriters will consider, among other
    things, the price of shares available for purchase in the open
    market as compared to the price at which they may purchase
    shares through their option to purchase additional shares. A
    naked short position is more likely to be created if the
    underwriters are concerned that there could be downward pressure
    on the price of the shares in the open market after pricing that
    could adversely affect investors who purchase in the offering.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Syndicate covering transactions involve purchases of the common
    stock in the open market after the distribution has been
    completed in order to cover syndicate short positions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    Penalty bids permit the representatives to reclaim a selling
    concession from a syndicate member when the common stock
    originally sold by the syndicate member is purchased in a
    stabilizing or syndicate covering transaction to cover syndicate
    short positions.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result,
the price of the common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the common stock. In addition, neither we nor any of the
underwriters make representation that the representatives will
engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Electronic Distribution</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account
holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other
allocations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other than the prospectus in electronic format, the information
on any underwriter&#146;s or selling group member&#146;s web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus
</DIV>

<P align="center" style="font-size: 10pt;">89

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<DIV align="left" style="font-size: 10pt;">
forms a part, has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as
underwriter or selling group member and should not be relied
upon by investors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NYSE</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to apply to list our shares of common stock for
quotation on the NYSE under the symbol &#147;THH.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Discretionary Sales</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts that exceed 5% of the
total number of shares offered by them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stamp Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Relationships</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters may in the future perform investment banking
and advisory services for us from time to time for which they
may in the future receive customary fees and expenses. The
underwriters may, from time to time, engage in transactions with
or perform services for us in the ordinary course of their
business.
</DIV>

<P align="center" style="font-size: 10pt;">90

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<DIV align="left" style="font-size: 10pt;">
<A name='119'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>LEGAL MATTERS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The validity of the shares offered by this prospectus will be
passed upon for us by Kirkland&nbsp;&#38; Ellis LLP, New York,
New York. The validity of the shares offered by this prospectus
will be passed upon for the underwriters by Gibson,
Dunn&nbsp;&#38; Crutcher LLP, New York, New York.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='120'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXPERTS</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated financial statements of Team Health, Inc. at
December&nbsp;31, 2004 and 2003, and for each of the three years
in the period ended December&nbsp;31, 2004, appearing in this
prospectus and Registration Statement have been audited by
Ernst&nbsp;&#38; Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='121'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>WHERE YOU CAN FIND MORE INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have filed with the SEC a registration statement on
Form&nbsp;S-1 under the Securities Act of 1933, including the
exhibits with the registration statement, with respect to the
shares offered by this prospectus. This prospectus does not
contain all the information contained in the registration
statement. For further information with respect to us and shares
to be sold in this offering, we refer you to the registration
statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document to which
we make reference are not necessarily complete.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, we file annual, quarterly and current reports and
other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy any document we file at the
SEC&#146;s Public Reference Room located at 450&nbsp;Fifth
Street, N.W., Washington,&nbsp;D.C. 20549. You may obtain
information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. Our SEC filings also are
available from the SEC&#146;s Internet site at
http://www.sec.gov, which contains reports, proxy and
information statements, and other information regarding issuers
that file electronically.
</DIV>

<P align="center" style="font-size: 10pt;">91
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Pages</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#300'>Report of Independent Registered Public
    Accounting Firm</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#301'>Consolidated Balance Sheets at
    December&nbsp;31, 2004 and 2003</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#302'>Consolidated Statements of Operations for
    the years ended December&nbsp;31, 2004, 2003 and 2002</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#303'>Consolidated statements of
    shareholders&#146; equity (deficit) and comprehensive earnings
    for the years ended December&nbsp;31, 2004, 2003 and 2002</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#304'>Consolidated statements of cash flows for
    the years ended December&nbsp;31, 2004, 2003 and 2002</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#305'>Notes to Consolidated Financial
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#306'>Consolidated Balance Sheets&nbsp;&#151;
    June&nbsp;30, 2005 and December&nbsp;31, 2004</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#308'>Consolidated Statements of
    Operations&nbsp;&#151; Six months ended June&nbsp;30, 2005 and
    2004</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-30</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#309'>Consolidated Statements of Cash
    Flows&nbsp;&#151; Six months ended June&nbsp;30, 2005 and
    2004</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#310'>Notes to Consolidated Financial
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-32</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='300'></A>
</DIV>

<!-- link1 "REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Board of Directors and Shareholders
</DIV>

<DIV align="left" style="font-size: 10pt;">
Team Health, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying consolidated balance sheets of
Team Health, Inc. as of December&nbsp;31, 2004 and 2003, and the
related consolidated statements of operations, changes in
shareholders&#146; equity (deficit) and comprehensive earnings
and cash flows for each of the three years in the period ended
December&nbsp;31, 2004. Our audits also included the financial
statement schedule listed in Item&nbsp;16 (Item&nbsp;15(a) of
the Form 10K. These financial statements and schedule are the
responsibility of the Company&#146;s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company&#146;s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company&#146;s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Team Health, Inc. at December&nbsp;31,
2004 and 2003, and the consolidated results of operations and
cash flows for each of the three years in the period ended
December&nbsp;31, 2004, in conformity with US generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As discussed in Note&nbsp;2 to the financial statements, in 2002
the Company changed its method of accounting for goodwill.
</DIV>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    /s/ ERNST&nbsp;&#38; YOUNG LLP</TD>
</TR>

<TR valign="top"  style="font-size: 3pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Nashville, Tennessee
</DIV>

<DIV align="left" style="font-size: 10pt;">
February&nbsp;7, 2005
</DIV>

<P align="center" style="font-size: 10pt;">F-2
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='301'></A>
</DIV>

<!-- link1 "CONSOLIDATED BALANCE SHEETS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(In thousands, except per</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="10" align="left" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current assets:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,964</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, less allowance for uncollectibles of
    $126,351 and $120,653 in 2004 and 2003, respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,243</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62,527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>335,691</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,967</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other intangibles, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,990</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,665</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,881</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,804</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>60,697</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,158</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>731,049</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="10">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="10" align="left" valign="top">
    <B>LIABILITIES, REDEEMABLE PREFERRED STOCK AND
    SHAREHOLDERS&#146; EQUITY (DEFICIT)</B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current liabilities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,169</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and physician payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,557</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,670</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,948</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current maturities of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,528</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,884</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,229</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248,962</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt, less current maturities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>413,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>255,887</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other non-current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>182,557</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mandatory redeemable preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>158,846</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, $0.01&nbsp;par value 12,000&nbsp;shares
    authorized, 9,729 and 10,070&nbsp;shares issued in 2004 and 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>703</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(198,891</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(113,813</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less treasury shares at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(787</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(218</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,149</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>731,049</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='302'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,572,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,479,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,230,703</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>563,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>479,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>396,605</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues less provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,008,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>999,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>834,098</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services rendered</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional service expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>754,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>746,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>635,573</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,992</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>194,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,367</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>161,533</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,554</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,744</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management fee and other expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>527</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,322</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,015</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,906</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Refinancing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,389</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before income taxes and cumulative effect of
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,776</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,221</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,630</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision (benefit) for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,410</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,198</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before cumulative effect of change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,432</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle, net of
    income tax benefit of $209</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(294</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,129</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,814</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,251</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,009</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-4
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='303'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF SHAREHOLDERS&#146; EQUITY (DEFICIT) AND COMPREHENSIVE EARNINGS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF SHAREHOLDERS&#146; EQUITY
(DEFICIT)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>AND COMPREHENSIVE EARNINGS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Treasury Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additional</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Other</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Paid in</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Retained</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Comprehensive</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Earnings (Loss)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="30" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2001</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(99,571</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(219</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(99,690</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other comprehensive loss, net of tax:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair value of swaps, net of tax of $844</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,396</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,396</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,742</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Issuance of stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>645</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,129</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2002</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,068</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(96,562</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,615</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(97,432</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other comprehensive loss, net of tax:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair value of swaps, net of tax of $286</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>466</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,345</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock option activity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock purchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,440</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(14,440</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2003</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(150</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(113,813</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,149</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(115,203</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other comprehensive income, net of tax:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair market value of investments net of tax of $136</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(214</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(214</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair value of swaps, net of tax of $708</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,145</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total comprehensive earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(48,281</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock option activity</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>237</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock reissued</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury shares cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(362</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,704</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,679</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Treasury stock purchased</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(271</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,546</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,546</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,585</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,585</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,602</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,602</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance at December&nbsp;31, 2004</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(52</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(787</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(198,891</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(218</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(198,880</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='304'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF CASH FLOWS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>OPERATING ACTIVITIES</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(49,212</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,811</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>16,138</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net earnings (loss):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>22,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,015</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,061</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,583</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Write-off of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,389</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>563,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>479,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>396,605</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Impairment of intangibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>73,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,322</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(771</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,967</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,941</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on sale of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>294</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity in joint venture income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(664</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(235</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(346</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities, net of acquisitions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(556,214</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(490,392</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(407,319</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaids and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,732</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,277</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,797</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,388</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,575</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,785</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and physician payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,536</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,907</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,806</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(643</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,797</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,419</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,480</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>INVESTING ACTIVITIES</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,713</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,972</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,796</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sale of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for acquisitions, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,245</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,472</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(165,722</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net purchases of short-term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(64,877</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net purchases of investments by insurance subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,948</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(13,642</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,194</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>725</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(75,795</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,279</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(174,762</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>FINANCING ACTIVITIES</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on notes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(301,290</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,085</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(121,800</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from notes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>430,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,892</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(278</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,226</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sales of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sales of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,270</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of treasury stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,770</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(926</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sale of treasury stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid on common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,585</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemptions of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(162,448</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(71,823</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>99,888</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(83,033</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>53,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,394</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, beginning of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>70,183</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, end of year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,789</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Supplemental cash flow information:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,693</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,404</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Taxes paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,557</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,864</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to the consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-6
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='305'></A>
</DIV>

<!-- link1 "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>1.</B></TD>
    <TD>
    <B>Organization and Basis of Presentation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Team Health, Inc. (the &#147;Company&#148;) believes it is among
the largest national providers of outsourced physician and other
healthcare related staffing and administrative services to
hospitals and other healthcare facility providers in the United
States. The Company&#146;s regional operating models include
comprehensive programs for emergency medicine, radiology,
anesthesiology, inpatient care, pediatrics and other healthcare
services, principally within hospital departments and other
healthcare treatment facilities. The Company provides a full
range of physician and other healthcare facility related
staffing and administrative services, including the:
(i)&nbsp;staffing and recruiting of and credentials coordination
for clinical and non-clinical medical professionals;
(ii)&nbsp;provision of administrative support services, such as
payroll, insurance coverage and continuing education services;
and (iii)&nbsp;billing and collection of fees for services
provided by the medical professionals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has two principal shareholders. Team Health
Holdings, LLC (&#147;Holdings&#148;), which is owned by certain
equity sponsors and certain members of the Company&#146;s senior
management, owns 92.3% of the Company&#146;s $0.01&nbsp;par
value common stock. Caremark Rx, Inc. owns 7.6% of the remaining
outstanding common stock.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>2.</B></TD>
    <TD>
    <B>Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Principles of Consolidation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries and have been
prepared in accordance with accounting principles generally
accepted in the United States. All intercompany and
inter-affiliate accounts and transactions have been eliminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company consolidates its subsidiaries in accordance with the
nominee shareholder model of Emerging Issues Task Force
(EITF)&nbsp;No.&nbsp;97-2 <I>&#147;Application of FASB
No.&nbsp;94 and APB Opinion No.&nbsp;16 to Physician Practice
Entities and Certain Other Entities with Contractual Management
Arrangements&#148;</I>. The Company&#146;s arrangements with
associated professional corporations (&#147;PC&#148;) are
captive in nature as a majority of the outstanding voting equity
instruments of the different PCs are owned by a nominee
shareholder appointed at the sole discretion of the Company. The
Company has a contractual right to transfer the ownership of the
PC at any time to any person it designates as the nominee
shareholder. This transfer can occur without cause and any cost
incurred as a result of the transfer is minimal. There would be
no significant impact on the PC or the Company as a result of
the transfer of ownership. The Company provides staffing
services to its client hospitals through a management services
agreement between a subsidiary of Team Health, Inc. and the PCs.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Cash and Cash Equivalents</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Cash consists primarily of funds on deposit in commercial banks.
Cash equivalents are highly liquid investments with maturities
of three months or less when acquired.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Marketable Securities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with SFAS&nbsp;No.&nbsp;115 <I>&#147;Accounting
for Certain Investments in Debt and Equity Securities,&#148;
</I>management determines the appropriate classification of the
Company&#146;s investments at the time of purchase and
reevaluates such determination at each balance sheet date. As of
December&nbsp;31, 2004 and 2003, the Company has classified all
marketable debt securities as available-for-sale.
Available-for-sale securities are carried at fair value, with
the unrealized gains and losses, net of tax, reported in other
comprehensive earnings. Realized gains and losses and declines
in value judged to be other-than-temporary on available for sale
securities are recognized in earnings.
</DIV>

<P align="center" style="font-size: 10pt;">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Accounts Receivable</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accounts receivable are primarily due from hospitals and
clinics, third-party payers, such as insurance companies,
government-sponsored healthcare programs, including Medicare and
Medicaid, and self-insured employers and patients. Accounts
receivable are stated net of reserves for amounts estimated by
management to not be collectible. Concentration of credit risk
relating to accounts receivable is somewhat limited by the
diversity and number of hospitals, patients, payers and by the
geographic dispersion of the Company&#146;s operations. In
addition, a portion of the Company&#146;s military staffing
business is conducted on a sub-contract basis with a third-party
direct contractor to the military. The amount owed by such
direct contractor represents approximately 7.5% of the
Company&#146;s consolidated accounts receivable as of
December&nbsp;31, 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Property and Equipment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over estimated useful
lives, which generally range from 3 to 10&nbsp;years for
furniture and equipment, from 3 to 5&nbsp;years for software and
from 10 to 40&nbsp;years for buildings and leasehold
improvements. Property under capital lease is amortized using
the straight-line method over the life of the respective lease
and such amortization is included in depreciation expense.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Intangible Assets</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s intangible assets include goodwill and other
intangibles that consist primarily of the fair value of service
contracts acquired. Goodwill represents the excess of purchase
price over the fair value of net assets acquired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January&nbsp;1, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards
(SFAS)&nbsp;No.&nbsp;142, <I>Goodwill and Other Intangible
Assets</I>. Under SFAS&nbsp;No.&nbsp;142, goodwill and
intangible assets deemed to have indefinite lives are not
amortized. The cost of service contracts and other intangibles
acquired is amortized using the straight-line method over their
estimated lives which was seven years in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill is evaluated for possible impairment on an annual basis
or more frequently if events and circumstances occur that may
indicate the potential for impairment. Goodwill assigned to a
reporting unit is evaluated for potential impairment following a
two-step procedure. The fair value of the reporting unit is
initially determined and compared to its carrying value. If the
carrying value exceeds the fair value of the applicable
reporting unit, the implied fair value of the goodwill of the
reporting unit is then determined. If it is determined that the
implied fair value of the goodwill of the reporting unit is less
than the carrying value of goodwill, an impairment loss is
recorded equal to such difference.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The carrying value of other intangibles is evaluated when
indicators are present to determine whether such intangibles may
be impaired with respect to their recorded values. If this
review indicates that certain intangibles will not be
recoverable, as determined based on the undiscounted cash flows
derived from the assets acquired over the remaining estimated
asset life, the carrying value of the intangibles is reduced by
the estimated shortfall of discounted cash flows.
</DIV>

<P align="center" style="font-size: 10pt;">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Deferred Financing Costs</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred financing costs, which are included in other noncurrent
assets and are amortized over the term of the related debt using
the interest method, consist of the following as of
December&nbsp;31 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,333</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less accumulated amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(812</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,859</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>7,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,474</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Risk Management</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although the Company does not principally engage in the practice
of medicine or provide medical services, it does require the
physicians with whom it contracts to obtain professional
liability insurance coverage and makes this insurance available
to these physicians. The Company typically provides claims-made
coverage on a per incident and annual aggregate limit per
physician to affiliated physicians and other healthcare
practitioners. In addition, the Company has claims-made coverage
on a per incident and annual aggregate limit for all corporate
entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective March&nbsp;12, 2003, the Company began providing for
its professional liability losses principally under a program of
self-insurance, including the use of a wholly owned captive
insurance company. The Company&#146;s estimated losses under the
self-insurance program are determined using periodic actuarial
estimates of losses and related expenses, adjusted on an interim
basis for actual physician hours worked and loss development
trends. Any differences between amounts previously recorded and
the results of updated actuarial studies of prior periods are
recorded in the period when such differences are known.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Professional liability insurance expense consists of premium
cost, an accrual to establish reserves for future payments under
the self-insured retention component and an accrual to establish
a reserve for future claims incurred but not reported.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Derivatives</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company utilizes derivative financial instruments to reduce
interest rate risks. The Company does not hold or issue
derivative financial instruments for trading purposes. The
Company recognizes all derivatives as either assets or
liabilities in the statement of financial condition and measures
those instruments at fair value. Changes in the fair value of
these instruments are reported in earnings or other
comprehensive income depending on the use of the derivative and
whether it qualifies for hedge accounting. The accounting for
gains and losses associated with changes in the fair value of
the derivative and the effect on the consolidated financial
statements depends on its hedge designation and whether the
hedge is highly effective in achieving offsetting changes in the
fair value of cash flows of the asset or liability hedged.
During 2004 the fair value of interest rate swaps, net of tax,
increased approximately $1.1&nbsp;million. In 2003, the fair
value, net of tax increased approximately $0.5&nbsp;million. In
2002, the fair value, net of tax, decreased approximately
$1.4&nbsp;million. In all years the change in fair value was
recognized through other comprehensive earnings.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Revenue Recognition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues consist of fee-for-service revenue, contract
revenue and other revenue. Net revenues are recorded in the
period services are rendered.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues are principally derived from the provision of
healthcare staffing services to patients within healthcare
facilities. The form of billing and related risk of collection
for such services may vary by customer. The following is a
summary of the principal forms of the Company&#146;s billing
arrangements and how
</DIV>

<P align="center" style="font-size: 10pt;">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
net revenue is recognized for each. A significant portion (74%
of our net revenues in 2004) resulted from fee-for-service
patient visits. Fee-for-service revenue represents revenue
earned under contracts in which the Company bills and collects
the professional component of charges for medical services
rendered by the Company&#146;s contracted and employed
physicians. Under the fee-for-service arrangements, the Company
bills patients for services provided and receives payment from
patients or their third-party payers. Fee-for-service revenue is
reported net of contractual allowances and policy discounts. All
services provided are expected to result in cash flows and are
therefore reflected as net revenues in the financial statements.
Fee-for-service revenue is recognized in the period that the
services are rendered to specific patients and reduced
immediately for the estimated impact of contractual allowances
in the case of those patients having third-party payer coverage.
The recognition of net revenues (gross charges less contractual
allowances) from such visits is dependent on such factors as
proper completion of medical charts following a patient visit,
the forwarding of such charts to one of our billing centers for
medical coding and entering into our billing systems and the
verification of each patient&#146;s submission or representation
at the time services are rendered as to the payer(s) responsible
for payment of such services. Net revenues are recorded based on
the information known at the time of entering of such
information into our billing systems as well as an estimate of
the net revenues associated with medical charts for a given
service period that have not been processed yet into our billing
systems. The above factors and estimates are subject to change.
For example, patient payer information may change following an
initial attempt to bill for services due to a change in payer
status. Such changes in payer status have an impact on recorded
net revenues due to differing payers being subject to different
contractual allowance amounts. Such changes in net revenues are
recognized in the period that such changes in payer become
known. Similarly, the actual volume of medical charts not
processed into our billing systems may be different from the
amounts estimated. Such differences in net revenues are adjusted
in the following month based on actual chart volumes processed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Contract revenue represents revenue generated under contracts in
which the Company provides physician and other healthcare
staffing and administrative services in return for a
contractually negotiated fee. Contract revenue consists
primarily of billings based on hours of healthcare staffing
provided at agreed to hourly rates. Revenue in such cases is
recognized as the hours are worked by the Company&#146;s staff.
Additionally, contract revenue also includes supplemental
revenue from hospitals where the Company may have a
fee-for-service contract arrangement. Contract revenue for the
supplemental billing in such cases is recognized based on the
terms of each individual contract. Such contract terms generally
either provide for a fixed monthly dollar amount or a variable
amount based upon measurable monthly activity, such as hours
staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on
variable arrangements are usually contractually fixed on a
monthly, quarterly or annual calculation basis considering the
variable factors negotiated in each such arrangement. Such
supplemental revenues are recognized as revenue in the period
when such amounts are determined to be fixed and therefore
contractually obligated as payable by the customer under the
terms of the respective agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other revenue consists primarily of revenue from management and
billing services provided to outside parties. Revenue is
recognized for such services pursuant to the terms of the
contracts with customers. Generally, such contracts consist of
fixed monthly amounts with revenue recognized in the month
services are rendered or as hourly consulting fees recognized as
revenue as hours are worked in accordance with such
arrangements. Additionally, the Company derives a small
percentage of revenue from providing administrative and billing
services that are contingent upon the collection of third-party
physician billings, either by us on their behalf or other
third-party billing companies. Such revenues are not considered
earned and therefore not recognized as revenue until actual cash
collections are achieved in accordance with the contractual
arrangements for such services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues are reduced for management&#146;s estimates of
amounts that will not be collected. The resulting net revenues
less provision for uncollectibles reflects net cash collections
for services rendered in the period plus management&#146;s
estimate of the remaining collections to be realized for
services rendered in the
</DIV>

<P align="center" style="font-size: 10pt;">F-10

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
period. Such estimates of amounts to be collected are subject to
adjustment as actual experience is realized. If subsequent
collections experience indicates that an adjustment to
previously recorded collection estimates is necessary, such
change of estimate adjustment is recorded in the current period
in which such assessment is made.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management in estimating the amounts to be collected resulting
from its over six million annual fee-for-service patient visits
and procedures considers such factors as prior contract
collection experience, current period changes in payer mix and
patient acuity indicators, reimbursement rate trends in
governmental and private sector insurance programs, resolution
of credit balances, the estimated impact of billing system
effectiveness improvement initiatives and trends in collections
from self-pay patients. The complexity of the estimation process
associated with the Company&#146;s fee-for-service volumes and
diverse payer mix, along with the difficulty of assessing such
factors as changes in the economy impacting the number of
healthcare insured versus uninsured patients and other
socio-economic trends that can have an impact on collection
rates, could result in subsequent adjustments to previously
reported revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company derives a significant portion of its net revenues
less provision for uncollectibles from government sponsored
healthcare programs. Net revenues less provision for
uncollectibles derived from the Medicare and Medicaid programs
was approximately 23%, 19% and 20% of total net revenues less
provision for uncollectibles in years 2004, 2003 and 2002,
respectively. In addition, net revenues less provision for
uncollectibles derived from the TRICARE Program, which is the
U.S.&nbsp;military&#146;s dependent healthcare program, was
approximately 21%, 23% and 15% in 2004, 2003 and 2002,
respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Segment Reporting</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides its services through five operating
segments which are aggregated into two reportable segments,
Healthcare Services and Management Services. The Healthcare
Services segment, which is an aggregation of healthcare
staffing, clinics, and occupation health, provides comprehensive
healthcare service programs to users and providers of healthcare
services on a fee-for-service as well as a cost plus basis. The
Management Services segment, which consists of medical group
management services and external billing and collection
services, provides a range of management and billing services on
a fee basis. These services include strategic management,
management information systems, third-party payer contracting,
financial and accounting support, benefits administration and
risk management, scheduling support, operations management and
quality improvement services.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Implementation of New Accounting Standards</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January&nbsp;1, 2002, the Company adopted the
provisions of SFAS&nbsp;No.&nbsp;142, <I>Goodwill and Other
Intangible Assets</I>. Under SFAS&nbsp;No.&nbsp;142, goodwill
and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to impairment tests on an
annual basis, or more frequently if certain indicators arise.
Other intangible assets continue to be amortized over their
useful lives. The Company completed its required initial
impairment testing of goodwill during 2002. As a result of this
review, the Company concluded that a portion of its recorded
goodwill was impaired. Accordingly, an impairment loss of
$0.5&nbsp;million ($0.3&nbsp;million net of taxes) was recorded
in 2002 as the cumulative effect of a change in accounting
principle.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;31, 2002, the FASB issued
SFAS&nbsp;No.&nbsp;148, <I>Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure</I>.
SFAS&nbsp;No.&nbsp;148 amends SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>, to provide
alternative methods of transition to the fair value method of
accounting for stock-based employee compensation under
SFAS&nbsp;No.&nbsp;123. SFAS&nbsp;No.&nbsp;148 also amends the
disclosure provisions of SFAS&nbsp;No.&nbsp;123 and APB Opinion
No.&nbsp;28, <I>Interim Financial Reporting</I>, to require
disclosure in the summary of significant accounting policies of
the effects of an entity&#146;s accounting policy with respect
to stock-based employee compensation on reported earnings in
annual and interim financial statements. While the Statement
does not
</DIV>

<P align="center" style="font-size: 10pt;">F-11

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
amend SFAS&nbsp;No.&nbsp;123 to require companies to account for
employee stock options using the fair value method, the
disclosure provisions of SFAS&nbsp;No.&nbsp;148 are applicable
to all companies with stock-based employee compensation,
regardless of whether the accounting for that compensation is
using the fair value method of SFAS&nbsp;No.&nbsp;123 or the
intrinsic value method of Opinion 25. As more fully discussed in
Note&nbsp;15, the Company has adopted the disclosure
requirements of SFAS&nbsp;No.&nbsp;148 and the fair value
recognition provisions of SFAS&nbsp;123, <I>Accounting for
Stock-Based Compensation</I>, prospectively for all new awards
granted to employees after January&nbsp;1, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In May 2003, the FASB issued SFAS&nbsp;No.&nbsp;150,
<I>Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity</I>.
SFAS&nbsp;No.&nbsp;150 requires that certain financial
instruments, which under previous guidance were accounted for as
equity-type instruments, must now be accounted for as
liabilities. The financial instruments affected include
mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. The provisions of
SFAS&nbsp;No.&nbsp;150 are applicable to the Company&#146;s
financial statements beginning in 2005. The Company has
determined that the adoption of SFAS&nbsp;No.&nbsp;150 will not
have a material effect on the results of its operations or
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January 2003, the FASB issued Interpretation No.&nbsp;46
(FIN&nbsp;46), <I>Consolidation of Variable Interest
Entities</I>. FIN&nbsp;46 provides guidance on how to identify a
variable interest entity (VIE)&nbsp;and determine when the
assets, liabilities, non-controlling interests, and results of
operations of a VIE are to be included in an entity&#146;s
consolidated financial statements. A VIE exists when either the
total equity investment at risk is not sufficient to permit the
entity to finance its activities by itself, or the equity
investors lack one of three characteristics associated with
owning a controlling financial interest. Those characteristics
include the direct or indirect ability to make decisions about
an entity&#146;s activities through voting rights or similar
rights, the obligation to absorb the expected losses of an
entity if they occur, and the right to receive the expected
residual returns of the entity if they occur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
FIN&nbsp;46 was effective immediately for new entities created
or acquired after February&nbsp;1, 2003. The Company has no
interest in any entities created nor did it acquire any entities
after February&nbsp;1, 2003. In December 2003, the FASB
published a revision to FIN&nbsp;46 (&#147;FIN&nbsp;46R&#148;)
to clarify some of the provisions of the interpretation and
defer the effective date of implementation for certain entities.
Under the guidance of FIN&nbsp;46R, entities that do not have
interests in structures that are commonly referred to as special
purpose entities are required to apply the provisions of the
interpretation in financial statements for periods ending after
March&nbsp;14, 2004. Management believes that FIN&nbsp;46R does
not have a material impact to the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;16, 2004, the FASB issued
SFAS&nbsp;No.&nbsp;123 (revised 2004), <I>Share-Based
Payment</I>, which is a revision of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>.
SFAS&nbsp;No.&nbsp;123(R) supersedes APB Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees</I>, and amends
SFAS&nbsp;No.&nbsp;95, <I>Statement of Cash Flows</I>.
Generally, the approach in SFAS&nbsp;No.&nbsp;123(R) is similar
to the approach described in SFAS&nbsp;No.&nbsp;123. However,
SFAS&nbsp;No.&nbsp;123(R) requires all shared-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under the definition provided in SFAS&nbsp;No.&nbsp;123(R) the
Company is considered a nonpublic entity therefore the
provisions of SFAS&nbsp;No.&nbsp;123(R) are effective for the
Company beginning January&nbsp;1, 2006. Early adoption is
permitted in periods in which financial statements have not been
issued. The Company expects to adopt SFAS&nbsp;No.&nbsp;123(R)
beginning January&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As previously discussed the Company adopted the fair-value-based
method of accounting for share-based payments effective
January&nbsp;1, 2003 using the prospective method described in
SFAS&nbsp;No.&nbsp;148, <I>Accounting for Stock-Based
Compensation&nbsp;&#151; Transition and Disclosure</I>.
Currently, the Company uses the minimum value method to estimate
the value of stock options granted to employees. In accordance
with the transition
</DIV>

<P align="center" style="font-size: 10pt;">F-12

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
provisions of SFAS&nbsp;No.&nbsp;123(R) the Company will
continue to account for nonvested awards outstanding at the date
of adoption of SFAS&nbsp;No.&nbsp;123(R) in the same manner as
they had been accounted for prior to adoption for financial
statement recognition purposes. For those options that are
granted after the adoption of SFAS&nbsp;No.&nbsp;123(R) the
Company will no longer be permitted to use the minimum-value
method and instead will be required to use an acceptable
option-pricing model. The Company has not yet determined which
specific option-pricing model it will use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SFAS&nbsp;No.&nbsp;123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), there were no amounts of operating cash flows
recognized in prior periods for such excess tax deductions in
2004, 2003 or 2002.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Use of Estimates</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of financial statements in conformity with
United States 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.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>3.</B></TD>
    <TD>
    <B>Acquisitions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Company made payments of approximately
$0.7&nbsp;million with respect to contingent payments
established as a result of certain previous acquisitions. These
amounts represent payments of purchase price and have been
recorded as goodwill. Such amounts are not deductible for tax
purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective December&nbsp;31, 2003, the Company acquired all of
the outstanding stock of a corporation that provides hospital
physician staffing services under two contracts at locations in
Ohio. The purchase price for the acquired corporation was
$1.6&nbsp;million, including $0.1&nbsp;million which was paid in
cash on December&nbsp;31, 2003 and the remaining
$1.5&nbsp;million paid in January 2004. As of December&nbsp;31,
2004, the Company may have to make up to an additional
$0.9&nbsp;million in future payments if targeted future earnings
are achieved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective September&nbsp;1, 2002, the Company acquired all of
the outstanding stock of three corporations held by a single
shareholder. The acquired corporations provide hospital
emergency department and hospital physician staffing services
under five contracts for locations in West Virginia and
Virginia. The purchase price for the acquired corporations was
$8.6&nbsp;million of which $5.2&nbsp;million was paid in cash at
September&nbsp;1, 2002 with the remainder of the purchase price
due in four annual installments of $0.9&nbsp;million,
$0.9&nbsp;million, $1.1&nbsp;million and $0.5&nbsp;million
commencing on October&nbsp;31, 2003. In addition, the Company as
of December&nbsp;31, 2004, may have to pay up to
$2.0&nbsp;million in future contingent payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On May&nbsp;1, 2002, the Company acquired all of the operations
of Spectrum Health Resources (&#147;SHR&#148;). SHR is a leading
provider of permanent healthcare staffing services to military
treatment facilities. The acquisition of SHR, which provides
services similar to the existing staffing operations of the
Company, significantly expanded the Company&#146;s base of
business by providing an entry into a portion of the healthcare
staffing market not previously served by the Company The Company
acquired the operations of SHR through the purchase of all of
the outstanding stock of the parent company of SHR and the
refinancing of the parent company&#146;s outstanding debt. The
total purchase price for SHR was paid in cash and totaled
approximately $145.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s three equity sponsors control a majority of
the Company&#146;s voting common stock. Those three equity
sponsors were also controlling equity investors in SHR prior to
and at the time of entering into
</DIV>

<P align="center" style="font-size: 10pt;">F-13

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
the definitive purchase agreement. Prior to negotiating the
final purchase price and entering into the definitive purchase
agreement to acquire SHR, the Board of Directors took the
following steps:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors appointed
    a Special Committee, consisting of three Directors who are not
    affiliated with the equity sponsors. The Special Committee was
    authorized to (i)&nbsp;consider, negotiate and approve the
    acquisition of SHR, (ii)&nbsp;retain such legal counsel and
    advisers and consultants as they deem appropriate,
    (iii)&nbsp;consider, negotiate and approve the terms of any
    financing related to the transaction, and (iv)&nbsp;expend any
    funds in furtherance of the duties granted to it. The final
    authority to approve the acquisition and financing rested with
    the full Board of Directors, but the Board of Directors could
    not approve any transaction not recommended by the Special
    Committee.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Two of the three equity sponsors
    along with the Company&#146;s management members assisted the
    Special Committee in the evaluations and negotiations of the
    transaction on behalf of the Company. The largest common equity
    sponsor in SHR and the Company represented SHR in its evaluation
    and negotiation of the transaction.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Special Committee obtained
    an opinion from the investment-banking firm of SunTrust Robinson
    Humphrey, a division of SunTrust Capital Markets, Inc., that the
    purchase price paid for SHR was fair from a financial point of
    view to the equity holders of the Company as well as its bond
    holders.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January&nbsp;1, 2002, the Company completed the
acquisition of certain of the assets and related business
operations of two businesses. The operations acquired include
those of L&#38;S Medical Management, Inc. (&#147;L&#38;S&#148;)
and a pediatric services business. L&#38;S provides billing and
other management services on a management fee basis to
anesthesiology practices, principally in the Southeastern
portion of the United States. The pediatric services operation
provides evenings and weekend pediatric urgent care and
non-trauma emergency practice services at several locations in
Florida. The pediatric services provided are billed by the
Company on a fee-for-service basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The assets and operations of L&#38;S were acquired for
$6.4&nbsp;million in cash and the Company as of
December&nbsp;31, 2004, may have to make up to $2.5&nbsp;million
in future contingent payments relating to this acquisition. The
assets and operations of the three pediatric services locations
were acquired for $4.7&nbsp;million in cash. The Company as of
December&nbsp;31, 2004, may have to make up to $3.4&nbsp;million
in future contingent payments for the existing business
operations if targeted future earnings levels are achieved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following schedule summarizes investing activities related
to acquisitions and contingent payments included in the
consolidated statements of cash flows for 2004, 2003 and 2002,
respectively, (in thousands):
</DIV>

<CENTER>
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<TR style="font-size: 1pt;">
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of net operating assets acquired (liabilities assumed)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,116</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,676</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fair value of contracts acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>709</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>140,536</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for acquisitions, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,472</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>165,722</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The acquisitions noted above were accounted for using the
purchase method of accounting. The operating results of the
acquired businesses have been included in the accompanying
consolidated statements of operations from their respective
dates of acquisition.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>4.</B></TD>
    <TD>
    <B>Goodwill Impairment Loss</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Company derived approximately
$207.5&nbsp;million of revenue for services rendered to military
personnel and their dependents as either a subcontractor under
the TRICARE program administered by the Department of Defense or
by direct contracting with military treatment facilities. The
Company had historically provided its services principally
through subcontract arrangements with managed care
</DIV>

<P align="center" style="font-size: 10pt;">F-14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
organizations that contracted directly with the TRICARE program.
In 2004, the military subjected all of its outsourced healthcare
staffing to a re-bidding process with successful bidders
contracting directly with military treatment facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the second quarter of 2004, the Department of Defense
announced that it would seek proposals to obtain its outsourced
healthcare staffing positions in a manner different than
previously used to acquire such positions. The most significant
announcement was that the military was no longer going to obtain
such staffing through managed care organizations with whom the
Company had previously secured a preferred subcontractor status
position. Instead, the military announced that it was going to
secure such positions through a competitive bidding process
regardless of past incumbency in staffing such positions. The
introduction of a new form of competition posed an immediate
threat to the existing revenues and operating margins being
experienced by the Company. Furthermore, because responsibility
for such contracting within the military was turned over to
government procurement officers, the aspect of pricing versus
existing relationships and service levels was going to prevail
in terms of vendor selection by the military. In addition, the
various branches of the military established certain restrictive
criteria for purposes of eligibility to bid on certain of their
staffing requests for certain proposals, some of which precluded
our Company from bidding for new staffing contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Department of Defense and its various military branches
began on June&nbsp;1, 2004, awarding contracts for the civilian
positions that it required going forward. The process of
awarding healthcare staffing contracts by the government varied
by branch of the military and by military base location within
the various branches of the military. The award process included
soliciting requests for proposals from organizations that
provide civilian healthcare staffing, including the use of
restrictive government or military approved vendor lists, some
of which did not include the Company. In other instances, the
military re-bid its business on a basis that is inclusive of
existing providers, such as the Company, without the use of
restricted vendor lists. Furthermore, the awarding of certain
bids was restricted to small business or minority qualified
businesses for which the Company was not eligible to even bid
for the contracts. The new military staffing contracts resulting
from the re-bidding process vary as to form and duration on an
individual staffing position basis. The duration of such
contracts typically ranges from one year with no renewal options
to renewal options on the part of the military with such option
periods ranging from one to five years. The above noted facts
and circumstances were concluded by management to be a
&#147;triggering event&#148; under the provisions of
SFAS&nbsp;No.&nbsp;142, <I>&#147;Goodwill and Other Tangible
Assets&#148;.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of the Company&#146;s military
staffing revenues that were subject to re-bidding under the new
TRICARE program contracting process (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Annual revenue derived from contracts subject to re-bidding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>210,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Annual revenue value of bids won to date (including new business
    of $20.1&nbsp;million)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Percentage of revenue retained or new business won to total of
    annual revenue re-bid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management concluded that the Company&#146;s previous revenues
and operating margins were materially adversely affected as a
result of the re-bidding process. The Company prior to the
recognition of any impairment loss had $127.9&nbsp;million of
goodwill related to its military staffing business The Company
recorded an impairment loss of $73.2&nbsp;million relating to
its military business goodwill in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The goodwill impairment loss was determined following the
provisions of SFAS&nbsp;No.&nbsp;142. Accordingly, the Company
initially estimated the fair market value of the military
staffing business. The fair market value of the business was
determined using a multiple of projected cash flows based on
known contracts won as well as management&#146;s estimate of its
expectations of winning bids for remaining business contracts to
be awarded by the military. The average cash flow multiple was
derived from averaging the cash flow multiples for public
companies in the healthcare staffing market over a two-year
period. The carrying value of the business exceeded its
estimated fair market value. The fair market value was allocated
to the underlying net
</DIV>

<P align="center" style="font-size: 10pt;">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
assets of the business following generally accepted accounting
principles for allocating purchase prices. This included an
allocation of value to the components of working capital;
contract intangibles (based on a discounting of future cash
flows estimated to be derived from such contracts) with the
remainder of such fair value assigned to goodwill. The
aforementioned allocation process included estimates for
additional business contracts to be awarded by the military
projected to be won by the Company based on the Company&#146;s
experience in winning new contracts not previously held by the
Company and in recognition of the Company&#146;s experience and
capabilities in providing such ongoing staffing services to the
military.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>5.</B></TD>
    <TD>
    <B>Other Intangible Assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of other intangible assets and
related amortization as of December&nbsp;31, 2004 and 2003 for
intangibles that are subject to amortization (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Carrying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of December&nbsp;31, 2004:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contracts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,560</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>32,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,780</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of December&nbsp;31, 2003:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contracts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,898</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>174</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,062</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,072</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Total amortization expense for other intangibles was
$5.4&nbsp;million, $10.6&nbsp;million and $4.8&nbsp;million for
the years 2004, 2003 and 2002, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The estimated annual amortization expense for intangibles for
the next five years is as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,147</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,582</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,151</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>688</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Company recorded an additional
$0.7&nbsp;million of goodwill and in 2003 recorded an additional
$3.5&nbsp;million of goodwill and $2.1&nbsp;million of contract
intangibles as a result of its acquisitions during the periods
and contingent acquisition payments made for previous
acquisitions. Contract intangibles are amortized over their
estimated lives which are approximately seven years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2003 and 2002, the Company recorded as an impairment loss
$0.2&nbsp;million and $2.3&nbsp;million, respectively, to reduce
its contract intangibles to their estimated fair value. The
impairment losses recorded in 2003 and 2002 are the result of
either reduced contract profitability and thus expected future
cash flows, or a termination of contracts for which an
intangible asset had previously been recorded.
</DIV>

<P align="center" style="font-size: 10pt;">F-16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>6.</B></TD>
    <TD>
    <B>Property and Equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment consists of the following at
December&nbsp;31 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Buildings and leasehold improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,885</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Furniture and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,280</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Software</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,824</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,910</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,989</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less accumulated depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,285</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(24,022</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,967</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation expense in 2004, 2003 and 2002 was approximately
$8.3&nbsp;million, $9.0&nbsp;million and $9.4&nbsp;million,
respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>7.</B></TD>
    <TD>
    <B>Receivables Under Insured Programs</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Receivables under insured programs represent the portion of the
Company&#146;s reserves for professional liability losses
estimated to be reimbursable under commercial insurance company
policies. The entities providing professional liability coverage
to the Company are creditworthy commercial insurance companies
and the Company believes these companies will be able to fully
satisfy their obligations under the insurance contracts.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>8.</B></TD>
    <TD>
    <B>Other Assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other assets consist of the following as of December&nbsp;31 (in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>24,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,474</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,043</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,832</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,158</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Investments represent funds held within the Company&#146;s
captive insurance company to meet expected professional
liability insurance loss obligations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><B>9.</B></TD>
    <TD>
    <B>Investments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Short term investments have a maturity of less than a year and
consist primarily of commercial paper, treasury notes, and euro
deposits. Long term investments represent securities held by the
captive insurance subsidiary and consist primarily of money
market funds, treasury notes, and certificates of deposits. At
December&nbsp;31 the amortized cost basis and aggregate fair
value of the Company&#146;s available-for-sale securities by
contractual maturities were as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Aggregate</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortized</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Aggregate</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Cost Basis</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Cost Basis</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Due in less than one year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>71,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>70,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Due after one year through five years</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>89,357</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>89,007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, there were $3,000 of gross
unrealized gains and $353,000 of gross unrealized losses on
investments. There were no gross unrealized gains or unrealized
losses on investments as of December&nbsp;31, 2003. There were
no realized gains or losses on investments for the years ended
December&nbsp;31, 2004 and 2003.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>10.</B></TD>
    <TD>
    <B>Other Accrued Liabilities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s other accrued liabilities at December&nbsp;31
consist of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability loss reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>55,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>66,136</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,740</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>72,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>82,876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>11.</B></TD>
    <TD>
    <B>Long-Term Debt</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-term debt as of December&nbsp;31 consists of the following
(in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Term Loan&nbsp;Facilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>248,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>199,415</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    9%&nbsp;Senior Subordinated Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>180,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12%&nbsp;Senior Subordinated Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>428,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299,415</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less current portion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(43,528</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>413,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>255,887</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Term Loan&nbsp;Facilities consist of the following (in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior Secured Term Loan&nbsp;A</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>56,478</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Senior Secured Term Loan&nbsp;B</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>248,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>142,937</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>248,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>199,415</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The interest rates for any senior revolving credit facility
borrowings (none outstanding in 2004) are based on a grid which
is based on the consolidated ratio of total funded debt to
earnings before interest, taxes, depreciation and amortization,
all as defined in the credit agreement. The interest rate on any
current Term Loan&nbsp;B amount outstanding is equal to the euro
dollar rate plus 3.25% or the agent bank&#146;s base rate plus
2.25%. In the event of a default by the Company under its bank
loan covenants, such interest rates would increase by 2% over
the current rates then in effect. Upon expiration of the current
interest rate period, the Company would have to pay the agent
bank&#146;s base rates plus 2% plus the maximum applicable
margin. Under the bank&#146;s base rate borrowing base, the
maximum applicable margin for any senior revolving credit
facility borrowing amounts is 2.75% and for Term Loan&nbsp;B
amounts is 3.25%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The interest rate at December&nbsp;31, 2004 was 5.81% for
amounts outstanding under Term Loan&nbsp;B. In addition, the
Company pays a commitment fee for the revolving credit facility
which was equal to 0.5% of the commitment at December&nbsp;31,
2004. No funds have been borrowed under the revolving credit
facility as of December&nbsp;31, 2004, but the Company had
$3.8&nbsp;million of standby letters of credit outstanding
against the revolving credit facility commitment. The Company
has a forward interest rate swap agreement that became effective
April&nbsp;29, 2004, to effectively convert $35.0&nbsp;million
of floating-rate borrowings to 3.2% fixed-rate borrowings
through March&nbsp;31, 2007. These agreements expose the Company
to credit losses in the event of non-performance by the
counterparties to its financial instruments. The counterparties
are creditworthy
</DIV>

<P align="center" style="font-size: 10pt;">F-18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
financial institutions and the Company anticipates that the
counterparties will be able to fully satisfy their obligations
under the contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company issued on March&nbsp;23, 2004, 9%&nbsp;Senior
Subordinated Notes (&#147;Notes&#148;) in the amount of
$180.0&nbsp;million due April&nbsp;1, 2012. The Notes are
subordinated in right of payment to all senior debt of the
Company and are senior in right of payment to all existing and
future subordinated indebtedness of the Company. Interest on the
Notes accrues at the rate of 9%&nbsp;per annum, payable
semi-annually in arrears on April&nbsp;1 and October&nbsp;1 of
each year. Beginning on April&nbsp;1, 2008, the Company may
redeem some or all of the Notes at any time at various
redemption prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Notes are guaranteed jointly and severally on a full and
unconditional basis by all of the Company&#146;s majority-owned
operating subsidiaries (&#147;Subsidiary Guarantors&#148;) as
required by the Indenture Agreement. The Company is a holding
company with no assets or operations apart from the ownership of
its operating subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Both the 9%&nbsp;Notes and the current term loan facility
contain both affirmative and negative covenants, including
limitations on the Company&#146;s ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets
of another business, pay dividends, and require the Company to
meet or exceed certain coverage, leverage and indebtedness
ratios. The terms of both the current term loan facility and the
Notes restrict the amount of dividends payable by the Company.
As of December&nbsp;31, 2004, no dividends are available for
payment under the most restrictive terms of the Company&#146;s
debt agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The senior credit agreement includes a provision for the
prepayment of a portion of the outstanding term loan amounts at
any year-end if the Company generates &#147;excess cash
flow,&#148; as defined in the agreement. The Company has
estimated that it will be required to make an excess cash flow
payment of approximately $15.0&nbsp;million for fiscal 2004 by
April&nbsp;30, 2005. The estimated excess cash flow payment has
been included within current maturities of long-term debt in the
accompanying balance sheet at December&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective March&nbsp;23, 2004, the Company completed a tender
offer for its then outstanding 12%&nbsp;Senior Subordinated
Notes in the amount of $100.0&nbsp;million, plus a call premium
of $8.2&nbsp;million and entered into its current senior credit
facilities with a group of banks. As a result of entering into
the new senior credit facilities and the redemption of its
12%&nbsp;Senior Subordinated Notes, the Company recognized in
2004 refinancing costs of approximately $14.7&nbsp;million
($9.0&nbsp;million net of related income tax benefit of
$5.7&nbsp;million), principally relating to the write-off of
approximately $6.2&nbsp;million of capitalized financing costs
on its previously outstanding long-term debt and the incurrence
of the call premium to redeem the 12%&nbsp;Senior Subordinated
Notes. In addition, as a result of repayment of underlying
borrowings during 2004, the Company recorded as additional
interest expense approximately $1.7&nbsp;million in 2004 related
to an interest rate swap agreement to reflect its value on a
mark-to-market basis. The interest rate swap agreement was
subsequently terminated in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aggregate annual maturities of long-term debt as of
December&nbsp;31, 2004 are as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,373</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,373</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,373</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,373</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>403,633</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>428,125</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-19

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>12.</B></TD>
    <TD>
    <B>Other Noncurrent Liabilities</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other noncurrent liabilities consist of the following as of
December&nbsp;31 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability loss reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>187,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>165,798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,626</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,133</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>195,917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>182,557</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s professional liability loss reserves at
December&nbsp;31 consist of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated losses under self-insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>108,710</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated losses under commercial insurance programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,224</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>231,934</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&nbsp;&#151; estimated amount payable within one year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,136</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>187,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>165,798</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides for its estimated professional liability
losses through a combination of commercial insurance company
coverage as well as reserves established to provide for future
payments under self-insured retention components and to
establish reserves for future claims incurred but not reported.
During the period March&nbsp;12, 1999 through March&nbsp;11,
2003, the primary source of the Company&#146;s coverage for such
risks was a professional liability insurance policy provided
through one insurance carrier. The policy with the
Company&#146;s primary insurance carrier for such coverage and
period provided coverage for potential liabilities on a
&#147;claims-made&#148; basis. The policy included the ability
for the Company to be able to exercise a &#147;tail&#148;
premium option. The tail premium option included an aggregate
limit of $130.0&nbsp;million during the period March&nbsp;12,
1999 to March&nbsp;11, 2003. As a result of conditions in the
professional liability insurance market, the Company decided
that it would provide, beginning March&nbsp;12, 2003, for such
risks previously covered by the Company&#146;s primary insurance
carrier through a captive insurance company. Since
March&nbsp;12, 2003, loss estimates on a &#147;claims-made&#148;
basis are being provided for and funded within the captive
insurance company. Additionally, the Company is providing for an
actuarial estimate of losses for professional liability claims
incurred but not reported since March&nbsp;12, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The option for the tail premium was exercised by the Company
effective March&nbsp;11, 2003, and its cost of approximately
$30.6&nbsp;million, was paid in April 2003. The Company had
previously recorded the cost of such option over the four-year
period ended March&nbsp;11, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s decision to forego commercial professional
liability insurance in favor of a self-insured program was, in
part, based on the results of an actuarial study. The actuarial
study was prepared to provide the Company with an actuarial
estimate of the current annual cost of its professional
liability claim losses and related expenses and also to estimate
the Company&#146;s potential exposure to prior period losses
under the $130.0&nbsp;million aggregate policy limit. The
foregoing actuarial study included numerous underlying estimates
and assumptions, including assumptions as to future claim
losses, the severity and frequency of such projected losses,
loss development factors, and others. The results of the
actuarial study included a projection that the Company would
incur a loss resulting from claims for the covered periods
exceeding the $130.0&nbsp;million aggregate insurance company
loss limit under the previous policy. Such loss estimate,
discounted at 4% over the projected future payment periods,
totaled $50.8&nbsp;million and is reflected in the
Company&#146;s statement of operations for 2003.
</DIV>

<P align="center" style="font-size: 10pt;">F-20

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s provisions for losses subsequent to
March&nbsp;11, 2003, that are not covered by commercial
insurance company coverage are subject to subsequent adjustment
should future actuarial projected results for such periods
indicate projected losses are greater or less than previously
projected. In addition, the results of future actuarial studies
may result in the loss estimate provision under the aggregate
policy limit to be further adjusted upward or downward as
actuarial results are realized over time.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>13.</B></TD>
    <TD>
    <B>Redemption of 10% Cumulative Preferred Stock</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Board of Directors of the Company authorized
the redemption of the Company&#146;s 10% Cumulative Preferred
Stock. On March&nbsp;23, 2004, the Company redeemed its 10%
Cumulative Preferred Stock in the amount of approximately
$162.4&nbsp;million, including accrued dividends.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>14.</B></TD>
    <TD>
    <B>Shareholders&#146; Equity</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004 and 2003, the Company recorded the cost of acquiring
271,020 and 70,828&nbsp;shares, respectively, of its common
stock and common units of Holdings from members of its
management at a total cost of $4.5&nbsp;million in 2004 and
$0.9&nbsp;million in 2003. The consideration for the shares
acquired in 2004 consisted of cash of $2.7&nbsp;million and a
note payable in the amount of $1.8&nbsp;million payable in two
equal installments on January&nbsp;1, 2005 and 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Company sold 22,600&nbsp;shares of its
$0.01&nbsp;par value common stock to members of its management
for net proceeds of $0.1&nbsp;million. During 2002, the Company
sold 67,513&nbsp;shares of its $.01&nbsp;par value common stock
to members of its management and Board of Directors for net
proceeds of $0.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 2004, the Board of Directors authorized the Company to cancel
certain common shares that had been acquired from former members
of management and were accounted for as treasury shares. Certain
of the previously repurchased treasury shares represented common
units in Holdings and the remainder were common shares of the
Company. To facilitate the share cancellation, the Company and
Holdings exchanged a like number of common shares and units each
owned of the other. Following the exchange with Holdings, the
Company cancelled 362,321 common shares which reduced the
carrying value of treasury shares by $4.7&nbsp;million. As of
December&nbsp;31, 2004, the Company held 51,833 treasury shares
at a cost of $0.8&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Board of Directors declared a cash dividend
to shareholders of record as of March&nbsp;18, 2004, in the
amount of approximately $27.6&nbsp;million which was
subsequently paid on March&nbsp;23, 2004. The Board of Directors
also authorized a compensatory payment to holders of stock
options in lieu of a cash dividend in the amount of
approximately $2.5&nbsp;million of which $1.3&nbsp;million was
paid and expensed on March&nbsp;23, 2004, with the balance of
$1.1&nbsp;million to be paid and expensed in future periods as
such stock options vest.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>15.</B></TD>
    <TD>
    <B>Stock Options</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s 1999 Stock Option Plan (the &#147;Plan&#148;)
allows the granting of stock options to employees, consultants
and directors of the Company. The Company has reserved
1,245,926&nbsp;shares of common stock for issuance. The options
vest at the end of an eight-year period, but allow for the
possible acceleration of vesting if certain performance related
criteria are met.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January&nbsp;1, 2003, the Company adopted the fair
value recognition provisions of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>, prospectively to
all new awards granted to employees after January&nbsp;1, 2003.
Prior to January&nbsp;1, 2003, the Company applied the
recognition and measurement provisions of APB Opinion
No.&nbsp;25, <I>Accounting for Stock Issued to Employees</I>,
and related Interpretations in accounting for options awarded.
No stock-based employee compensation expense is reflected in net
earnings for 2002 as all options granted prior to
January&nbsp;1, 2003 had an exercise price equal to the market
value of the underlying common stock on the date of grant.
Therefore, the expense related to stock-based employee
compensation
</DIV>

<P align="center" style="font-size: 10pt;">F-21

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
included in the determination of net earnings for 2002 is less
than that which would have been recognized if the fair value
method had been applied to all awards since adoption of the
plan. The following table illustrates the effect on net earnings
(loss) if the fair value method had been applied to all
outstanding and unvested awards in each period (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,814</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,251</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,009</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: stock-based employee compensation expense included in net
    earnings (loss) attributable to common shareholders, net of
    related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(164</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(151</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(114</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(52,935</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(17,383</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,900</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Stock option activity during 2002, 2003 and 2004 was as follows
(options in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Price Range</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at December&nbsp;31, 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.50-&nbsp;4.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.39</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.50-12.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10.34</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-&nbsp;4.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>850</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-12.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(34</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-&nbsp;4.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.00</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-13.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.34</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Granted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Exercised</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-&nbsp;4.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.69</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cancelled</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(38</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.50-12.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.74</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Outstanding at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.50-15.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6.85</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes information about stock options
outstanding at December&nbsp;31, 2004 (options in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted Average</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Remaining</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Outstanding</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercise Price</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Exercisable</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Contractual Life</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>1.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>95</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>111</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>6.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>12.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>89</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>7.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>13.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>8.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>15.18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>9.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>6.85</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>6.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, 2003 and 2002, there were 426,687,
148,343 and 161,532&nbsp;shares that were vested and
exercisable, respectively.
</DIV>

<P align="center" style="font-size: 10pt;">F-22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Approximately 46,000 of the 826,725 options outstanding at
December&nbsp;31, 2004 were granted to affiliated independent
contractor physicians in previous years. The Company recorded
$6,396 of compensation expense in 2004, $18,061 in 2003 and
$9,000 in 2002, based on grant date assumptions of a fair value
of $0.68&nbsp;per option, 6.0% risk-free interest rate and a ten
year expected option life relating to these options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table represents the weighted average fair value
of options granted during 2004, 2003 and 2002:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Weighted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Fair Value</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5.27</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4.45</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2.60</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The fair value of stock options was estimated at the date of
grant using the minimal value option pricing model with the
following assumptions: expected dividend yield of 0% in 2004,
2003 and 2002; risk-free interest rate of 4.27%, 4.0% and 2.0%
in 2004, 2003 and 2002, respectively; and an expected life of
ten years in 2004, 2003 and 2002.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>16.</B></TD>
    <TD>
    <B>Net Revenues</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues in 2004, 2003 and 2002, respectively, consisted of
the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fee for service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,168,099</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,040,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>907,596</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contract revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>373,918</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>408,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>292,740</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,157</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,367</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,572,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,479,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,230,703</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>17.</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provision for income tax expense (benefit) consists of the
following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,336</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,902</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,904</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,346</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,699</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,646</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(788</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,703</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,134</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19,402</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,958</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>11,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,410</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>13,198</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The reconciliation of income tax expense computed at the federal
statutory tax rate to income tax expense (benefit) is as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Tax at statutory rate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>35.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State income tax (net of federal tax benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.0</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Costs not deductible for tax purposes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>68.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Resolution of tax issue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5.1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2.6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33.4</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44.5</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The components of the
Company&#146;s deferred tax assets and liabilities are as
follows at December&nbsp;31 (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,890</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,478</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>865</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,233</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current deferred tax liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Affiliate deferred revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,284</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,117</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,284</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(37,117</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net current deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(20,407</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(20,884</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization and depreciation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,669</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,378</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net operating losses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,623</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total long term deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>99,583</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>102,770</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long term deferred tax liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,630</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,875</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,259</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net long-term deferred tax asset</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>96,881</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>119,003</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,284</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,747</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valuation allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,875</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,259</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>76,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>75,997</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company as of December&nbsp;31, 2004, had operating loss
carryforwards in various states that begin to expire in 2010
through 2030.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>18.</B></TD>
    <TD>
    <B>Retirement Plans</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s employees participated in various employee
benefit plans sponsored by the Company. The plans are primarily
defined contribution plans. The various entities acquired or
merged into the Company have various retirement plans that have
been terminated, frozen or amended with terms consistent with
the Company&#146;s plans. The Company&#146;s contributions to
the plans were approximately $3.0&nbsp;million in 2004,
$3.3&nbsp;million in 2003 and $3.6&nbsp;million 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company maintains a retirement savings plan for its
employees. The plan is a defined benefit contribution plan in
accordance with the provisions of Section&nbsp;401(k) of the
Internal Revenue Code. The plan provides for a discretionary
match by the Company up to a maximum of 50% of the first 6% of
compensation contributed by employees. The Company&#146;s
provisions in 2004, 2003 and 2002 reflect the maximum
discretionary provisions provided for under the amended plan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company also maintains non-qualified deferred compensation
plans for certain of its employees. Total deferred compensation
payable as of December&nbsp;31, 2004 and 2003 was approximately
$7.3&nbsp;million and $12.9&nbsp;million, respectively. During
2004, the assets held within a rabbi trust that was maintained
for the benefit of certain members of the Company&#146;s senior
management were paid to its employee participants in connection
with a refinancing of the Company&#146;s capital structure. The
rabbi trust had held preferred units in Team Health Holdings,
LLC. The deferred compensation liability and related investment
held by the rabbi trust were carried as a long-term liability
and a long-term asset at December&nbsp;31, 2003 in the amount of
$8.6&nbsp;million.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>19.</B></TD>
    <TD>
    <B>Commitments and Contingencies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Leases</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases office space for terms of primarily one to
ten years with options to renew for additional periods. Future
minimum payments due on these noncancelable operating leases at
December&nbsp;31, 2004 are as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="84%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,716</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,783</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,142</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,373</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,058</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,554</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,626</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-25

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Operating lease costs were approximately $8.4&nbsp;million,
$8.0&nbsp;million and $7.3&nbsp;million for the years ended
December&nbsp;31, 2004, 2003 and 2002, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Litigation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are party to various pending legal actions arising in the
ordinary operation of our business such as contractual disputes,
employment disputes and general business actions as well as
professional liability actions. We believe that any payment of
damages resulting from these types of lawsuits would be covered
by insurance, exclusive of deductibles, would not be in excess
of related reserves, and such liabilities, if incurred, should
not have a significant negative effect on the results of
operations and financial condition of our Company.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Indemnity</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the acquisition of a company that specializes
in providing medical staff providers to military treatment
facilities on May&nbsp;1, 2002, subject to certain limitations,
the previous shareholders of such company and its related
entities have indemnified the Company up to a limit of
$10.0&nbsp;million relating to any claims asserted against the
acquired company during the three years subsequent to the date
of its acquisition related to tax matters whose origin was
attributable to tax periods prior to May&nbsp;1, 2002.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Healthcare Regulatory Matters</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. Compliance
with such laws and regulations can be subject to future
governmental review and interpretation as well as significant
regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company&#146;s
practices. It is the Company&#146;s current practice and future
intent to cooperate fully with such inquiries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to laws and regulations governing the Medicare and
Medicaid programs, there are a number of federal and state laws
and regulations governing such matters as the corporate practice
of medicine and fee splitting arrangements, anti-kickback
statutes, physician self-referral laws, false or fraudulent
claims filing and patient privacy requirements. The failure to
comply with any of such laws or regulations could have an
adverse impact on our operations and financial results. It is
management&#146;s belief that the Company is in substantial
compliance in all material respects with such laws and
regulations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Contingent Acquisition Payments</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, the Company may have to pay up to
$8.8&nbsp;million in future contingent payments as additional
consideration for acquisitions made prior to December&nbsp;31,
2004. These payments will be made and recorded as additional
purchase price should the acquired operations achieve the
financial targets contracted in the respective agreements
related to their acquisition.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Office of Inspector General Information Request</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;30, 2004, the Company received a subpoena from the
Department of HHS Office of Inspector General (&#147;OIG&#148;),
located in Concord, California, requesting certain information
for the period 1999 to present relating to its billing
practices. To date, the Company has produced and delivered to
the OIG certain requested information, and the OIG has stayed
further requests. The Company has learned in conversations with
representatives of the OIG and the United States Attorney for
the Northern District of California, the basis for the issuance
of the subpoena is a complaint filed in the United States
District Court for the Northern District of California
(&#147;Court&#148;) by an individual on behalf of the
government. The identity of the qui tam relator and portions of
the qui tam complaint remain sealed by the Court pending the
government&#146;s investigation. The portions of the complaint
not under seal allege that the Company engaged in certain
billing practices that resulted in the Company&#146;s receipt of
duplicate payments for the same medical service and that the
Company misled certain providers about the entities that were
performing their billing services.
</DIV>

<P align="center" style="font-size: 10pt;">F-26

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Additionally, the portions of the complaint not under seal
allege that the Company terminated the employment of the
individual who filed the complaint in retaliation for that
individual&#146;s bringing of these allegations to the attention
of the Company. The Company denies these allegations and does
not believe that any of its current or prior billing practices
would form the basis for a violation of federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is fully cooperating with the OIG in its request
described herein and have been producing and delivering to the
OIG the requested documents. However, due to lack of more
specific information available to it at this time, it is unable
to ascertain the full scope of the government&#146;s inquiry or
the qui tam relator&#146;s complaint. Management cannot predict
the outcome of this investigation or suit or their respective
durations. If this investigation results in current or prior
billing practices being identified as violative of applicable
laws or regulations, results in penalties being imposed upon the
Company, or results in an adverse determination in the qui tam
relator&#146;s complaint against it, the impact could have a
material adverse effect on the Company&#146;s business and
financial condition.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>20.</B></TD>
    <TD>
    <B>Related Party Transactions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company leases office space from several partnerships that
are partially or entirely owned by certain employees of the
Company. The leases were assumed by the Company as part of
merger or purchase transactions. Total related party lease costs
were approximately $1.0&nbsp;million in 2004, 2003 and 2002. In
addition, the Company has a management services agreement with
three of our equity sponsors to provide certain management
services. Management services paid under this arrangement were
$0.5&nbsp;million in 2004, 2003, and 2002.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>21.</B></TD>
    <TD>
    <B>Segment Reporting</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has two reportable segments: Healthcare Services and
Management Services. Healthcare Services provides professional
healthcare staffing in various healthcare provider settings,
such as hospitals, clinics and military treatment facilities.
Management Services consists of medical group management
services and external billing and collection services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Segment amounts disclosed are prior to any elimination entries
made in consolidation, except in the case of net revenues, where
intercompany charges have been eliminated. Certain expenses are
not allocated to the segments. These unallocated expenses are
corporate expenses, net interest expense, depreciation and
amortization, refinancing costs and income taxes. The Company
evaluates segment performance based on profit and loss before
the aforementioned expenses. Assets not identifiable to an
individual segment are corporate assets, which are primarily
comprised of cash and cash equivalents, short term investments,
computer related fixed assets and intercompany receivables and
loans (which are eliminated in consolidation).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents financial information for each
reportable segment. Depreciation, amortization, impairment of
intangibles, management fee and other expenses separately
identified in the consolidated statements of operations are
included as a reduction to the respective segments&#146;
operating earnings for each year below (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net Revenues:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>988,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>984,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>817,346</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,752</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,008,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>999,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>834,098</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-27

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO THE CONSOLIDATED
FINANCIAL&nbsp;STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>December&nbsp;31, 2004</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Earnings:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>36,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>46,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>86,814</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,542</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,059</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(33,603</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,329</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(32,948</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>56,925</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital Expenditures:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,457</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,011</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,858</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>8,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,796</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total Assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>376,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>463,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>545,689</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,576</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,998</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>214,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>245,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,553</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>731,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>674,240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>22.</B></TD>
    <TD>
    <B>Fair Values of Financial Instruments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following methods and assumptions were used by the Company
in estimating the fair value of the Company&#146;s financial
instruments:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt;">

<TR>
    <TD width="20%"></TD>
    <TD width="1%"></TD>
    <TD width="79%"></TD>
</TR>

<TR>
    <TD valign="top">
    Cash and cash equivalents:</TD>
    <TD></TD>
    <TD valign="top">
    The carrying amount reported in the balance sheets for cash and
    cash equivalents approximates its fair value.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Accounts receivable:</TD>
    <TD></TD>
    <TD valign="top">
    The carrying amount reported in the balance sheets for accounts
    receivable approximates its fair value.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Investments:</TD>
    <TD></TD>
    <TD valign="top">
    The fair market value of investments were determined based upon
    quoted market rates, where available, or discounted cash flows
    if no market value was available.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Long-term debt:</TD>
    <TD></TD>
    <TD valign="top">
    Fair values for debt were determined based on interest rates
    that are currently available to the Company for issuance of debt
    with similar terms and remaining maturities for debt issues that
    are not traded on quoted market prices. The fair value of the
    Company&#146;s total debt, which has a carrying value of
    $428.1&nbsp;million, is approximately $424.1&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Interest rate swap:</TD>
    <TD></TD>
    <TD valign="top">
    The fair value of the Company&#146;s interest rate swap
    agreement was zero at December&nbsp;31, 2004 based on quoted
    market prices for similar interest rate contracts.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-28

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='306'></A>
</DIV>

<!-- link1 "TEAM HEALTH, INC." -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CONSOLIDATED BALANCE SHEETS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(In thousands, except</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>per share data)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="10" align="center" valign="top">
    <B>ASSETS</B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current assets:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,931</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Short term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,651</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable, less allowance for uncollectibles of
    $138,098 and $126,351 in 2005 and 2004, respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,837</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,852</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses and other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,860</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>256,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>299,601</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investments of insurance subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,449</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insurance programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,804</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94,495</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>96,708</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other intangibles, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,624</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,992</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>95,197</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,383</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>560,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="10">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="10" align="center" valign="top">
    <B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY (DEFICIT)</B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Current liabilities:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>9,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,004</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and physician payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>74,662</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,160</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>76,818</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72,988</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,670</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current maturities of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,535</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,407</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>185,721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,229</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt, less current maturities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>345,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>413,125</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other non-current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>195,917</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, $0.01&nbsp;par value 12,000&nbsp;shares
    authorized, 9,816&nbsp;shares issued at June&nbsp;30, 2005 and
    9,729&nbsp;shares issued at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>919</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(168,825</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(198,891</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less treasury shares at cost</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(445</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(787</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accumulated other comprehensive earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(218</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>560,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>610,391</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to financial statements
</DIV>

<P align="center" style="font-size: 10pt;">F-29

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='308'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF OPERATIONS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF OPERATIONS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>799,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>786,032</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>291,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>268,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net revenues less provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>508,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>517,404</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of services rendered</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional service expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>366,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>385,948</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,891</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101,565</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General and administrative expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,819</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management fee and other expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>613</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,944</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,913</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,326</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Refinancing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,731</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated impairment loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,819</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,707</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(49,687</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,266</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55,953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends on preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,602</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,555</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-30
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='309'></A>
</DIV>

<!-- link1 "CONSOLIDATED STATEMENTS OF CASH FLOWS" -->

<DIV align="center" style="font-size: 10pt;">
<B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(Unaudited)</B></TD><TD></TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>(In thousands)</B></TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Operating Activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(55,953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net earnings (loss):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,166</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,944</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>549</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Write-off of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,225</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated impairment loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>65,819</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for uncollectibles</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>291,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>268,628</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,385</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on sale of investment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on sale of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>362</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity in joint venture income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(953</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(565</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities, net of acquisitions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(298,345</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(252,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaids and other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11,446</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,382</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax receivables</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,168</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,752</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Receivables under insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,565</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,855</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,693</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,422</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and physician payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,681</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,120</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,640</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Professional liability reserves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,204</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Investing Activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchases of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,635</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,557</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sale of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for acquisitions, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,795</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,259</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change of short-term investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net purchases of investments by insurance subsidiary</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,199</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,562</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(324</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,121</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash provided by (used in) investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,900</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,252</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Financing Activities</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payments on notes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(80,150</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(300,040</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from notes payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>430,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Payment of deferred financing costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(271</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,446</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sales of common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase of treasury stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,609</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sale of treasury stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dividends paid on common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(27,585</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Redemptions of preferred stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(162,448</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash used in financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(80,641</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(69,981</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net decrease in cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,744</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(45,993</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>17,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,964</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents, end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,187</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>54,971</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,325</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Taxes paid</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>14,755</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
See accompanying notes to financial statements
</DIV>

<P align="center" style="font-size: 10pt;">F-31

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<A name='310'></A>
</DIV>

<!-- link1 "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)" -->

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;1.</B></TD>
    <TD>
    <B>Basis of Presentation</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The accompanying unaudited consolidated financial statements
include the accounts of Team Health, Inc. (the
&#147;Company&#148;) and its wholly owned subsidiaries and have
been prepared in accordance with accounting principles generally
accepted in the United States for interim financial reporting
and with the instructions to Form&nbsp;10-Q and Article&nbsp;10
of Regulation&nbsp;S-X. Accordingly, they do not include all of
the information and notes required by accounting principles
generally accepted in the United States for complete financial
statements. Certain prior year amounts have been reclassified to
conform to the current year presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of normal recurring items) necessary for a fair
presentation of results for the interim periods presented. The
results of operations for any interim period are not necessarily
indicative of results for the full year. The consolidated
balance sheet of the Company at December&nbsp;31, 2004 has been
derived from the audited financial statements at that date, but
does not include all of the information and disclosures required
by accounting principles generally accepted in the United States
for complete financial statements. These financial statements
and footnote disclosures should be read in conjunction with the
December&nbsp;31, 2004 audited consolidated financial statements
and the notes thereto included in the Company&#146;s
Form&nbsp;10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ from
those estimates.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;2.</B></TD>
    <TD>
    <B>Implementation of New Accounting Standards</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In June 2005, the Financial Accounting Standards Board
(&#147;FASB&#148;) issued Statement of Financial Accounting
Standard (&#147;SFAS&#148;) No.&nbsp;154, <I>Accounting Changes
and Error Corrections&nbsp;&#151; a replacement of APB Opinion
No.&nbsp;20 and FASB Statement No.&nbsp;3</I>. This standard
replaces APB Opinion No.&nbsp;20, <I>Accounting Changes</I>, and
FASB Statement No.&nbsp;3, <I>Reporting Accounting Changes in
Interim Financial Statements</I>, and changes the requirements
for the accounting and reporting of a change in accounting
principle. SFAS&nbsp;No.&nbsp;154 applies to all voluntary
changes in accounting principle and to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
SFAS&nbsp;No.&nbsp;154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle.
SFAS&nbsp;No.&nbsp;154 requires that the change in accounting
principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings for that period rather than being reported in
an income statement. In the event of a change in accounting
principle, SFAS&nbsp;No.&nbsp;154 will require a restatement of
previously issued financial statements to reflect the effect of
the change in accounting principle on prior periods presented.
SFAS&nbsp;No.&nbsp;154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December&nbsp;15, 2005. The adoption of SFAS&nbsp;No.&nbsp;154
is not expected to have a material effect on our consolidated
financial position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On December&nbsp;16, 2004, the FASB issued
SFAS&nbsp;No.&nbsp;123 (revised 2004), <I>Share-Based
Payment</I>, which is a revision of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>.
SFAS&nbsp;No.&nbsp;123(R) supersedes APB Opinion No.&nbsp;25,
<I>Accounting for Stock Issued to Employees</I>, and amends
SFAS&nbsp;No.&nbsp;95, <I>Statement of Cash Flows</I>.
Generally, the approach in SFAS&nbsp;No.&nbsp;123(R) is similar
to the approach described in SFAS&nbsp;No.&nbsp;123. However,
SFAS&nbsp;No.&nbsp;123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
</DIV>

<P align="center" style="font-size: 10pt;">F-32

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<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The provisions of SFAS&nbsp;No.&nbsp;123(R) are effective for
the Company beginning January&nbsp;1, 2006. Early adoption is
permitted in periods in which financial statements have not been
issued. The Company expects to adopt SFAS&nbsp;No.&nbsp;123(R)
beginning January&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company adopted the fair-value-based method of accounting
for share-based payments effective January&nbsp;1, 2003 using
the prospective method described in SFAS&nbsp;No.&nbsp;148,
<I>Accounting for Stock-Based Compensation&nbsp;&#151;
Transition and Disclosure</I>. Currently, the Company uses the
minimum value method to estimate the value of stock options
granted to employees. In accordance with the transition
provisions of SFAS&nbsp;No.&nbsp;123(R) the Company will
continue to account for nonvested awards outstanding at the date
of adoption of SFAS&nbsp;No.&nbsp;123(R) in the same manner as
they had been accounted for prior to adoption for financial
statement recognition purposes. For those options that are
granted after the adoption of SFAS&nbsp;No.&nbsp;123(R), the
Company will no longer be permitted to use the minimum-value
method and instead will be required to use an acceptable
option-pricing model. The Company has not yet determined which
specific option-pricing model it will use.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
SFAS&nbsp;No.&nbsp;123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), the amounts recognized in operating cash flows for
such excess tax deductions were $463,000 and $59,000 for the six
months ended June&nbsp;30, 2005 and 2004, respectively.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;3.</B></TD>
    <TD>
    <B>Net Revenues</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net revenues for the six months ended June&nbsp;30, 2005 and
2004, respectively, consisted of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="75%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fee for service revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>615,203</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>565,161</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contract revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>168,497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>205,835</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other revenue</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,972</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,036</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>799,672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>786,032</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;4.</B></TD>
    <TD>
    <B>Asset Impairment Losses</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In July 2005, the Board of Directors approved management&#146;s
recommendation to divest the Company&#146;s two diagnostic
imaging centers. The Board of Directors also approved
management&#146;s recommendation to cease providing radiology
staffing services at five underperforming hospital contracts
effective at various dates through December&nbsp;31, 2005. The
Company is currently evaluating alternatives for disposing of
the imaging centers, including either sale or outright cessation
of operations. Both of the imaging center locations are leased
with lease expiration dates of January&nbsp;31, 2006, and
March&nbsp;31, 2008, respectively. The Company has estimated an
impairment loss with respect to equipment and other property
costs related to these locations in the amount of
$1.6&nbsp;million and has recorded such loss in the three months
ended June&nbsp;30, 2005. The Company is currently evaluating
the potential for additional costs relating to the imaging
centers for remaining estimated future lease payments, net of
estimated sub-lease income. Any such related lease costs will be
recorded in the period that operations cease (currently
anticipated to be in the three months ended
</DIV>

<P align="center" style="font-size: 10pt;">F-33

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<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
September&nbsp;30, 2005). As of June&nbsp;30, 2005, aggregate
future lease payments related to the imaging center locations,
not reduced for potential sub-lease proceeds, are approximately
$1.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The annual net revenues less provision for uncollectibles for
the two imaging centers and five hospital contracts noted above
are approximately $8.8&nbsp;million in the six months ended
June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a result of the decisions reached with respect to a portion
of the Company&#146;s business related to radiology services,
the Company anticipates incurring severance and other
termination related costs to employees affected by such
decisions. The amount of such severance costs will be recorded
in periods subsequent to June&nbsp;30, 2005. The Company has not
yet definitively determined the amount of such severance costs,
however, on a preliminary basis, such costs are estimated to be
approximately $1.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During the six months ended June&nbsp;30, 2004, the Company
derived approximately $123.9&nbsp;million of revenue for
services rendered to military personnel and their dependents as
either a subcontractor under the TRICARE program administered by
the Department of Defense or by direct contracting with military
treatment facilities. The Company had historically provided its
services principally through subcontract arrangements with
managed care organizations that contracted directly with the
TRICARE program. During the three months ended June&nbsp;30,
2004, the Department of Defense announced that it would seek
proposals to obtain its outsourced healthcare staffing positions
in a manner different than previously used to acquire such
positions. On June&nbsp;1, 2004, the Department of Defense and
its various military branches began awarding contracts for the
civilian positions that it required going forward. The process
of awarding healthcare staffing contracts by the government
varied by branch of the military and by military base location
within the various branches of the military. The award process
included soliciting requests for proposals from organizations
that provide civilian healthcare staffing, including the use of
restrictive government or military approved vendor lists, some
of which did not include the Company. In other instances, the
military re-bid its business on a basis that was inclusive of
existing providers, such as the Company, without the use of
restricted vendor lists. Furthermore, the awarding of certain
contacts was restricted to small businesses or minority
qualified businesses. The Company is not eligible to bid for
such contracts. The above noted facts and circumstances were
concluded by management to be a &#147;triggering event&#148;
under the provisions of SFAS&nbsp;No.&nbsp;142,
<I>&#147;Goodwill and Other Intangible Assets&#148;</I>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Management concluded that the Company&#146;s previous revenues
and operating margins were materially adversely affected as a
result of the re-bidding process. The Company prior to the
recognition of any impairment loss had $127.9&nbsp;million of
goodwill related to its military staffing business. The Company
recorded an estimated impairment loss in the three months ended
June&nbsp;30, 2004, of $65.8&nbsp;million relating to its
military business goodwill (subsequently increased by an
additional $7.4&nbsp;million in the three months ended
September&nbsp;30, 2004).
</DIV>

<P align="center" style="font-size: 10pt;">F-34

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;5.</B></TD>
    <TD>
    <B>Other Intangible Assets</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a summary of intangible assets and related
amortization as of June&nbsp;30, 2005 and December&nbsp;31, 2004
(in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Gross Carrying</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Accumulated</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amortization</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of June&nbsp;30, 2005:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contracts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,980</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>22,223</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of December&nbsp;31, 2004:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contracts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>31,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,560</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>220</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>32,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,780</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Aggregate amortization expense:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the six months ended June&nbsp;30, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated amortization expense:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the year ended December&nbsp;31, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,147</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the year ended December&nbsp;31, 2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the year ended December&nbsp;31, 2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the year ended December&nbsp;31, 2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the year ended December&nbsp;31, 2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;6.</B></TD>
    <TD>
    <B>Long-Term Debt</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-term debt as of June&nbsp;30, 2005, consisted of the
following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Term Loan&nbsp;C</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>202,307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    9%&nbsp;Senior Subordinated Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>145,668</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>347,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less current portion</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>345,668</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective April&nbsp;6, 2005, the Company and its lenders agreed
to an amendment of the terms of its senior credit facility. As a
result of such amendment, the following occurred or was agreed
to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the Company made a voluntary prepayment of its term debt in the
    amount of $30.0&nbsp;million</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the Company&#146;s existing term loan&nbsp;B was converted to a
    new term loan&nbsp;C in the amount of $203.1&nbsp;million</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the Company&#146;s senior credit facility lenders agreed to a
    reduction in the pricing for term loan borrowings to LIBOR plus
    275&nbsp;basis points, a reduction of 50&nbsp;basis points</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">F-35

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV style="margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a further reduction or increase of up to 50&nbsp;basis points in
    the pricing for term loan borrowings from LIBOR plus
    275&nbsp;basis points in the event that the credit ratings for
    the Company&#146;s borrowings are increased or decreased,
    respectively,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability of the Company to repurchase at its option up to
    $35.0&nbsp;million of its outstanding 9%&nbsp;Subordinated Bonds
    so long as the Company was in compliance with the terms and
    covenants of its senior credit facility agreement.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s senior credit facilities at June&nbsp;30,
2005 consisted of the following:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    $80.0&nbsp;million Senior Secured Revolving Credit Facility</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    $202.3&nbsp;million Senior Secured Term Loan&nbsp;C</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The interest rates for any senior revolving credit facility
borrowings are determined by reference to a grid that is based
on the consolidated ratio of total funded debt to earnings
before interest, taxes, depreciation and amortization, as
defined in the credit agreement. The interest rate on the Term
Loan&nbsp;C amount outstanding is equal to the euro dollar rate
plus 2.75% or the agent bank&#146;s base rate plus 2.25%. The
interest rate at June&nbsp;30, 2005, was 6.24% for the Term
Loan&nbsp;C. The Company also pays a commitment fee for the
revolving credit facility which was equal to 0.5% of the
commitment at June&nbsp;30, 2005. No funds have been borrowed
under the revolving credit facility as of June&nbsp;30, 2005,
but the Company had $5.1&nbsp;million of standby letters of
credit outstanding against the revolving credit facility
commitment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company has an obligation under the terms of the senior
credit facility agreement to obtain and maintain interest rate
hedge agreements at amounts such that 50% of the Company&#146;s
funded debt, as defined, was at fixed rates of interest. Such
hedge agreements are required to be maintained for at least the
first three years of the senior credit facility agreement. On
April&nbsp;29, 2004, the Company entered into an interest rate
swap agreement that effectively converts $35.0&nbsp;million of
its variable rate term loans to a fixed rate of 3.2% through
March&nbsp;31, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company originally issued on March&nbsp;23, 2004,
9%&nbsp;Senior Subordinated Notes in the amount of
$180.0&nbsp;million, due April&nbsp;1, 2012. Subsequent to the
amendment of its senior credit facility on April&nbsp;6, 2005,
the Company acquired and retired $34.3&nbsp;million of par value
9% bonds at a purchase price of $35.0&nbsp;million, including
purchase price premium of $0.7&nbsp;million. As a result of such
early redemption of the 9% bonds, the Company recorded
$1.4&nbsp;million of bond premium and accelerated deferred bond
financing costs as other expenses in the accompanying statement
of operations for the three months ended June&nbsp;30, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The senior credit facility agreement and the 9% bond indenture
contain both affirmative and negative covenants, including
limitations on the Company&#146;s ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets
of another business, pay dividends, and require the Company to
meet or exceed certain coverage and leverage ratios. In
addition, the senior credit agreement includes a provision for
the prepayment of a portion of the outstanding term loan amounts
at any year-end if the Company generates &#147;excess cash
flow&#148; as defined in the agreement. During the six months
ended June&nbsp;30, 2005, the Company paid $15.8&nbsp;million of
its then outstanding Term B loan under the excess cash flow
provision.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective March&nbsp;23, 2004, the Company completed a tender
offer for its then outstanding 12%&nbsp;Senior Subordinated
Notes in the amount of $100.0&nbsp;million, plus a call premium
of $8.2&nbsp;million and entered into its current senior credit
facilities with a group of banks. As a result of entering into
the new senior credit facilities and the redemption of its
12%&nbsp;Subordinated Notes, the Company recognized in the six
months ended June&nbsp;30, 2004, refinancing costs of
approximately $14.7&nbsp;million ($9.0&nbsp;million, net of
related income tax benefit of $5.7&nbsp;million) principally
relating to the write-off of capitalized financing costs on its
previously outstanding long-term debt and the incurrence of the
call premium to redeem the 12%&nbsp;Senior Subordinated
</DIV>

<P align="center" style="font-size: 10pt;">F-36

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Notes. In addition, as a result of repayment of underlying
borrowings in 2004, the Company recorded as additional interest
expense approximately $1.7&nbsp;million in the six months ended
June&nbsp;30, 2004, related to an interest rate swap agreement
to reflect its value on a mark-to-market basis. The interest
rate swap agreement was subsequently terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Aggregate maturities of long-term debt as of June&nbsp;30, 2005
are as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>2,307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>338,168</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>347,975</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;7.</B></TD>
    <TD>
    <B>Professional Liability Insurance</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s professional liability loss reserves consist
of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="63%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated losses under self-insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>151,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>138,617</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Estimated losses under commercial insurance programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,111</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>249,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>242,728</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less&nbsp;&#151; estimated payable within one year</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Self-insured programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,907</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commercial insurance programs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,307</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61,212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>55,214</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>188,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>187,514</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides for its estimated professional liability
losses through a combination of self-insurance and commercial
insurance programs. During the period March&nbsp;12, 1999
through March&nbsp;11, 2003, the primary source of the
Company&#146;s coverage for such risks was a professional
liability insurance policy provided through one insurance
carrier. The commercial insurance carrier policy included an
insured loss limit of $130.0&nbsp;million with losses in excess
of such limit remaining as a self-insured obligation of the
Company. Beginning March&nbsp;12, 2003, such risks are
principally being provided for through self-insurance with a
portion of such risks (&#147;claims-made&#148; basis)
transferred to and funded into a captive insurance company. The
accounts of the captive insurance company are fully consolidated
with those of the other operations of the Company in the
accompanying financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The self-insurance components of our risk management program
include reserves for future claims incurred but not reported.
The Company&#146;s provisions for losses under its
self-insurance components are estimated using the results of
periodic actuarial studies performed by an independent actuarial
firm. Such actuarial studies include numerous underlying
estimates and assumptions, including assumptions as to future
claim losses, the severity and frequency of such projected
losses, loss development factors and others. The Company&#146;s
provisions for losses under its self-insured components are
subject to subsequent adjustment should future actuarial
projected results for such periods indicate projected losses are
greater or less than previously projected.
</DIV>

<P align="center" style="font-size: 10pt;">F-37

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s most recent actuarial valuation was completed
in April 2005. As a result of such actuarial valuation, the
Company realized a reduction in its provision for professional
liability losses of $7.6&nbsp;million in the six months ended
June&nbsp;30, 2005, related to its reserves for losses in prior
years. The Company had previously realized a $1.6&nbsp;million
reduction in its professional liability loss liability in the
six months ended June&nbsp;30, 2004, resulting from an actuarial
study completed in April 2004.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;8.</B></TD>
    <TD>
    <B>Redemption of 10% Cumulative Preferred Stock</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, the Board of Directors of the Company authorized
the redemption of the Company&#146;s 10% Cumulative Preferred
Stock. On March&nbsp;23, 2004, the Company redeemed its 10%
Cumulative Preferred Stock in the amount of approximately
$162.4&nbsp;million, including accrued dividends.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;9.</B></TD>
    <TD>
    <B>Common Stock Dividend and Related Compensatory Bonus
    Payment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company&#146;s Board of Directors declared a cash dividend
to shareholders of record as of March&nbsp;18, 2004, in the
amount of approximately $27.6&nbsp;million which was
subsequently paid on March&nbsp;23, 2004. The Board of Directors
also authorized a compensatory payment to holders of stock
options in lieu of a cash dividend in the amount of
approximately $2.4&nbsp;million of which $1.3&nbsp;million was
paid and expensed on March&nbsp;23, 2004. The balance of such
compensatory payment is being expensed and paid as such stock
options subsequently vest.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;10.</B></TD>
    <TD>
    <B>Stock Options</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective January&nbsp;1, 2003, the Company adopted the fair
value recognition provisions of SFAS&nbsp;No.&nbsp;123,
<I>Accounting for Stock-Based Compensation</I>, prospectively to
all new awards granted to employees after January&nbsp;1, 2003.
Prior to January&nbsp;1, 2003 the Company applied the
recognition and measurement provisions of APB Opinion
No.&nbsp;25, <I>Accounting for Stock Issued to Employees</I>,
and related Interpretations in accounting for options awarded.
Therefore, the expense related to stock-based employee
compensation included in the determination of net earnings
(loss) for the six months ended June&nbsp;30, 2005 and 2004 is
less than that which would have been recognized if the fair
value method had been applied to all awards. The following table
illustrates the effect on net earnings (loss) if the fair value
method had been applied to all outstanding and unvested awards
in each period (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders, as
    reported</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,555</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add: Stock-based employee compensation expense included in
    reported net loss attributable to common shareholders, net of
    related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deduct: Total stock-based employee compensation expense
    determined under the fair value method for all awards, net of
    related tax effects</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(214</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(80</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,619</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;11.</B></TD>
    <TD>
    <B>Contingencies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Litigation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are currently a party to various legal proceedings, including
as noted below. While we currently believe that the ultimate
outcome of such proceedings, individually and in the aggregate,
will not have a material adverse effect on our financial
position or overall trends in results of operations, litigation
is subject
</DIV>

<P align="center" style="font-size: 10pt;">F-38

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
to inherent uncertainties. If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact
on our net earnings in the period in which the ruling occurs.
The estimate of the potential impact from such legal proceedings
on our financial position or overall results of operations could
change in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On July&nbsp;19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was in the amount of
$15.0&nbsp;million of which $2.0&nbsp;million is covered under
an insurance policy in effect at the date of the incident. The
jury award is subject to the issuance of a final judgment by the
court. We do not believe the facts, circumstances or the law
presented in this case support the jury&#146;s award. We will
file motions for a new trial and remitteur with the trial court.
If these motions are not granted, we intend to pursue a request
for relief through the appellate process.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
When the trial court renders its final judgment with respect to
the jury award and if such judgment results in an amount payable
to the plaintiff by us in excess of our insurance coverage
limits, such excess will be recorded in our statement of
operations in the period when such final judgment is rendered.
In such event, there will be a requirement that we post an
appeal bond with the court while an appeal of the court&#146;s
decision runs its course. At this time, a loss amount relating
to this matter, if any, is not estimatable.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Office of Inspector General Information Request</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;30, 2004, the Company received a subpoena from the
Department of HHS Office of Inspector General (&#147;OIG&#148;),
located in Concord, California, requesting certain information
for the period 1999 to present relating to its billing
practices. To date, the Company has produced and delivered to
the OIG certain requested information. The Company has learned
that the basis for the issuance of the subpoena is a complaint
filed in the United States District Court for the Northern
District of California (&#147;Court&#148;) by an individual on
behalf of the government. The identity of the qui tam relator
and portions of the qui tam complaint remain sealed by the Court
pending the government&#146;s investigation. The portions of the
complaint not under seal allege that the Company engaged in
certain billing practices that resulted in the Company&#146;s
receipt of duplicate payments for the same medical service and
that the Company misled certain providers about the entities
that were performing their billing services. Additionally, the
portions of the complaint not under seal allege that the Company
terminated the employment of the individual who filed the
complaint in retaliation for that individual&#146;s bringing of
these allegations to the attention of the Company. The Company
denies these allegations and does not believe that any of its
current or prior billing practices would form the basis for a
violation of federal law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company is fully cooperating with the OIG in its request
described herein and have been producing and delivering to the
OIG the requested documents. However, due to lack of more
specific information available to it at this time, it is unable
to ascertain the full scope of the government&#146;s inquiry or
the qui tam relator&#146;s complaint. Since cooperating with the
OIG with respect to the original relator complaint, the Company
has complied with numerous OIG&#146;s requests for additional
information relative to the Company&#146;s billing polices and
practices for all payers and has made members of its management
available to them for purposes of their further understanding of
such billing polices and practices. Management cannot predict
the outcome of this investigation or suit or their respective
durations. If this investigation results in current or prior
billing practices being identified as violative of applicable
laws or regulations, results in penalties being imposed upon the
Company, or results in an adverse determination in the qui tam
relator&#146;s complaint against it, the impact could have a
material adverse effect on the Company&#146;s business and
financial condition.
</DIV>

<P align="center" style="font-size: 10pt;">F-39

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Healthcare Regulatory Matters</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. Compliance
with such laws and regulations can be subject to future
governmental review and interpretation as well as significant
regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company&#146;s
practices. It is the Company&#146;s current practice and future
intent to cooperate fully with such inquiries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to laws and regulations governing the Medicare and
Medicaid programs, there are a number of federal and state laws
and regulations governing such matters as the corporate practice
of medicine and fee splitting arrangements, anti-kickback
statutes, physician self-referral laws, false or fraudulent
claims filing and patient privacy requirements. The failure to
comply with any of such laws or regulations could have an
adverse impact on our operations and financial results. It is
management&#146;s belief that the Company is in substantial
compliance in all material respects with such laws and
regulations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Acquisition Payments</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of June&nbsp;30, 2005, the Company may have to pay up to
$3.0&nbsp;million in future contingent payments as additional
consideration for acquisitions made prior to June&nbsp;30, 2005.
These payments will be made and recorded as additional purchase
price should the acquired operations achieve the financial
targets agreed to in the respective acquisition agreements.
During the six months ended June&nbsp;30, 2005, the Company made
required payments of $5.8&nbsp;million under contingent payment
provisions of agreements related to previous acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Note&nbsp;12. Comprehensive Earnings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The components of comprehensive earnings (loss), net of related
taxes, are as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net earnings (loss) attributable to common shareholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,066</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(59,555</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair market value of investments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net change in fair value of interest rate swaps</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,034</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Comprehensive earnings (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>30,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(58,521</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Note&nbsp;13.</B></TD>
    <TD>
    <B>Segment Reporting</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Company provides its services through five operating
segments which are aggregated into two reportable segments,
Healthcare Services and Management Services. The Healthcare
Services segment, which is an aggregation of healthcare
staffing, clinics, and occupational health, provides
comprehensive healthcare service programs to users and providers
of healthcare services on a fee-for-service as well as a cost
plus basis. The Management Services segment, which consists of
medical group management services and external billing and
collection services, provides a range of management and billing
services on a fee basis. These services include strategic
management, management information systems, third-party payer
contracting, financial and accounting support, benefits
administration and risk management, scheduling support,
operations management and quality improvement services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Segment amounts disclosed are prior to any elimination entries
made in consolidation, except in the case of net revenues, where
intercompany charges have been eliminated. Certain expenses are
not allocated to the segments. These unallocated expenses are
corporate expenses, net interest expense, depreciation and
</DIV>

<P align="center" style="font-size: 10pt;">F-40

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>TEAM HEALTH, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(Unaudited)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
amortization, refinancing costs and income taxes. The Company
evaluates segment performance based on profit and loss before
the aforementioned expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table presents financial information for each
reportable segment. Depreciation, amortization, impairment of
intangibles, management fee and other expenses separately
identified in the consolidated statements of operations are
included as a reduction to the operating earnings of each
segment in each period below (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Six Months Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>June&nbsp;30,</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2005</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net Revenues less provision for uncollectibles:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>497,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>508,846</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8,558</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>508,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>517,404</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating earnings:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Healthcare Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>78,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,797</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Management Services</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,149</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    General Corporate</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(17,522</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,982</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>62,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(20,630</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-41

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 16pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y11893y1189300.gif" alt="(TEAM HEALTH LOGO)">
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 33%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 12pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
PROSPECTUS
</DIV>

<DIV align="center" style="font-size: 12pt;">
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 33%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 17pt;">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left">Lehman Brothers</TD>
    <TD align="right">Merrill Lynch&nbsp;&#38; Co.</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 17pt;">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left">JPMorgan</TD>
    <TD align="right"></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 78pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 (25&nbsp;days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This delivery requirement is in
addition to the obligations of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>PART&nbsp;II</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>INFORMATION NOT REQUIRED IN PROSPECTUS</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;13.</B></TD>
    <TD>
    <B><I>Other Expenses of Issuance and Distribution</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the estimated fees and expenses
to be incurred in connection with the registration and
distribution of the securities being registered hereunder. All
such fees and expenses shall be borne by Team Health, Inc. (the
&#147;Company&#148;).
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Securities and Exchange Commission registration fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>20,304</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NASD filing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>17,750</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NYSE listing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Printing and engraving expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Blue Sky fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounting fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transfer agent and registrar fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Legal fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Miscellaneous fees and expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top" nowrap>38,054</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be provided by amendment.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;14.</B></TD>
    <TD>
    <B><I>Indemnification of Directors and Officers</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under Sections&nbsp;48-18-501 through 48-18-509 of the Tennessee
Business Corporation Act, as amended (the &#147;TCBA&#148;), the
Company is entitled to indemnify its directors and officers
against reasonable expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Article&nbsp;IX of the Company&#146;s Charter provides that the
Company may indemnify and advance expenses to persons who are or
were the directors or officers of the Company in accordance with
the TCBA.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Article&nbsp;X of the Company&#146;s Charter provides that no
person who is or was a director of the Company, nor his heirs,
executors or administrators, shall be personally liable to the
Company or its shareholders, and no such person may be sued by
the Company or its shareholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that the
provision shall not eliminate or limit the liability of any such
party (i)&nbsp;for any breach of a director&#146;s duty of
loyalty to the Company or its shareholders; (ii)&nbsp;for acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii)&nbsp;for
unlawful distributions under Section&nbsp;48-18-304 of the TCBA.
Any repeal or modification of the provisions of Article&nbsp;X,
directly or by the adoption of an inconsistent provision of the
charter, shall not adversely affect any right or protection set
forth therein in favor of a particular individual at the time of
such repeal or modification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Article&nbsp;VIII of the Company&#146;s Bylaws provides that any
person who at any time serves or has served as a director,
officer or corporate officer of the Company, or who serves or
has served, at the request of the Company, as a director,
officer, corporate officer, partner, trustee, employee or agent
of an affiliated corporation, partnership, joint venture, trust,
or other enterprise, or as a trustee or administrator under an
employee benefit plan, shall have a right to be indemnified by
the Company to the fullest extent permitted by law against
(a)&nbsp;reasonable expenses, including attorneys&#146; fees,
incurred by him in connection with any threatened, pending or
completed civil, criminal, administrative, investigative, or
arbitrative action, suit or proceeding (and any appeal therein),
whether or not brought by or on behalf of the Company, seeking
to hold him liable by reason of the fact that he is or was
acting in such capacity, and (b)&nbsp;reasonable payments made
by him in satisfaction of any judgment, money decree, fine
(including an excise tax assessed with respect to any employee
benefit plan), penalty, or settlement for which he may have
become liable in any such action, suit or proceeding.
</DIV>

<P align="center" style="font-size: 10pt;">II-1
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;15.</B></TD>
    <TD>
    <B><I>Recent Sales of Unregistered Securities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the past three years, we have issued unregistered securities
to a limited number of persons, as described below. We believe
that each transaction was exempt from the registration
requirements of the Securities Act of 1933 (the &#147;Securities
Act&#148;) by virtue of Section&nbsp;4(2) thereof or
Rule&nbsp;701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such
Rule&nbsp;701. The recipients of securities in such transactions
represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were
affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their
relationships with us, to information about us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In March 2004 we sold unregistered debt securities (9% Senior
Subordinated Notes due April&nbsp;1, 2012 in the amount of
$180.0 million) to J.P.&nbsp;Morgan Securities Inc., Banc of
America Securities LLC and Merrill Lynch, Pierce, Fenner &#38;
Smith Incorporated as the &#147;initial purchasers&#148;
pursuant to Section&nbsp;4(2) of the Securities Act and to
non-U.S. persons outside the United States in reliance on
Regulation&nbsp;S under the Securities Act. The initial
purchasers subsequently resold the old notes to
(1)&nbsp;qualified institutional buyers pursuant to
Rule&nbsp;144A under the Securities Act and (2)&nbsp;outside the
United States in accordance with Regulation&nbsp;S under the
Securities Act. Simultaneously with the initial sale of the
outstanding securities, we entered into a registration rights
agreement for an exchange offer. In the registration rights
agreement, we agreed, among other things, to use our reasonable
best efforts to (i)&nbsp;cause to be filed an exchange offer
registration statement with the Commission and (ii)&nbsp;to have
such registration statement remain effective until 180 days
after the closing of the exchange offer. We also agreed to use
commercially reasonable efforts to cause the exchange offer to
be consummated 60&nbsp;days after the registration statement was
declared effective. We issued exchange notes that were
registered with the Securities and Exchange Commission on
Form&nbsp;S-4 shortly after the expiration of the exchange offer
in November 2004. We used the net proceeds from the sale of the
original notes together with funds from borrowings under our
credit facility to repay existing debt, redeem preferred stock,
pay dividends and pay premiums, fees and expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We also have issued stock option grants under our 1999 Stock
Option Plan, a written compensatory benefit plan under which we
have issued options to employees and directors. The aggregate
sales price of the securities issued under the plan in reliance
on Rule&nbsp;701 did not exceed 15% of our total assets in any
given year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Option Grants in the Past Three Years. </I>All of our grants
of options in the past three years were for options to purchase
shares of our common stock and were made under our 1999 Stock
Option Plan.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of securities</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of securities</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>underlying options remaining</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Date of option grant</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>underlying options</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>outstanding at August 15, 2005(1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    March 19, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    December 1, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    June 1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,625</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    November 1, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    March 11, 2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>668,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>668,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>742,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>742,125</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt;">
<DIV style="width: 15%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Refers to options that have not been canceled or exercised and
    remain outstanding.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;16.</B></TD>
    <TD>
    <B><I>Exhibits and Financial Statement Schedules</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Restated Charter of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Restated By-laws of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen common stock certificate.*</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-2
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of March&nbsp;12, 1999 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto and the United States Trust Company of New York.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated March&nbsp;28, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated September&nbsp;3, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated May&nbsp;31, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fourth Supplemental Indenture dated November&nbsp;11, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fifth Supplemental Indenture dated September&nbsp;9, 2003.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sixth Supplemental Indenture dated as of March&nbsp;12, 2004.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of March&nbsp;23, 2004 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto, and the Bank of New York.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Exchange Note (included in Exhibit&nbsp;4.9).*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Rights Agreement dated as of March&nbsp;12, 2004 by
    and among Team Health, Inc., the guarantors listed on the
    Schedule thereto, and J.P.&nbsp;Morgan Securities Inc., Banc of
    America Securities LLC and Merrill Lynch, Pierce,
    Fenner&nbsp;&#38; Smith Incorporated.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion and consent of Kirkland&nbsp;&#38; Ellis LLP.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Rights Agreement dated as of March&nbsp;12, 1999 by
    and among Team Health, Inc., the guarantors listed on the
    signature pages thereto and Donaldson, Lufkin&nbsp;&#38;
    Jenrette Securities Corporation, NationsBanc Montgomery
    Securities LLC and Fleet Securities, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Purchase Agreement dated as of March&nbsp;5, 1999 by and among
    Team Health, Inc. and the guarantors listed on the signature
    pages thereto and Donaldson, Lufkin&nbsp;&#38; Jenrette
    Securities Corporation, NationsBanc Montgomery Securities LLC
    and Fleet Securities, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Equity Deferred Compensation Plan of Team Health, Inc. effective
    January&nbsp;25, 1999.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Services Agreement dated as of March&nbsp;12, 1999 by
    and among Team Health, Inc., Madison Dearborn Partners&nbsp;II,
    L.P., Beecken, Petty&nbsp;&#38; Company, L.L.C. and Cornerstone
    Equity Investors LLC.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physician Services, Inc. and certain other shareholders of Team
    Health, Inc. who are from the to time party thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule&nbsp;A thereto and certain other securityholders of
    Team Health, Inc. who are from time to time party thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Trust&nbsp;Agreement dated as of January&nbsp;25, 1999 by and
    among Team Health, Inc. and The Trust Company of Knoxville.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement dated as of March&nbsp;12, 1999 by and among
    Team Health, Inc., the banks, financial institutions and other
    institutional lenders named herein, Fleet National Bank,
    NationsBank, N.A., NationsBanc Montgomery Securities LLC and
    Donaldson, Lufkin&nbsp;&#38; Jenrette Securities Corporation.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sheer Ahearn &#38; Associates Plan Provision Nonqualified Excess
    Deferral Plan effective September&nbsp;1, 1998.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment and Restatement of Emergency Professional Services,
    Inc. Deferred Compensation Plan effective January&nbsp;31, 1996.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lease Agreement dated August&nbsp;27, 1992 between Med: Assure
    Systems and Winston Road Properties for our corporate
    headquarters located at 1900 Winston Road, Knoxville, TN.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lease Agreement dated August&nbsp;27, 1999 between Americare
    Medical Services, Inc. and Winston Road Properties for space
    located at 1900 Winston Road, Knoxville, TN.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    1999 Stock Option Plan of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Employment Agreement for Dr.&nbsp;Massingale and
    Messrs.&nbsp;Hatcher, Sherlin, Joyner and Jones.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Credit Agreement dated as of
    March&nbsp;12, 1999.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Security Agreement dated as
    June&nbsp;30, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Credit Agreement dated as of
    March&nbsp;12, 1999.*</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement dated May&nbsp;1, 2002 among Team Health, Inc.,
    The Banks, Financial Institutions and Other Institutional
    Lenders Named Therein, Fleet National Bank, Bank of America,
    N.A., and Banc of America Securities, LLC.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Credit Agreement dated May&nbsp;1, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Credit Agreement dated May&nbsp;1, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement, dated as of March&nbsp;23, 2004, by and among
    Team Health, Inc., Team Health Holdings, L.L.C., the Subsidiary
    Guarantors (as defined therein), the Lenders (as defined
    therein), and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.22</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Security and Pledge Agreement, dated as of March&nbsp;23, 2004,
    by and among Team Health, Inc., the Subsidiary Guarantors (as
    defined therein) and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.23</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Holdings Pledge Agreement, dated as of March&nbsp;23, 2004, by
    and among Team Health Holdings, L.L.C. and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.24</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Borrower Pledge Agreement (Cayman Islands Subsidiary), dated as
    of March&nbsp;23, 2004, by and among Team Health, Inc. and Bank
    of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Team Health, Inc. Non-Qualified Supplemental Executive
    Retirement Plan dated as of January&nbsp;1, 2004.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.26</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stockholders Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physicians Services, Inc., and certain other shareholders of the
    Team Health, Inc. who are from time to time party hereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.27</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Securityholders Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule&nbsp;A thereto and certain other securityholders of
    Team Health Holdings, L.L.C. who are from time to time party
    thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.28</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Team Health Inc. 2005 Long-Term Incentive Plan.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.29</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment agreement dated October&nbsp;4, 2004 between Team
    Health, Inc. and Gregory S. Roth, President and Chief Operating
    Officer.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>11</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Statement re Computation of per Share Earnings.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subsidiaries of the Registrant.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Ernst&nbsp;&#38; Young LLP, Registered Public
    Accounting Firm.</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Kirkland&nbsp;&#38; Ellis LLP (included in
    Exhibit&nbsp;5.1).*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Power of Attorney (included on signature page).</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be filed by amendment.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">II-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(b) Financial Statement Schedule
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following financial statement schedule is included in this
Registration Statement:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Team Health, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Schedule II&nbsp;&#151;&nbsp;Valuation and Qualifying
Accounts</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>For the Years Ended December 31,</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(In thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Beginning</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Costs and</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance at</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>of Period</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Expenses</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deductions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>End of Period</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>563,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>557,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>126,351</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>109,156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>479,267</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>467,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>120,653</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>101,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>396,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>388,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>109,156</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All other schedules for which provision is made in the
applicable accounting regulations of the Commission are not
required under the related instructions, are inapplicable or not
material, or the information called for thereby is otherwise
included in the financial statements and therefore has been
omitted.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;17.</B></TD>
    <TD>
    <B><I>Undertakings</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The undersigned registrant hereby undertakes that:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (1)&nbsp;For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this Registration Statement in
    reliance upon Rule&nbsp;430A and contained in a form of
    prospectus filed by the Registrant pursuant to
    Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Act shall be
    deemed to be part of this Registration Statement as of the time
    it was declared effective.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    (2)&nbsp;For the purpose of determining any liability under the
    Act, each post-effective amendment that contains a form of
    prospectus shall be deemed to be a new Registration Statement
    relating to the securities offered therein, and the offering of
    such securities at that time shall be deemed to be the initial
    bona fide offering thereof.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">II-5
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Knoxville, State of Tennessee, on
August&nbsp;16, 2005.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B>TEAM HEALTH, INC.</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align="left">
    /s/ <FONT style="font-variant:SMALL-CAPS">Robert J. Abramowski
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Name:&nbsp;Robert J. Abramowski</TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="6%"></TD>
    <TD width="54%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>Title</TD>
    <TD align="left">
    Executive Vice President&nbsp;&#151; Finance and Administration</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">II-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>POWER OF ATTORNEY</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the undersigned officers and directors of Team Health,
Inc., a Tennessee corporation, hereby constitutes and appoints
Robert J. Abramowski and Robert C. Joyer, Esq. and each of them,
severally, as his or her attorney-in-fact and agent, with full
power of substitution and resubstitution, in his or her name and
on his or her behalf, to sign in any and all capacities this
Registration Statement and any and all amendments (including
post-effective amendments) and exhibits to this Registration
Statement, any subsequent Registration Statement for the same
offering which may be filed under Rule&nbsp;462(b) under the
Securities Act of 1933, and any and all amendments (including
post-effective amendments) and exhibits thereto, and any and all
applications and other documents relating thereto, with the
Securities and Exchange Commission, with full power and
authority to perform and do any and all acts and things
whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection
with any or all of the above-described matters, as fully as each
of the undersigned could do if personally present and acting,
hereby ratifying and approving all acts of any such attorney or
substitute.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form&nbsp;S-1 has been signed by the
following persons in the capacities indicated on August&nbsp;16,
2005.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">H. Lynn
    Massingale,&nbsp;M.D.<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>H.
    Lynn Massingale,&nbsp;M.D.</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director, President, Chief Executive Officer and<BR>
    Assistant Secretary (principal executive officer)</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Nicholas W. Alexos<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Nicholas
    W. Alexos</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Dana J.
    O&#146;Brien<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Dana
    J. O&#146;Brien</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Kenneth W.
    O&#146;Keefe<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Kenneth
    W. O&#146;Keefe</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Timothy P. Sullivan<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Timothy
    P. Sullivan</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Earl Holland<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Earl
    Holland</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Glenn Davenport<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Glenn
    Davenport</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">David Jones<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>David
    Jones</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Chief Financial Officer, Treasurer and<BR>
    Assistant Secretary</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Robert J.
    Abramowski<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Robert
    J. Abramowski</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Executive Vice President&nbsp;&#151; Finance and
    Administration<BR>
    (principal financial and accounting officer)</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>EXHIBIT INDEX</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Restated Charter of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of By-laws of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Specimen common stock certificate.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of March&nbsp;12, 1999 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto and the United States Trust Company of New York.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated March&nbsp;28, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated September&nbsp;3, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Supplemental Indenture dated May&nbsp;31, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fourth Supplemental Indenture dated November&nbsp;11, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fifth Supplemental Indenture dated September&nbsp;9, 2003.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sixth Supplemental Indenture dated as of March&nbsp;12, 2004.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture dated as of March&nbsp;23, 2004 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto, and the Bank of New York.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Exchange Note (included in Exhibit&nbsp;4.9).*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Rights Agreement dated as of March&nbsp;12, 2004 by
    and among Team Health, Inc., the guarantors listed on the
    Schedule thereto, and J.P.&nbsp;Morgan Securities Inc., Banc of
    America Securities LLC and Merrill Lynch, Pierce,
    Fenner&nbsp;&#38; Smith Incorporated.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion and consent of Kirkland&nbsp;&#38; Ellis LLP.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Rights Agreement dated as of March&nbsp;12, 1999 by
    and among Team Health, Inc., the guarantors listed on the
    signature pages thereto and Donaldson, Lufkin&nbsp;&#38;
    Jenrette Securities Corporation, NationsBanc Montgomery
    Securities LLC and Fleet Securities, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Purchase Agreement dated as of March&nbsp;5, 1999 by and among
    Team Health, Inc. and the guarantors listed on the signature
    pages thereto and Donaldson, Lufkin&nbsp;&#38; Jenrette
    Securities Corporation, NationsBanc Montgomery Securities LLC
    and Fleet Securities, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Equity Deferred Compensation Plan of Team Health, Inc. effective
    January&nbsp;25, 1999.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Services Agreement dated as of March&nbsp;12, 1999 by
    and among Team Health, Inc., Madison Dearborn Partners&nbsp;II,
    L.P., Beecken, Petty&nbsp;&#38; Company, L.L.C. and Cornerstone
    Equity Investors LLC.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physician Services, Inc. and certain other shareholders of Team
    Health, Inc. who are from the to time party thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule&nbsp;A thereto and certain other securityholders of
    Team Health, Inc. who are from time to time party thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Trust&nbsp;Agreement dated as of January&nbsp;25, 1999 by and
    among Team Health, Inc. and The Trust Company of Knoxville.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement dated as of March&nbsp;12, 1999 by and among
    Team Health, Inc., the banks, financial institutions and other
    institutional lenders named herein, Fleet National Bank,
    NationsBank, N.A., NationsBanc Montgomery Securities LLC and
    Donaldson, Lufkin&nbsp;&#38; Jenrette Securities Corporation.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Sheer Ahearn &#38; Associates Plan Provision Nonqualified Excess
    Deferral Plan effective September&nbsp;1, 1998.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment and Restatement of Emergency Professional Services,
    Inc. Deferred Compensation Plan effective January&nbsp;31, 1996.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lease Agreement dated August&nbsp;27, 1992 between Med: Assure
    Systems and Winston Road Properties for our corporate
    headquarters located at 1900 Winston Road, Knoxville, TN.*</TD>
</TR>

</TABLE>
</CENTER>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="80%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Description</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Lease Agreement dated August&nbsp;27, 1999 between Americare
    Medical Services, Inc. and Winston Road Properties for space
    located at 1900 Winston Road, Knoxville, TN.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    1999 Stock Option Plan of Team Health, Inc.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Employment Agreement for Dr.&nbsp;Massingale and
    Messrs.&nbsp;Hatcher, Sherlin, Joyner and Jones.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Credit Agreement dated as of
    March&nbsp;12, 1999.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Security Agreement dated as
    June&nbsp;30, 2001.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Credit Agreement dated as of
    March&nbsp;12, 1999.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement dated May&nbsp;1, 2002 among Team Health, Inc.,
    The Banks, Financial Institutions and Other Institutional
    Lenders Named Therein, Fleet National Bank, Bank of America,
    N.A., and Banc of America Securities, LLC.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;1 to Credit Agreement dated May&nbsp;1, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amendment No.&nbsp;2 to Credit Agreement dated May&nbsp;1, 2002.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement, dated as of March&nbsp;23, 2004, by and among
    Team Health, Inc., Team Health Holdings, L.L.C., the Subsidiary
    Guarantors (as defined therein), the Lenders (as defined
    therein), and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.22</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Security and Pledge Agreement, dated as of March&nbsp;23, 2004,
    by and among Team Health, Inc., the Subsidiary Guarantors (as
    defined therein) and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.23</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Holdings Pledge Agreement, dated as of March&nbsp;23, 2004, by
    and among Team Health Holdings, L.L.C. and Bank of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.24</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Borrower Pledge Agreement (Cayman Islands Subsidiary), dated as
    of March&nbsp;23, 2004, by and among Team Health, Inc. and Bank
    of America, N.A.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Team Health, Inc. Non-Qualified Supplemental Executive
    Retirement Plan dated as of January&nbsp;1, 2004.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.26</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stockholders Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physicians Services, Inc., and certain other shareholders of the
    Team Health, Inc. who are from time to time party hereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.27</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Securityholders Agreement dated as of March&nbsp;12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule&nbsp;A thereto and certain other securityholders of
    Team Health Holdings, L.L.C. who are from time to time party
    thereto.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.28</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Team Health Inc. 2005 Long-Term Incentive Plan.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.29</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment agreement dated October&nbsp;4, 2004 between Team
    Health, Inc. and Gregory S. Roth, President and Chief Operating
    Officer.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>11</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Statement re Computation of per Share Earnings.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subsidiaries of the Registrant.*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Ernst&nbsp;&#38; Young LLP, Registered Public
    Accounting Firm.</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of Kirkland&nbsp;&#38; Ellis LLP (included in
    Exhibit&nbsp;5.1).*</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Power of Attorney (included on signature page).</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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{"company-data": {"conformed-name": "TEAM HEALTH INC", "cik": "0001086795", "assigned-sic": "8090", "irs-number": "621562558", "state-of-incorporation": "TN", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-127608", "film-number": "051031594"}, "business-address": {"street1": "1900 WINSTON RD", "city": "KNOXVILLE", "state": "TN", "zip": "37919", "phone": "8003422898"}, "mail-address": {"street1": "1900 WINSTON RD", "city": "KNOXVILLE", "state": "TN", "zip": "37919"}}
TEAM HEALTH, INC.
Table of Contents
As Filed With The Securities And Exchange Commission On
August 16, 2005
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Team Health, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Tennessee
8090
62-1562558
(State or Other Jurisdiction of
Incorporation or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
1900 Winston Road
Suite 300
Knoxville, Tennessee 37919
(865) 693-1000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
c/o David Jones
Chief Financial Officer
1900 Winston Road, Suite 300
Knoxville, Tennessee 37919
(800) 342-2898
(Names, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
With Copies To:
Joshua N. Korff, Esq.
Kirkland & Ellis LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022-4675
(212) 446-4800
Dennis Friedman, Esq.
Barbara Becker, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
(212) 351-4000
Approximate date of commencement of proposed sale to the
public:
As soon as practicable after this Registration
Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Amount of
Title of Each Class of
Aggregate
Registration
Securities to be Registered
Offering Price(1)(2)
Fee
Common Stock, $0.01 par value
$172,500,000
$20,304
(1)
This amount represents the proposed aggregate offering price of
    the securities registered hereunder to be sold by the registrant
    and the selling shareholders. These figures are estimated solely
    for the purpose of calculating the registration fee pursuant to
    Rule 457(o) under the Securities Act of 1933, as amended.
(2)
Includes shares of common stock that the underwriters have an
    option to purchase solely to cover over-allotments, if any.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement
shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to Section 8(a), may
determine.
Table of Contents
The
information in this prospectus is not complete and may be
changed. We and the selling shareholders may not sell these
securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus
is not an offer to sell and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not
permitted.
Subject to Completion. Dated
August 16, 2005.
PROSPECTUS
Shares
Team Health, Inc.
Common Stock
This is the initial public offering of Team Health, Inc. No
public market currently exists for our common stock.
We currently anticipate the initial public offering price of our
common stock to be between
$          and
$           per
share. We intend to apply for listing of the common stock on The
New York Stock Exchange under the symbol "THH".
We are
offering                      shares
of common stock. The selling shareholders identified in this
prospectus are offering an
additional                      shares.
We will not receive any of the proceeds from the sale of shares
being sold by the selling shareholders.
The selling shareholders have granted the underwriters a 30-day
option to purchase up to an
additional            shares
on the same terms and conditions as set forth above if the
underwriters sell more
than            shares
of common stock in this offering.
Investing in our securities involves risks. See "Risk
Factors" beginning on page 6 of this prospectus.
Per Share
Total
Public Offering Price
$
$
Underwriting Discount
$
$
Proceeds, before expenses, to Team Health, Inc.
$
$
Proceeds, before expenses, to selling shareholders
$
$
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Delivery of shares will be made on or
about                     ,
2005.
Lehman Brothers
Merrill Lynch & Co.
JPMorgan
The date of this prospectus
is                         ,
2005
TABLE OF CONTENTS
SPECIAL NOTE ABOUT FORWARD-LOOKING
    STATEMENTS
ii
INDUSTRY AND MARKET DATA
ii
PROSPECTUS SUMMARY
1
RISK FACTORS
6
USE OF PROCEEDS
26
DIVIDEND POLICY
27
CAPITALIZATION
28
DILUTION
29
SELECTED CONSOLIDATED FINANCIAL DATA
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
    OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32
BUSINESS
49
MANAGEMENT
68
PRINCIPAL AND SELLING SHAREHOLDERS
75
CERTAIN RELATIONSHIPS AND RELATED PARTY
    TRANSACTIONS
77
DESCRIPTION OF CAPITAL STOCK
80
SHARES ELIGIBLE FOR FUTURE SALE
83
MATERIAL U.S. FEDERAL TAX CONSEQUENCES
    FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
85
UNDERWRITING
87
LEGAL MATTERS
91
EXPERTS
91
WHERE YOU CAN FIND MORE INFORMATION
91
EX-23.1: CONSENT OF ERNST & YOUNG LLP
IMPORTANT NOTICE TO READERS
You should rely only on the information contained in this
prospectus or to which we have referred you. We and the selling
shareholders have not authorized any other person to provide you
with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. This document may only be used in jurisdictions where offers
and sales of the securities are permitted. You should not assume
that information contained in this prospectus is accurate as of
any date other than the date on the front page of this
prospectus, regardless of when this prospectus is delivered or
when any sale of our securities occurs.
i
Table of Contents
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements."
Some of these statements can be identified by terms and phrases
such as "anticipate," "believe,"
"intend," "estimate," "expect,"
"continue," "could," "may,"
"plan," "project," "predict" and
similar expressions and include references to assumptions that
we believe are reasonable and relate to our future prospects,
developments and business strategies.
Factors that could cause our actual results to differ materially
from those expressed or implied in such forward-looking
statements, include, but are not limited to:
•
general economic conditions;
•
the adequacy of our insurance coverage and insurance reserves;
•
our ability to generate cash flow to service our debt
    obligations;
•
the outcome of government investigations of certain of our
    business practices;
•
our ability to maintain or implement complex information systems;
•
our ability to successfully integrate strategic acquisitions;
•
our ability to continue to recruit and retain qualified
    healthcare professionals and our ability to attract and retain
    operational personnel;
•
our ability to enter into and retain contracts with hospitals,
    military treatment facilities and other healthcare facilities on
    attractive terms;
•
the general level of emergency department patient volumes at our
    clients' facilities;
•
the effect and interpretation of current or future government
    regulation of the healthcare industry, and our ability to comply
    with these regulations;
•
changes in rates or methods of government payments for our
    services;
•
competition in our market;
•
our reliance on third-party-payers;
•
our exposure to professional liability lawsuits and governmental
    agency investigations;
•
our future capital needs and ability to obtain future financing;
•
our ability to carry out our business strategy; and
•
the control of our company by our controlling shareholders.
We undertake no obligation to revise the forward-looking
statements included in this prospectus to reflect any future
events or circumstances. Our actual results, performance or
achievements could differ materially from the results expressed
or implied by these forward-looking statements. Factors that
could cause or contribute to such differences include those
discussed under the heading "Risk Factors" in this
prospectus.
INDUSTRY AND MARKET DATA
The market data and other statistical information used
throughout this prospectus are based on independent industry
publications, government publications, reports by market
research firms or other published independent sources. Some data
is also based on our good faith estimates, which are derived
from our review of internal surveys, as well as the independent
sources listed above. Although we believe these sources are
reliable, we have not independently verified the information and
cannot guarantee its accuracy and completeness.
ii
Table of Contents
PROSPECTUS SUMMARY
References to "Team Health," "we,"
"our," and "us" refer to Team Health, Inc.,
its predecessors, its subsidiaries and its affiliated medical
groups. This summary highlights the information contained
elsewhere in this prospectus. Because this is only a summary, it
does not contain all of the information that may be important to
you. For a more complete understanding of this offering, we
encourage you to read this entire prospectus and the documents
to which this prospectus refers.
Unless otherwise indicated, the information contained in this
prospectus assumes that the underwriters' over-allotment
option is not exercised.
Overview
Our Company
Team Health is the largest provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States, based upon revenues
and patient visits. We serve more than 470 hospital clients and
their affiliated clinics and surgical centers in 44 states
with a team of approximately 4,700 physicians, mid-level
practioners and nurses. Since our inception in 1979, we have
focused primarily on providing outsourced services to hospital
emergency departments, which accounted for 72% of our net
revenues less provision for uncollectibles in the six months
ended June 30, 2005. We also provide comprehensive programs
for inpatient care (hospitalist), radiology, anesthesiology,
pediatrics and other healthcare services, principally within
hospitals and other healthcare facilities.
Emergency departments, or EDs, generate approximately 40% of all
hospital admissions, making this department critical to a
hospital's patient satisfaction rates and overall success.
This dynamic, combined with the challenges involved in billing
and collections and physician recruiting and retention, leads
many hospitals to utilize companies like Team Health for
outsourced staffing and management. Our revenues from ED
contracts increased by 22% from 2001 to 2004. The emergency
departments that we staff generally are located in larger
hospitals that treat over 15,000 patients annually in the
ED. We believe that our experience and expertise in managing the
complexity of these high volume emergency departments enables
our hospital clients to provide higher quality and more
efficient physician and administrative services. In this type of
environment we can establish long-term relationships, recruit
and retain high quality physicians and other providers and
staff, and generate attractive payer mixes and profit margins.
We target clinical areas that face severe physician shortages
and growing demand for services because many healthcare
facilities lack the infrastructure and personnel necessary to
identify and attract specialized, career-oriented physicians. We
offer the following range of physician and non-physician
staffing and administrative services to our clients:
•
recruiting, scheduling and credentials coordination for clinical
    and non-clinical medical professionals;
•
coding, billing and collection of fees for services provided by
    medical professionals;
•
administrative support services, such as payroll, insurance
    coverage, continuing medical education services and management
    training; and
•
claims and risk management services.
Industry Overview
With the increasing complexity of clinical, regulatory, managed
care and reimbursement matters in today's healthcare
environment, healthcare facilities are under significant
pressure from the government and private payers both to improve
the quality and reduce the cost of care. Furthermore, most
healthcare facilities do not have billing systems that properly
handle the large volumes of payments that are typical in the
emergency and other specialty departments. Finally, hospitals
may lack the resources to recruit physicians and other providers
in those same specialty areas effectively. In response to these
factors, healthcare facilities have increasingly outsourced the
staffing and management of multiple clinical areas to companies
with specialized skills, standardized models and information
technology to improve service, increase the overall quality of
care and reduce administrative costs. The market for outsourced
services tends to be highly fragmented, consisting of many local
providers that often lack the operating capital, experience,
breadth of services and sophisticated information technology
necessary to meet the complex needs of hospitals. As a result,
healthcare facilities are
1
Table of Contents
seeking third-party staffing providers with the billing
expertise, IT infrastructure and systems necessary to reduce
their administrative burden and effectively manage the
complexity of these services.
Competitive Strengths
We believe that our competitive position as the largest provider
of outsourced physician staffing and administrative services to
hospitals and other healthcare providers is attributable to a
number of key strengths, including the following:
Trusted Reputation for Consistent and Reliable Services.
With more than 25 years in the industry, we believe we are
    one of the country's most experienced and trusted providers
    of outsourced physician staffing and administrative services.
    This is evidenced by our overall ED contract retention rate of
    more than 90% and our recent physician survey, in which 97% of
    respondents indicated that we were attending to business
    functions in a way that allowed them to focus on their patients
    and their clinical practices.
Leading Market Position.
We are the largest national
    provider of physician staffing and administrative services to
    hospitals and other healthcare providers in the United States,
    based upon revenues and patient visits. We believe our scale
    generates significant cost efficiencies that are generally not
    available to smaller competitors. As a full-service provider
    with both a comprehensive understanding of changing healthcare
    regulations and policies and the management information systems
    that provide support to manage these changes, we believe we are
    well positioned to maintain and grow our market share from other
    service providers and from new outsourcing opportunities.
Regional Operating Models Supported by a National
    Infrastructure.
Our 13 regional management sites are
    supported by our national infrastructure, which includes
    integrated information systems and standardized procedures. This
    allows us to deliver locally focused services with the resources
    and sophistication of a national provider. Many of these
    regional sites were independent local companies that we added
    through acquisition. These businesses have been fully
    integrated, but originated locally and have retained their roots
    in their communities. Our local presence results in responsive
    service and high physician retention rates, which allow us to
    market our services effectively to local hospital decision
    makers.
Significant Investment in Information Systems and
    Procedures.
Our proprietary information systems link our
    regional management sites, allowing our best practices and
    procedures to be delivered and implemented nationally. The
    sophistication of our information systems has enhanced our
    reimbursement and billing and collections productivity and
    results in what we believe to be among the industry's
    lowest average cost per patient billed and average recruiting
    cost per physician.
Financial Performance.
We believe that financial
    stability, including a demonstrated ability to pay providers in
    a timely manner and provide adequate professional liability
    insurance, is one of the key discriminating factors used by
    clients in the healthcare industry when choosing outsourcing
    providers. We have generated positive operating cash flow for
    each of the last five years. Cash flow from operations for the
    six months ended June 30, 2005 was approximately
    $28.0 million. We believe that our operating cash needs
    will continue to be met through cash generated from operations.
Risk Management.
We have a comprehensive risk management
    program designed to prevent or minimize medical errors and
    attendant professional liability claims. Our national presence
    across 44 states enables us to share best practices in risk
    management throughout our 13 regional management sites. The
    breadth and depth of our efforts in this area are a critical
    component of our business strategy and ability to meet our
    client retention and acquisition goals. Over the last two years,
    we have significantly reduced the number of new patient claims
    filed. In 2003 and 2004, claims declined 12% and 26%,
    respectively.
Ability to Recruit and Retain High Quality Physicians.
While our local presence provides us with the knowledge to
    properly match physicians with hospitals and other facilities,
    our national presence and infrastructure enable us to provide
    physicians with flexible work hours, a variety of practice
    opportunities, extensive continuing medical education
    activities, advanced information and reimbursement systems and
    standardized procedures. We believe this flexibility, combined
    with fewer administrative
2
Table of Contents
burdens, improves our physician retention rates and helps to
    stabilize our contract base. We also believe we have among the
    highest physician retention rates in the industry.
Experienced Management Team with Significant Equity
    Ownership.
Our senior management team has an average of over
    20 years experience in the outsourced physician staffing
    and medical services industries. Our Chief Executive Officer, H.
    Lynn Massingale, M.D., co-founded Team Health's
    predecessor entity in 1979. After the offering, members of our
    management team will have, with the inclusion of
    performance-based options, an indirect fully diluted ownership
    interest of
    approximately           %
    of Team Health, Inc. As a result of this substantial equity
    interest, we believe our management team has a significant
    incentive to maintain and grow our client base, and increase our
    revenue and profitability.
Business Strategy
We intend to utilize our competitive strengths to capitalize on
favorable industry trends and execute on the following business
strategies:
Increase Revenues from Existing Customers.
We have a
    strong record of achieving growth in revenues from our existing
    customer base, primarily as a result of increased patient
    volumes, enhanced billing and collections and the addition of
    new services. In 2004 and the six months ended June 30,
    2005, net revenues less provision for uncollectibles from same
    contracts, grew by approximately 4.2% and 13.2% on a
    year-over-year and period-over-period basis, respectively.
Capitalize on Outsourcing Opportunities to Win New
    Contracts.
As hospitals and other healthcare providers
    continue to experience pressure from managed care companies and
    other payers to reduce costs while maintaining or improving the
    quality of service, we believe hospitals and other contracting
    parties will increasingly turn to a single-source with an
    established track record of success for outsourced physician
    staffing and administrative services. We believe our leading
    market position and competitive strengths, along with an
    increased investment in our sales force in late 2004, favorably
    position us to capitalize on growth in outsourcing opportunities.
Increase Revenue from Additional Clinical Areas.
Complementing our core ED staffing business are opportunities to
    further grow revenues of our inpatient services (hospitalist),
    radiology, anesthesiology and pediatrics service offerings. We
    believe we are well positioned to increase our market share in
    these areas due to our ability to leverage our infrastructure
    and existing client relationships as well as our recruiting and
    risk management expertise.
Leverage Infrastructure to Enhance Profitability.
Our
    revenue growth strategy along with our established regional and
    corporate infrastructure is designed to allow for continued
    enhancement of profitability. Our information systems and
    economies of scale allow us to enhance profitability with
    revenue growth without compromising the quality of operations or
    clinical care. Our strategy to continually reduce costs, improve
    efficiencies and provide employee incentives in order to
    maximize our profitability.
Focus on Risk Management.
Through our risk management
    staff, quality assurance staff and medical directors, we conduct
    an aggressive risk management program for loss prevention and
    early intervention in order to prevent or minimize medical
    professional liability claims. We have a proactive role in
    promoting early reporting, evaluation and resolution of serious
    incidents that may evolve into claims or suits.
Pursue Selective Acquisitions.
Although we are the
    largest national provider of outsourced physician staffing and
    administrative services in the U.S. based on revenues and
    patient visits, our current market share is less than 10%. We
    intend to acquire complementary businesses selectively in the
    fragmented outsourcing market.
Company Information
Team Health, Inc., a Tennessee corporation incorporated in 1994,
and its predecessor have been operating as a business since
1979. Our principal executive offices are located at
1900 Winston Road, Suite 300, Knoxville, Tennessee
37919, and our telephone number at that address is
(865) 693-1000. Our website address is
http://www.teamhealth.com
. The information on our website
is not part of this prospectus.
3
Table of Contents
The Offering
The following is a brief summary of some of the terms of this
offering. For a more complete description of the terms of the
common stock, see "Description of Capital Stock" in
this prospectus.
Common stock we are offering
shares
Common stock the selling shareholders are offering
shares,                     of
    which will be offered by Madison Dearborn Capital
    Partners II, L.P. ("Madison Dearborn Partners")
    Cornerstone Equity Investors IV, L.P. ("Cornerstone
    Equity Investors") and Beecken Petty O'Keefe and
    Company. See "Principal and Selling Shareholders."
    Following the offering, Madison Dearborn Partners, LLC,
    Cornerstone Equity Investors, LLC and Beecken Petty O'Keefe
    and Company will continue to
    own           %
    of our outstanding common stock.
Common stock to be outstanding after the offering
shares
Use of proceeds
We will use the proceeds of the sale of our common stock for the
    repayment of debt. We will not receive any proceeds from the
    sale of shares of common stock offered by selling shareholders.
    See "Use of Proceeds."
Dividend policy
We currently expect to retain future earnings, if any, for use
    in the operation and expansion of our business and do not
    anticipate paying any cash dividends in the foreseeable future.
    Our ability to pay dividends on our common stock is limited by
    the covenants of our senior credit and term loan facilities as
    well as our senior subordinated notes and may be further
    restricted by the terms of any future debt or preferred
    securities.
Risk factors
See "Risk Factors" beginning on page 6 and other
    information included in this prospectus for a discussion of
    factors you should consider carefully before deciding to invest
    in our common stock.
Proposed NYSE symbol
"THH"
4
Table of Contents
Summary Historical Consolidated Financial Data
The following table presents our summary historical
consolidated financial data for the fiscal years ended
December 31, 2002, December 31, 2003 and
December 31, 2004, which are derived from our audited
consolidated financial statements and the notes to those
statements. The table also presents our summary historical
consolidated financial statements and data for the six months
ended June 30, 2004 and 2005, which are derived from our
unaudited consolidated financial statements and the notes to
those statements. Operating results for the six fiscal months
ended June 30, 2004 and 2005 are not necessarily indicative
of the results that may be expected for the entire fiscal year.
Because the data in this table are only a summary and does not
provide all of the data contained in our financial statements,
the information should be read in conjunction with
"Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial
statements and accompanying notes thereto appearing elsewhere in
this prospectus.
Six Months Ended
Year Ended December 31,
June 30,
2002
2003
2004
2004
2005
(Unaudited)
(Dollars in thousands, except per share data)
Statement of Operations Data:
Net revenues less provision for uncollectibles
$
834,098
$
999,746
$
1,008,691
$
517,404
$
508,308
Gross profit
161,533
137,367
194,630
101,565
123,273
General and administrative expenses
81,744
95,554
100,473
48,819
50,765
Impairment losses
2,322
168
73,177
65,819
1,560
Refinancing costs
3,389
—
14,731
14,731
—
Depreciation and amortization
20,015
22,018
13,689
6,944
6,166
Interest expense, net
23,906
23,343
28,949
14,326
13,913
Provision (benefit) for income taxes
13,198
(1,410
)
11,436
6,266
18,641
Net earnings (loss)
16,138
(2,811
)
(49,212
)
(55,953
)
30,066
Dividends on preferred stock
13,129
14,440
3,602
3,602
—
Net earnings (loss) attributable to common shareholders
$
3,009
$
(17,251
)
$
(52,814
)
$
(59,555
)
$
30,066
Per Share Data:
Net income (loss) per common share:
Basic
$
$
$
$
$
Diluted
$
$
$
$
$
June 30, 2005
Pro Forma
Actual
Adjustments
As Adjusted
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents
$
15,187
$
$
Working capital
71,049
Total assets
560,396
Total debt
347,975
Total shareholders' equity (deficit)
(167,537
)
5
Table of Contents
RISK FACTORS
Any investment in our common stock involves a high degree of
risk. You should consider carefully the following information
about these risks, together with the other information contained
in this prospectus, before buying shares of our common stock.
In addition, please read "Special Note About
Forward-Looking Statements" in this prospectus, where we
describe additional uncertainties associated with our business
and the forward-looking statements included in this prospectus.
Please note that additional risks not presently known to us or
that we currently deem immaterial may also impair our business
and operations.
Risks Relating to Our Business
Laws and regulations that regulate payments for medical
services by government sponsored healthcare programs could cause
our revenues to decrease.
Our affiliated physician groups derive a significant portion of
their net revenues less provision for uncollectibles from
payments made by government sponsored healthcare programs such
as Medicare and state reimbursed programs. There are public and
private sector pressures to restrain healthcare costs and to
restrict reimbursement rates for medical services. Any change in
reimbursement policies, practices, interpretations, regulations
or legislation that places limitations on reimbursement amounts
or practices could significantly affect hospitals, and
consequently affect our operations unless we are able to
renegotiate satisfactory contractual arrangements with our
hospital clients and contracted physicians. Reductions in
amounts paid by government programs for physician services or
changes in methods or regulations governing payment could cause
our revenues and profits to decline.
We believe that regulatory trends in cost containment will
continue. We cannot assure you that we will be able to offset
reduced operating margins through cost reductions, increased
volume, the introduction of additional procedures or otherwise.
In addition, we cannot assure you that the federal government
will not impose reductions in the Medicare physician fee
schedule in the future. Any such reductions could reduce our
revenues.
On November 2, 2004, Centers for Medicare and Medicaid
Services, or CMS, issued its updates to the Physician Fee
Schedule payment rates for 2005. The 2005 Physician Fee Schedule
payment rate updates, mandated by the Medicare Modernization
Act, provide that the update to the conversion factor for
physicians' services for 2005 will increase by
approximately 1.5%. As a result of the legislative change, we
estimate that we will realize an increase in such revenues in
2005 from Medicare and other related revenue sources of
approximately $2.0 million. In addition to the 1.5%
increase provided as a result of the Medicare Modernization Act,
an additional 5.0% payment is provided starting in 2005 when a
hospital is located within a Physician Scarcity Area, or PSA.
This is estimated to increase revenues in 2005 by
$1.0 million.
On August 1, 2005, CMS issued a proposed rule containing
updates to its Physician Fee Schedule payment rates for 2006.
The proposed rule is subject to a comment period and final
adoption. If the proposed rule is adopted as a final rule, then
payment rates under the Physician Fee Schedule will decrease by
4.3%, effective January 1, 2006. In the event that the 4.3%
rate reduction becomes effective in 2006, we estimate that it
will negatively affect our revenues from Medicare and other
revenue sources whose rates are linked to changes in the
Medicare fee schedule rates by an estimated $6.4 million.
Additional changes in managed care revenues are possible if fee
schedules maintained by certain of such organizations are
revised based on the Medicare fee schedule changes.
If governmental authorities determine that we violate
Medicare reimbursement regulations, our revenues may decrease
and we may have to restructure our method of billing and
collecting Medicare payments.
The Medicare Prescription Drug Improvement and Modernization Act
of 2003 amended the Medicare reassignment statute as of
December 8, 2003 to permit our independent contractor
physicians to reassign their Medicare receivables to us. We have
begun to restructure our method of billing and collecting
Medicare payments in light of this new statutory reassignment
exception.
Under the new reassignment arrangement, many of our independent
contractor physicians now reassign their Medicare receivables to
us, so that Medicare carriers send payments for those
physicians' services directly to us. In cases where we have
not yet converted to the new reassignment arrangement, we still
use a
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"lockbox" model which we implemented shortly after
notifying Medicare carriers of the details of our lockbox
billing arrangements in December 1997. For the lockbox
arrangements still in effect, Medicare carriers send payments
for the physician services to a lockbox bank account under the
control of the physician. The physician, fulfilling his
contractual obligations to us, then directs the bank to transfer
the funds in that bank account into a company bank account. In
return, we pay the physician an agreed amount for professional
services provided and provide management and administrative
services to or on behalf of the physician or physician group.
With respect to Medicare services that physicians employed by
physician-controlled professional corporations render, Medicare
carriers send payments for physician services to a group account
under the group's control. While we seek to comply
substantially with applicable Medicare reimbursement
regulations, we cannot assure you that government authorities
would find that we comply in all respects with these regulations.
We utilize physician assistants and nurse practitioners,
sometimes referred to collectively as "midlevel
practitioners," to provide care under the supervision of
our physicians. State and federal laws require that such
supervision be performed and documented using specific
procedures. For example, in some states some or all of the
midlevel practitioner's chart entries must be
countersigned. Under applicable Medicare rules, the midlevel
practitioner's services are reimbursed at a rate equal to
85% of the physician fee schedule amount and we do not bill
separately for the supervising physician's services.
However, when a midlevel practitioner assists a physician who is
directly and personally involved in the patient's care, we
often bill for the services of the physician at the full
physician fee schedule rates and do not bill separately for the
midlevel practitioner's services. We believe our billing
and documentation practices related to our use of midlevel
practitioners comply with applicable state and federal laws, but
we cannot assure you that enforcement authorities will not find
that our practices violate such laws.
When our services are covered by multiple third party payers,
such as a primary and a secondary payer, financial
responsibility must be allocated among the multiple payers in a
process known as "coordination of benefits," or COB.
The rules governing COB are complex, particularly when one of
the payers is Medicare or another government program. Under
these rules, in some cases Medicare or other government payers
can be billed as a "secondary payer" only after
recourse to a primary payer (e.g., a liability insurer) has been
exhausted. In some instances, multiple payers may reimburse us
an amount which, in the aggregate, exceeds the amount to which
we are entitled. In such cases, we are obligated to process a
refund. If we improperly bill Medicare or other government
payers as the primary payer when that program should be billed
as the secondary payer, or if we fail to process a refund when
required, we may be subject to civil and/or criminal penalties.
Although we believe we currently have procedures in place to
assure that we comply with applicable COB rules, and that we
process refunds when we receive overpayments, we cannot assure
you that payers or enforcement agencies will not find that we
have violated these requirements.
Management is not aware of any inquiry, investigation, or notice
from any governmental entity indicating that we are in violation
of any of the Medicare laws regarding Medicare Program payments.
However, such laws are broadly worded and may be interpreted or
applied by prosecutorial, regulatory or judicial authorities in
ways that we cannot predict. Accordingly, we cannot assure you
that our arrangements and business practices will not be the
subject of government scrutiny or be found to violate applicable
laws.
We are subject to complex rules and regulations that
govern our licensing and certification, and the failure to
comply with these rules can result in delays in reimbursement or
civil or criminal sanctions.
We and our affiliated physicians are subject to various federal,
state and local licensing and certification laws and regulations
and accreditation standards and other laws, relating to, among
other things, the adequacy of medical care, equipment, personnel
and operating policies and procedures. We are also subject to
periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary
for licensing and accreditations.
In certain jurisdictions, changes in our ownership structure
require pre- or post-notification to governmental licensing
and certification agencies. Relevant laws and regulations may
also require re-application and approval to maintain or renew
our operating authorities or require formal application and
approval to continue providing services under certain government
contracts.
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Similarly, the change in corporate structure and ownership in
connection with this offering may require us to give notice and
make applications for authority in various jurisdictions. The
relevant laws and regulations are complex, and we are pursuing
the steps we believe we must take to retain or obtain all
requisite operating authorities.
In order to receive payment from Medicare, Medicaid and certain
other government programs, healthcare providers are required to
enroll in these programs by completing complex enrollment
applications. Certain government programs, including Medicare
and Medicaid programs, require notice or re-enrollment when
certain ownership changes occur. Generally, in jurisdictions
where we are required to obtain a new licensing authority, we
may also be required to re-enroll in that jurisdiction's
government payer program. If the payer requires us to complete
the re-enrollment process prior to submitting reimbursement
requests, we may be delayed in payment, receive refund requests
or be subject to recoupment for services we provide in the
interim.
Compliance with these change in ownership requirements is
complicated by the fact that they differ from jurisdiction to
jurisdiction, and in some cases are not uniformly applied or
interpreted even within the same jurisdiction. Failure to comply
with these enrollment and reporting requirements can lead not
only to delays in payment and refund requests, but in extreme
cases can give rise to civil or criminal penalties in connection
with prior changes in our operations and ownership structure.
While we have made reasonable efforts to substantially comply
with these requirements in connection with prior changes in our
operations and ownership structure, and will do so in connection
with this offering, we cannot assure you that the agencies that
administer these programs will not find that we have failed to
comply in some material respects.
We could be subject to professional liability lawsuits,
some of which we may not be fully insured against or reserved
for.
In recent years, physicians, hospitals and other participants in
the healthcare industry have become subject to an increasing
number of lawsuits alleging medical malpractice and related
legal theories such as negligent hiring, supervision and
credentialing, and vicarious liability for acts of their
employees or independent contractors. Many of these lawsuits
involve large claims and substantial defense costs. Although we
do not engage in the practice of medicine or provide medical
services nor control the practice of medicine by our affiliated
physicians or affiliated medical groups or the compliance with
regulatory requirements applicable to the physicians and
physician groups with which we contract, we have been involved
in this type of litigation, and cannot assure you that we will
not become so involved in the future. In addition, through our
management of hospital departments and provision of
non-physician healthcare personnel, patients who receive care
from physicians or other healthcare providers affiliated with
medical organizations and physician groups with whom we have a
contractual relationship could sue us.
Prior to March 12, 2003, we had obtained professional
liability insurance from insurance companies to cover our
professional liability loss exposures. Our principal insurance
policy in effect for such potential claims ended March 11,
2003. The insurance market for professional liability insurance
coverage had changed significantly since our last policy
renewal. Several significant insurance providers of such
coverage ceased to provide such coverage and others, at the
time, had announced substantial rate increases for such
coverage. Because of our significant volumes of patient visits,
the number of insurance carriers in the marketplace with the
ability to provide coverage for our volume of business became
increasingly more limited and, as a result, more costly.
Effective March 12, 2003, we began insuring our
professional liability risks principally through a program of
self-insurance reserves and a captive insurance company
arrangement. Under this program, we provide professional
liability insurance to affiliated physicians and other
healthcare practitioners and establish reserves, using
independent actuarial estimates, for losses in respect of such
insurance, as well as the professional liability losses of Team
Health and our other corporate entities. These losses are funded
by our captive insurance company and, to the extent these losses
exceed the coverage provided by our captive insurance company,
may be funded by us. The captive insurance company is subject to
insurance regulatory laws and regulations, including actuarially
determined premiums and loss reserve requirements. Under our
current professional liability insurance program, our exposure
for claim losses under professional liability insurance policies
provided to affiliated physicians and other healthcare
practitioners is limited to the amounts of individual policy
coverage limits but there is no limit for aggregate claim losses
incurred under all insurance provided to affiliated physicians
and other healthcare practitioners or for individual or aggregate
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professional liability losses incurred by Team Health or other
corporate entities. While our provisions for professional
liability claims and expenses are determined through independent
actuarial estimates, there can be no assurance that such
independent actuarial estimates will not be exceeded by actual
losses and related expenses in the future. Claims regardless of
their merit or outcome, may also adversely affect our reputation
and ability to expand our business.
We could be liable for claims against our affiliated physicians
for incidents incurred but not reported during periods for which
claims-made insurance covered the related risk. Under generally
accepted accounting principles, the cost of professional
liability claims, which includes costs associated with
litigating or settling claims, is accrued when the incidents
that give rise to the claims occur. The accrual includes an
estimate of the losses that will result from incidents, which
occurred during the claims-made period, but were not reported
during that period. These claims are referred to as
incurred-but-not-reported claims, or IBNR. With respect to those
physicians for whom we provide tail coverage, for periods prior
to March 12, 2003, we have acquired from a commercial
insurance company tail coverage for IBNR claims. We cannot
assure you that claim losses for periods prior to March 12,
2003, will not exceed the limits of available insurance coverage
or reserves established by us for any losses in excess of such
insurance coverage limits.
Furthermore, for those portions of our professional liability
losses that are insured through commercial insurance companies,
we are subject to the "credit risk" of those insurance
companies. While we believe our commercial insurance company
providers are currently creditworthy, there can be no assurance
that such insurance companies will remain so in the future.
On July 19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants, including our parent corporation and one of its
affiliates. The jury verdict was $13.0 million in excess of
available third-party insurance coverage in effect at the date
of the incident. The jury award is subject to the issuance of a
final judgment by the trial court. We do not believe the facts
or the law presented to the jury support the jury's award,
and we have requested a new trial and intend to pursue all
appeal options. An adverse determination in this matter could
have a negative impact on our financial results. See
"Business — Legal Proceedings".
The reserves that we have established in respect of our
professional liability losses are subject to inherent
uncertainties and if a deficiency is determined this may lead to
a reduction in our net earnings.
We have established reserves for losses and related expenses,
which represent estimates involving actuarial and statistical
projections, at a given point in time, of our expectations of
the ultimate resolution and administration of costs of losses
incurred in respect of professional liability risks for the
period on and after March 12, 2003. We have also
established a reserve for potential losses in excess of
commercial insurance aggregate coverage limits for the period
prior to March 12, 2003. Insurance reserves are inherently
subject to uncertainty. Our reserves are based on historical
claims, demographic factors, industry trends, severity and
exposure factors and other actuarial assumptions calculated by
an independent actuary firm. The independent actuary firm will
perform studies of projected ultimate losses at least annually.
We use the actuarial estimates to establish reserves. Our
reserves could be significantly affected should current and
future occurrences differ from historical claim trends and
expectations. While claims are monitored closely when estimating
reserves, the complexity of the claims and wide range of
potential outcomes often hampers timely adjustments to the
assumptions used in these estimates. Actual losses and related
expenses may deviate, perhaps substantially, from the reserve
estimates reflected in our financial statements. If our
estimated reserves are determined to be inadequate, we will be
required to increase reserves at the time of such determination,
which would result in a corresponding reduction in our net
earnings in the period in which such deficiency is determined.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations — Critical
Accounting Policies and Estimates — Insurance
Reserves" and Note 12 of the Notes to our Consolidated
Financial Statements.
We depend on reimbursements by third-party payers, as well
as payments by individuals, which could lead to delays and
uncertainties in the reimbursement process.
We receive a substantial portion of our payments for healthcare
services from third-party payers, including Medicare, Medicaid,
private insurers, managed care organizations and hospitals. We
received approximately 56% and 59% of our net revenues less
provision for uncollectibles from such third-party payers
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during fiscal 2004 and the six months ended June 30, 2005,
respectively, including approximately 23% and 25% from Medicare
and Medicaid, collectively.
The reimbursement process is complex and can involve lengthy
delays. Third-party payers continue their efforts to control
expenditures for healthcare, including proposals to revise
reimbursement policies. We recognize revenue when we provide
healthcare services; however, there can be delays before we
receive payment. In addition, third-party payers may disallow,
in whole or in part, requests for reimbursement based on
determinations that certain amounts are not reimbursable under
plan coverage, they were for services provided that were not
medically necessary or additional supporting documentation is
necessary. Retroactive adjustments may change amounts realized
from third-party payers. We are subject to governmental audits
of our Medicare and Medicaid reimbursement claims and may be
required to repay these agencies if a finding is made that we
were incorrectly reimbursed. Delays and uncertainties in the
reimbursement process may adversely affect accounts receivable,
increase the overall costs of collection and cause us to incur
additional borrowing costs.
We also may not be paid in those instances where physicians
provide healthcare services to uninsured individuals. Amounts
not covered by third-party payers are the obligations of
individual patients. We may not receive whole or partial
payments from these uninsured individuals. As a result of
government laws and regulations requiring physicians to treat
patients meeting the definition of requiring emergency care
regardless of their ability to pay, a substantial increase in
self-pay patients could result in increased costs associated
with physician services for which sufficient revenues less
uncollectibles are not realized to offset such additional
physician service costs. In such an event, our earnings and cash
flow would be adversely affected, potentially affecting our
ability to maintain our restrictive debt covenant ratios and
meet our financial obligations.
In summary, the risks associated with third-party payers and
uninsured individuals and the inability to monitor and manage
accounts receivable successfully could have a material adverse
effect on our business, financial condition and results of
operations. Furthermore, our collection policies or our
provisions for allowances for Medicare, Medicaid and contractual
discounts and doubtful accounts receivable may not be adequate.
We are subject to the financial risks associated with our
fee-for-service contracts which could decrease our revenue,
including changes in patient volume, mix of insured and
uninsured patients and patients covered by government sponsored
healthcare programs and third party reimbursement rates.
We derive our revenue through two primary types of arrangements.
If we have a flat fee contract with a hospital, the hospital
bills and collects fees for physician services and remits a
negotiated amount to us monthly. If we have a fee-for-service
contract with a hospital, either we or our affiliated physicians
collect the fees for physician services. Consequently, under
fee-for-service contracts, we assume the financial risks related
to changes in mix of insured and uninsured patients and patients
covered by government sponsored healthcare programs, third party
reimbursement rates and changes in patient volume. We are
subject to these risks because under our fee-for-service
contracts, our fees decrease if a smaller number of patients
receive physician services or if the patients who do receive
services do not pay their bills for services rendered or we are
not fully reimbursed for services rendered. Our fee-for-service
contractual arrangements also involve a credit risk related to
services provided to uninsured individuals. This risk is
exacerbated in the hospital emergency department
physician-staffing context because federal law requires hospital
emergency departments to treat all patients regardless of the
severity of illness or injury. We believe that uninsured
patients are more likely to seek care at hospital emergency
departments because they frequently do not have a primary care
physician with whom to consult. We also collect a relatively
smaller portion of our fees for services rendered to uninsured
patients than for services rendered to insured patients. In
addition, fee-for-service contracts also have less favorable
cash flow characteristics in the start-up phase than traditional
flat-rate contracts due to longer collection periods.
Failure to timely or accurately bill for our services
could have a negative impact on our net revenues, bad debt
expense and cash flow.
Billing for emergency department visits in a hospital setting
and other physician-related services is complex. The practice of
providing medical services in advance of payment or, in many
cases, prior to assessment of ability to pay for such services,
may have significant negative impact on our net revenues, bad
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debt expense, and cash flow. We bill numerous and varied payers,
such as self-pay patients, various forms of commercial insurance
companies and the Medicare and Medicaid programs. These
different payers typically have differing forms of billing
requirements that must be met prior to receiving payment for
services rendered. Reimbursement to us is typically conditioned
on our providing the proper medical necessity and diagnosis
codes. Incorrect or incomplete documentation and billing
information could result in non-payment for services rendered.
Additional factors that could complicate our billing include:
•
disputes between payers as to which party is responsible for
    payment,
•
variation in coverage for similar services among various payers,
•
the difficulty of adherence to specific compliance requirements,
    diagnosis coding and various other procedures mandated by
    responsible parties, and
•
failure to obtain proper physician credentialing and
    documentation in order to bill various commercial and
    governmental payers.
To the extent that the complexity associated with billing for
our services causes delays in our cash collections, we assume
the financial risk of increased carrying costs associated with
the aging of our accounts receivable as well as increased
potential for bad debts.
In addition, the majority of the patient visits for which we
bill payers are processed in one of five regional billing
centers. A disruption of services at any one of these locations
could result in a delay in billing and thus cash flows to us, as
well as potential additional costs to process billings in
alternative settings or locations. Our billing centers process
approximately 97% of our non-military patient visit billings
using a common automated billing system. While we employ what we
believe are adequate back-up alternatives in the event of a main
computer site disaster, failure to execute our back-up plan
successfully or timely may cause a significant disruption to our
cash flows and increase temporarily our billing costs.
A reclassification of our independent contractor
physicians by tax authorities could require us to pay
retroactive taxes and penalties.
As of June 30, 2005, we contracted with approximately 2,300
affiliated physicians as independent contractors to fulfill our
contractual obligations to clients. Because we consider many of
the physicians with whom we contract to be independent
contractors, as opposed to employees, we do not withhold federal
or state income or other employment related taxes, make federal
or state unemployment tax or Federal Insurance Contributions Act
payments, except as described below, or provide workers'
compensation insurance with respect to such affiliated
physicians. Our contracts with our independent contractor
physicians obligate these physicians to pay these taxes. The
classification of physicians as independent contractors depends
upon the facts and circumstances of the relationship. In the
event of a determination by federal or state taxing authorities
that the physicians engaged as independent contractors are
employees, we may be adversely affected and subject to
retroactive taxes and penalties. Under current federal tax law,
a "safe harbor" from reclassification, and
consequently retroactive taxes and penalties, is available if
our current treatment is consistent with a long-standing
practice of a significant segment of our industry and if we meet
certain other requirements. If challenged, we may not prevail in
demonstrating the applicability of the safe harbor to our
operations. Further, interested persons have proposed in the
recent past to eliminate the safe harbor and may do so again in
the future.
Our practices with respect to the classification of our
independent contractors have periodically been reviewed by the
Internal Revenue Service with no adjustments or changes to our
practices required as a result of such review. The most recent
review was completed by the Internal Revenue Service in
conjunction with the audit of our federal tax returns for 2000
and 2001.
A significant number of our programs are concentrated in
certain states, particularly Florida and Tennessee, which makes
us particularly sensitive to regulatory, economic and other
conditions in those states.
During the six months ended June 30, 2005, Florida and
Tennessee each accounted for approximately 18% of our net
revenues less provisions for uncollectibles, respectively. If
our programs in these states are adversely affected by changes
in regulatory, economic and other conditions, our revenue and
profitability may decline.
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We derive a portion of our net revenues less provision for
uncollectibles from services provided to the Department of
Defense under the TRICARE Program ($74.7 million for the
six months ended June 30, 2005). This Program underwent
significant change in 2004 that has had a material impact on our
revenues and profits derived from such services.
We are a provider of health care professionals that serve
military personnel and their dependents in military treatment
facilities nationwide. In 2004, the Department of Defense made a
decision to re-contract all of its outsourced health care
staffing positions. Such positions were formerly staffed through
managed care organizations, which in turn subcontracted with
staffing providers, including Team Health. The change made by
the military was to primarily contract directly with health care
staffing providers through each branch of service. The
re-contracting of such services across all branches of the
military was completed on approximately November 1, 2004.
Based on the results of such re-contracting, we concluded that
our revenue and operating margins would be materially adversely
affected and that a portion of goodwill related to our military
business had been impaired. An impairment loss of
$73.2 million was recorded in 2004.
Our revenues derived from military health care staffing totaled
approximately $74.7 million in the first six months of 2005
compared to approximately $123.9 million in the same period
in 2004. Revenues for the full year 2004 totaled approximately
$207.5 million, reflecting our staffing revenues as both a
subcontractor and a direct contractor during the year.
Our net revenues and cash flow in the six months ended
June 30, 2005, have been affected as a result of the
re-contracting process. We won through competitive bidding a
number of new contracts. The staffing of such new contracts
requires locating, recruiting and hiring new health care staff,
some of whom, such as nurses, are in significant demand in
today's workforce. Our realization of net revenues in the
initial months of certain of the new contracts has been
adversely affected by unfilled staffing positions either due to
worker shortages or due to higher rates of turnover in certain
positions, leaving periods of vacancies in such positions.
Additionally, the billing process for our military staffing
services has changed following completion of the re-contracting
period. Our services are now billed directly to the respective
military treatment facilities or as a subcontractor to a
third-party direct contract holder who requires payment from the
military prior to reimbursing us. The change in military billing
practices and payment flow has caused a slow-down in the payment
cycle for our military staffing services. The average days
outstanding for our military staffing accounts receivable
totaled 79.1 days at June 30, 2005. Prior to the new
contracting process, our average days outstanding for military
staffing accounts receivable was 56.1 days.
Approximately $64.8 million of estimated annual revenue won
by us as part of the military's contract bidding process in
2004 was awarded to us on a one-year contract basis and is
subject to re-bid and award on or about October 1, 2005.
Approximately $79.1 million of estimated annual revenue won
during the bidding process in 2004 was awarded to us on a two to
five year contract basis which gives the government the option
to exercise available option years. We anticipate an estimated
$100.0 million of annual revenue derived from contracts
presently held by other staffing providers will also be up for
re-bid and award on or about October 1, 2005. However, we
expect to be ineligible to bid on a substantial portion of the
business held by other staffing providers due to the
government's practice of reserving a substantial portion of
its contracts for award to small businesses. Our ability to
participate in such small business bid awards will be limited to
the extent we can serve as a sub-contractor to small businesses
that win such bids. We are unable at this time to estimate the
outcome of such expected bidding process or its impact on the
results of our operations subsequent to such award dates.
We have remaining goodwill related to our military staffing
business of $54.7 million. The outcome of the
military's re-bidding of its staffing contracts through
October 1, 2005 could impact our valuation of the remaining
goodwill once the bid awards are known.
We are subject to billing investigations by federal and
state authorities.
State and federal statutes impose substantial penalties,
including civil and criminal fines, exclusion from participation
in government health care programs and imprisonment, on entities
or individuals (including any individual corporate officers or
physicians deemed responsible) that fraudulently or wrongfully
bill governmental or other third-party payers for health care
services. In addition, federal laws allow a private person to
bring a civil action in the name of the United States government
for false billing violations. On
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March 30, 2004, we received a subpoena from the Department
of HHS Office of Inspector General, or OIG, located in Concord,
California, requesting certain information from the period 1999
to present relating to our billing practices. See
"Business — Legal Proceedings" and the risk
factor below. We believe that additional audits, inquiries and
investigations from government agencies will continue to occur
from time to time in the ordinary course of our business, which
could result in substantial defense costs to us and a diversion
of management's time and attention. We cannot predict
whether any such pending or future audits, inquiries or
investigations, or the public disclosure of such matters, will
have a material adverse effect on our business, financial
condition, results of operations and the trading price of our
common stock.
The outcome of an ongoing federal investigation in which
we are involved could have a material adverse impact on our
business and financial condition.
On March 30, 2004, we received a subpoena from the
Department of HHS OIG located in Concord, California, requesting
certain information for the period 1999 to present relating to
our billing practices. To date, we have produced and delivered
to the OIG and the Department of Justice certain requested
information. We have learned that the basis for the issuance of
the subpoena is a complaint filed in the United States District
Court for the Northern District of California by an individual
on behalf of the government. The identity of the qui tam relator
and portions of the qui tam complaint remain sealed by the Court
pending the government's investigation. The portions of the
complaint not under seal allege that we engaged in certain
billing practices that resulted in our receipt of duplicate
payments for the same medical service and that we misled certain
providers about the entities that were performing their billing
services. Additionally, the portions of the complaint not under
seal allege that we terminated the employment of the individual
who filed the complaint in retaliation for that
individual's bringing of these allegations to our
attention. We deny these allegations and do not believe that any
of our current or prior billing practices would form the basis
for a violation of federal law.
We are fully cooperating with the federal authorities in this
matter and have been producing and delivering to the federal
authorities the requested documents. However, due to lack of
more specific information available to us at this time, we are
unable to ascertain the full scope of the government's
inquiry or the qui tam relator's complaint. Since
cooperating with the federal authorities with respect to the
original realtor complaint, we have complied with numerous
federal authorities' requests for additional information
relative to our billing polices and practices for all payers and
have made members of our management available to them for
purposes of their further understanding of such billing polices
and practices. We cannot predict the outcome of this
investigation or suit or their respective durations. The federal
government has informed us that it intends to file a notice of
intention to intervene. If this investigation results in current
or prior billing practices being identified as violative of
applicable laws or regulations, results in penalties being
imposed upon us, or results in an adverse determination in the
qui tam relator's complaint against us, the impact could
have a material adverse effect on our business and financial
condition.
We may become involved in litigation which could harm the
value of our business.
In the normal course of our business, we are involved in
lawsuits, claims, audits and investigations, including those
arising out of services provided, personal injury claims,
professional liability claims, our billing and marketing
practices, employment disputes and contractual claims. The
outcome of these matters could have a material adverse effect on
our financial position or results of operations. We do not
believe that any such claims that have been asserted are likely
to have such an effect. However, we may become subject to future
lawsuits, claims, audits and investigations that could result in
substantial costs and divert our attention and resources. In
addition, since our current growth strategy includes
acquisitions, among other things, we may become exposed to legal
claims for the activities of an acquired business prior to the
acquisition.
Our quarterly operating results may fluctuate
significantly and may cause our stock price to decline.
Our quarterly operating results may vary significantly in the
future depending on many factors that may include, but are not
limited to, the following:
•
the overall patient demand for our healthcare services;
•
our ability to accurately receive and process on a timely basis
    billing related information and other demographic factors that
    in turn can affect our fee-for-service revenue estimates;
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•
the relative proportion of revenues we derive from various
    services;
•
increased competition in our local markets;
•
changes in our operating expenses;
•
our ability to recruit and train new physicians in new or
    existing local markets;
•
changes in our business strategy; and
•
economic and political conditions, including fluctuations in
    interest rates and tax increases.
As a result, our stock price may fluctuate and you may not be
able to resell your shares at or above the price you paid for
them.
Our revenue could be adversely affected by a net loss of
contracts.
A significant portion of our growth has historically resulted
from increases in the number of patient visits and fees for
services provided under existing contracts and the addition and
acquisition of new contracts. Our contracts with hospitals
generally have terms of three years. Our contracts with military
treatment facilities are generally for one year and currently
are in the form of a direct contract with a military treatment
facility. Hospital contracts often include automatic renewal
options under similar terms and conditions, unless either party
gives notice of an intent not to renew. While most contracts are
terminable by either of the parties upon notice of as little as
30 days, the average tenure of our existing hospital
contracts is approximately eight years. These contracts may not
be renewed or, if renewed, may contain terms that are not as
favorable to us as our current contracts. The termination of a
contract is principally due to either an award of the contract
to another source of provider staffing as a result of a
competitive bidding process or termination of the contract by us
due to a lack of an acceptable profit margin on fee-for-service
patient volumes coupled with inadequate contract subsidies.
Additionally, to a much lesser extent, contracts may be
terminated due to such conditions as a hospital facility closing
because of facility mergers or a hospital attempting to insource
the service being provided by us. Our current military contracts
generally have terms of one year and in many cases have renewal
options on the part of the military. Such renewal options
typically are for one to four years. We cannot assure you that
we will not experience a net loss of contracts in the future and
that any such net loss would not have a material adverse effect
on our operating results and financial condition.
We may not accurately assess the costs we will incur under
new contracts.
Our new contracts increasingly involve a competitive bidding
process. When we obtain new contracts, we must accurately assess
the costs we will incur in providing services in order to
realize adequate profit margins and otherwise meet our financial
and strategic objectives. Increasing pressures from healthcare
payers to restrict or reduce reimbursement rates at a time when
the costs of providing medical services continue to increase
make assessing the costs associated with the pricing of new
contracts, as well as maintenance of existing contracts, more
difficult. In addition, integrating new contracts, particularly
those in new geographic locations, could prove more costly, and
could require more management time, than we anticipate. Our
failure to accurately predict costs or to negotiate an adequate
profit margin could have a material adverse effect on our
business, financial condition and results of operations.
We may not be able to find suitable acquisition candidates
or successfully integrate completed acquisitions into our
current operations in order to profitably operate our
consolidated company.
A portion of our growth in net revenues has resulted from, and
is expected to continue to result from, the acquisition of
healthcare businesses. Our acquisition strategy could present
some challenges. Some of the difficulties we could encounter
include: problems identifying all service and contractual
commitments of the acquired entity, evaluating the stability of
the acquired entity's hospital contracts, integrating
financial and operational software, and accurately projecting
physician and employee costs. Our acquisition strategy is also
subject to the risk that, in the future, we may not be able to
identify suitable acquisition candidates, obtain acceptable
financing or consummate desired acquisitions, any of which could
inhibit our growth. In addition, in connection with
acquisitions, we may need to obtain the consent of third parties
who have contracts with the entity to be acquired, such as
managed care companies or hospitals contracting with the entity.
We may be unable to obtain these consents. If we fail to
integrate acquired operations, fail to manage the cost of
providing our services or fail to price our services
appropriately, our operating results may decline.
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Furthermore, the diversion of management's attention and
any delays or difficulties encountered in connection with the
integration of businesses we acquire could negatively impact our
business and results of operations. Finally, as a result of our
acquisitions of other healthcare businesses, we may be subject
to the risk of unanticipated business uncertainties or legal
liabilities relating to such acquired businesses for which we
may not be indemnified by the sellers of the acquired businesses.
Our substantial indebtedness could adversely affect our
financial condition and our ability to operate our
business.
We have a substantial amount of debt. At June 30, 2005, we
had total debt of $348.0 million, including
$202.3 million of borrowings under our senior secured
credit facility and $145.7 million of senior subordinated
notes. In addition, subject to restrictions in the indenture
governing our notes and the credit agreement governing our
senior secured credit facility, we may incur additional debt.
Our substantial debt could have important consequences to you,
including the following:
•
it may be difficult for us to satisfy our obligations, including
    debt service requirements under our outstanding debt,
•
our ability to obtain additional financing for working capital,
    capital expenditures, debt service requirements or other general
    corporate purposes may be impaired,
•
we must use a significant portion of our cash flow for payments
    on our debt, which will reduce the funds available to us for
    other purposes,
•
we are more vulnerable to economic downturns and adverse
    industry conditions and our flexibility to plan for, or react
    to, changes in our business or industry is more limited,
•
our ability to capitalize on business opportunities and to react
    to competitive pressures, as compared to our competitors, may be
    compromised due to our high level of debt,
•
our ability to borrow additional funds or to refinance debt may
    be limited, and
•
it may cause potential or existing customers or physicians to
    not contract with us due to concerns over our ability to meet
    our financial obligations, such as payment of physicians or
    insuring against our professional liability risks, under such
    contracts.
Furthermore, all of our debt under our senior secured credit
facility bears interest at variable rates. If these rates were
to increase significantly, our ability to borrow additional
funds may be reduced and the risks related to our substantial
debt would intensify.
Servicing our debt will require a significant amount of
cash. Our ability to generate sufficient cash depends on
numerous factors beyond our control, and we may be unable to
generate sufficient cash flow to service our debt
obligations.
Our business may not generate sufficient cash flow from
operating activities. Our ability to make payments on and to
refinance our debt and to fund planned capital expenditures will
depend on our ability to generate cash in the future. To some
extent, this is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are
beyond our control. Lower net revenues, or higher provision for
uncollectibles, generally will reduce our cash flow.
If we are unable to generate sufficient cash flow to service our
debt and meet our other commitments, we may need to refinance
all or a portion of our debt, sell material assets or operations
or raise additional debt or equity capital. We cannot assure you
that we could effect any of these actions on a timely basis, on
commercially reasonable terms or at all, or that these actions
would be sufficient to meet our capital requirements. In
addition, the terms of our existing or future debt agreements
may restrict us from effecting any of these alternatives.
We may be required to seek additional financing to meet
our future capital needs, which we may not be able to secure on
favorable terms, or at all.
Continued expansion of our business may require additional
capital. In the future, it is possible that we will be required
to raise additional funds through public or private financings,
collaborative relationships or other arrangements. We cannot
assure you that this additional funding, if needed, will be
available on terms attractive to us, if at all. Furthermore, any
additional equity financing may be dilutive to shareholders and
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debt financing, if available, may involve restrictive covenants
that could affect our ability to pay dividends, if any, or raise
additional capital. Our failure to raise capital when needed
could harm our competitive position, business, financial
condition and results of operations.
Restrictive covenants in our senior secured credit
facility and the indenture governing our senior subordinated
notes may restrict our ability to pursue our business
strategies.
Our senior secured credit facility and the indenture governing
our senior subordinated notes limit our ability, among other
things, to:
•
incur additional indebtedness,
•
sell material assets,
•
retire, redeem or otherwise reacquire our capital stock,
•
acquire the capital stock or assets of another company, or
•
pay dividends.
In addition, the senior credit agreement includes a provision
for the prepayment of a portion of the outstanding term loan
amounts at any year-end if we generate "excess cash
flow," as defined in the agreement.
Despite current indebtedness levels, we and our
subsidiaries may still be able to incur substantially more debt.
This could further exacerbate the risks associated with our
substantial leverage.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. Although the agreements
governing our debt instruments contain restrictions on the
incurrence of additional indebtedness, these restrictions are
subject to a number of qualifications and exceptions, and the
indebtedness incurred in compliance with these restrictions
could be substantial. If we incur additional debt above the
levels currently in effect, the risks associated with our
leverage, including those described above, would increase.
If we fail to implement our business strategy, our
business, financial condition and results of operations could be
materially and adversely affected.
Our future financial performance and success are dependent in
large part upon our ability to implement our business strategy
successfully. Our business strategy envisions several
initiatives, including increasing revenue from existing
customers, capitalizing on outsourcing opportunities to win new
contracts, focusing on risk management and pursuing selected
acquisitions. We may not be able to implement our business
strategy successfully or achieve the anticipated benefits of our
business plan. If we are unable to do so, our long-term growth
and profitability may be adversely affected. Even if we are able
to implement some or all of the initiatives of our business plan
successfully, our operating results may not improve to the
extent we anticipate, or at all.
Our success depends on our ability to manage growth
effectively.
Even if we are successful in obtaining new business, failure to
manage our growth could adversely affect our financial
condition. We may experience extended periods of very rapid
growth. If we are not able to manage our growth effectively, our
business and financial condition could materially suffer. Our
growth may significantly strain our managerial, operational and
financial resources and systems. To manage our growth
effectively, we will have to continue to implement and improve
our operational, financial and management controls, reporting
systems and procedures. In addition, we must effectively expand,
train and manage our employees. We will be unable to manage our
businesses effectively if we are unable to alleviate the strain
on resources caused by growth in a timely and successful manner.
There can be no assurance that we will be able to manage our
growth and a failure to do so could have a material adverse
effect on our business.
We may not be able to successfully recruit and retain
qualified physicians to serve as our independent contractors or
employees.
Our affiliated medical groups provide facility-based services in
virtually all types of settings. These include urban and
suburban hospitals as well as rural and remote facilities. Our
ability to recruit and retain affiliated physicians and
qualified personnel for such settings can significantly affect
our performance at such facilities. Certain of these locations
present difficulties in recruiting providers due to limits on
compensation, facility and equipment availability, reduced
back-up by other specialists and personal/ family lifestyle
preferences. In addition, a number of our client hospitals
increasingly demand a greater degree of specialized skills,
training and experience in the physicians who staff their
contracts. This decreases the number of physicians who are
qualified to staff potential and existing contracts.
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Our core competencies include recruiting physicians and other
providers to all types of settings. Our staff includes
approximately 68 recruiters who work solely for us to fill the
vacancies that occur via attrition and new contract sales. We
utilize a proprietary IT application, populated with data
purchased from various provider professional societies, to
contact, recruit and employ or contract with providers as they
are needed.
In general, recruiting physicians to staff contracts in regions
of the country for economically disadvantaged hospitals may be
challenging. Occasionally, the recruiting of providers may not
occur quickly enough to fill all openings with permanent staff.
In these situations, clinical shifts are often filled
temporarily by existing employees or independent contractors
from other areas of our company, including by our regional
management. If such assistance is not available for any reason,
we utilize staffing from our internal locums tenens, or
temporary position, company to fill the staffing need until a
permanent candidate is identified. Finally, if the
aforementioned alternatives are unsuccessful, we contract with
one of the many third-party locums tenens companies that exist
to provide these services to healthcare facilities or companies
such as ours.
A number of resource options are available to us along with a
large full-time staff of recruiters that use sophisticated IT
tools to recruit staffing for almost any situation. As a result,
the inability to recruit skilled permanent provider staffing is
seldom a reason for the termination of a contract.
We compete with other entities to recruit and retain qualified
physicians and other healthcare professionals to deliver
clinical services. Our future success depends on our continued
ability to recruit and retain competent physicians to serve as
our employees or independent contractors. We may not be able to
continue to attract and retain sufficient numbers of competent
physicians and other healthcare professionals to continue to
expand our operations. In recent years there has been a shortage
of radiologists. The impact of this shortage has increased
staffing opportunities for such physicians. We have responded to
this shortage in ways other than our traditional fee-for-service
contracting arrangements. We first have experienced increased
staffing opportunities for radiologists through our locums
tenens business. Additionally, we have changed in the past two
years from a fee-for-service model to increasingly more often a
cost-plus arrangement with healthcare facilities.
The type of professional staffing services provided to military
treatment facilities in 2005 has changed significantly as a
result of a re-contracting process initiated by the Department
of Defense in 2004. The mix of professional services rendered
within our military staffing business has changed to an
increasing percentage of such services being provided in the
area of nurse staffing. There is a generally recognized shortage
of practicing nurses within the country. These shortages present
challenges to us in terms of recruiting for such contracted
positions overall and recruiting for such positions on a timely
basis to meet our contractual obligations. In situations where
we are unable to recruit nurses on a timely basis, our net
revenues will be adversely affected as a result.
Our ability to attract and retain physicians and providers
depends on several factors, including our ability to provide
physicians and providers with competitive benefits and wages. If
we do not increase benefits and wages in response to increases
by our competitors, we could face difficulties attracting and
retaining qualified healthcare personnel. In addition, if we
raise wages in response to our competitors' wage increases
and are unable to pass such increases on to our clients, our
margins could decline. We cannot assure you that we will be
successful in any of these areas.
There can be no assurance that our non-competition contractual
arrangements with affiliated physicians and professional
corporations will not be successfully challenged in certain
states as unenforceable. We have contracts with physicians in
many states. State law governing non-compete agreements varies
from state to state. Some states are reluctant to strictly
enforce non-compete agreements with physicians. In such event,
we would be unable to prevent former affiliated physicians and
professional corporations from competing with us, potentially
resulting in the loss of some of our hospital contracts and
other business.
The high level of competition in our industry could
adversely affect our contract and revenue base.
The provision of outsourced physician staffing and
administrative services to hospitals and clinics is
characterized by a high degree of competition. Competition for
outsourced physician and other healthcare staffing and
administrative service contracts is based primarily on:
•
the ability to improve department productivity and patient
    satisfaction while reducing overall costs,
•
the breadth of staffing and management services offered,
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•
the ability to recruit and retain qualified physicians,
    technicians and nurses,
•
billing and reimbursement expertise,
•
a reputation for compliance with state and federal
    regulations, and
•
financial stability, demonstrating an ability to pay providers
    in a timely manner and provide professional liability insurance.
Such competition could adversely affect our ability to obtain
new contracts, retain existing contracts and increase our profit
margins. We compete with both national and regional enterprises.
In addition, some of these firms may have greater access than we
do to physicians and potential clients. All of these competitors
provide healthcare services that are similar in scope to the
services we provide. We do not believe our services to have any
disadvantages with respect to such competitors. Although we and
our competitors operate on a national or regional basis, the
majority of the targeted hospital community for our services
engages local physician provider practice groups to provide
services similar to the services we provide. We therefore also
compete against local physician groups and self-operated
hospital emergency departments for satisfying staffing and
scheduling needs. Such local groups will often times outsource
many of their back office functions, including billing and
collection, risk management and other functions. While we
believe our company has certain competitive advantages over
these local groups relative to the economics of certain back
office functions, stability of operations to hospitals and
greater resources overall to provide flexibility in providing
services to our clients, local groups may compete more
effectively in the short-term in terms of the cost of their
services. Such cost advantages in a competitive bidding process
may reflect a willingness of a local group to provide their
services for below market reimbursement rates for their
physician services or to assume greater personal professional
liability risk exposure than is deemed prudent by other staffing
providers for contract pricing purposes.
The military has changed its approach under its TRICARE Program
toward providing most of its outsourced healthcare staffing
needs through direct provider contracting on a competitive bid
basis. As a result, competition for such outsourced military
staffing contracts may be affected by such factors as:
•
the lowest bid price;
•
the ability to meet technical government bid specifications;
•
the ability to recruit and retain qualified health care
    providers; and
•
restrictions on the ability to competitively bid based on
    restrictive government bid lists or bid specifications designed
    to award government contracts to targeted business ownership
    forms, such as those determined to meet small business or
    minority ownership qualifications.
While we believe our significant experience and demonstrated
ability to recruit high quality healthcare professionals to meet
the military's needs provides certain attractive advantages
to the use of our services, such services and quality screening
considerations may not result in the lowest competitive bid
price and thus a failure to win contracts where the decision is
based strictly on pricing considerations.
Our business depends on numerous complex information
systems, and any failure to successfully maintain these systems
or implement new systems could materially harm our
operations.
Our business depends on complex, integrated information systems
and standardized procedures for operational and financial and
billing operations. We may not be able to enhance existing
information systems or implement new information systems where
necessary. Furthermore, we may experience unanticipated delays,
complications and expenses in implementing, integrating and
operating our systems. In addition, our information systems may
require modifications, improvements or replacements that may
require substantial expenditures and may require interruptions
in operations during periods of implementation. Implementation
of these systems is further subject to the availability of
information technology and skilled personnel to assist us in
creating and implementing the systems. The failure to
successfully implement and maintain operational, financial and
billing information systems could have a material adverse effect
on our business, financial condition and results of operations.
Loss of key personnel and/or failure to attract and retain
highly qualified personnel could make it more difficult for us
to generate cash flow from operations and service our
debt.
Our success depends to a significant extent on the continued
services of our core senior management team of H. Lynn
Massingale, M.D., Chief Executive Officer and Director;
Greg Roth, President and Chief
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Operating Officer; Robert J. Abramowski, Executive Vice
President, Finance and Administration; Robert C. Joyner,
Executive Vice President, General Counsel; David Jones, Chief
Financial Officer; Stephen Sherlin, Chief Compliance Officer;
and Joseph Carmen, President, Billing Operations as well as the
leaders of major components of our company. If one or more of
these individuals were unable or unwilling to continue in his
present position, our business would be disrupted and we might
not be able to find replacements on a timely basis or with the
same level of skill and experience. Finding and hiring any such
replacements could be costly and might require us to grant
significant incentive compensation, which could adversely impact
our financial results. We have not had problems retaining key
personnel in the past and do not have reason to believe that key
personnel will be leaving in the near future.
Risks Relating to Government Regulation
We may incur substantial costs defending our
interpretations of federal and state government regulations and
if we lose, the government could force us to restructure and
subject us to fines, monetary penalties and exclusion from
participation in government-sponsored programs such as Medicare
and Medicaid.
Our operations and arrangements with healthcare providers are
subject to extensive federal and state government regulation,
including numerous laws directed at payment for services,
conduct of operations, preventing fraud and abuse, laws
prohibiting general business corporations, such as us, from
practicing medicine, controlling physicians' medical
decisions or engaging in some practices such as splitting fees
with physicians, and laws regulating billing and collection of
reimbursement from governmental programs, such as the Medicare
and Medicaid programs. Of particular importance are:
(1) provisions of the Omnibus Budget Reconciliation Act of
    1993, commonly referred to as Stark II, that, subject to
    limited exceptions, prohibit physicians from referring Medicare
    patients to an entity for the provision of certain
    "designated health services" if the physician or a
    member of such physician's immediate family has a direct or
    indirect financial relationship (including a compensation
    arrangement) with the entity,
(2) provisions of the Social Security Act, commonly
    referred to as the "anti-kickback statute," that
    prohibit the knowing and willful offering, payment, solicitation
    or receipt of any bribe, kickback, rebate or other remuneration
    in return for the referral or recommendation of patients for
    items and services covered, in whole or in part, by federal
    healthcare programs, such as Medicare and Medicaid,
(3) provisions of the Health Insurance Portability and
    Accountability Act of 1996, or HIPAA, and related rules that
    prohibit knowingly and willfully executing a scheme or artifice
    to defraud any healthcare benefit program or falsifying,
    concealing or covering up a material fact or making any material
    false, fictitious or fraudulent statement in connection with the
    delivery of or payment for healthcare benefits, items, or
    services,
(4) the federal False Claims Act that imposes civil and
    criminal liability on individuals or entities that submit false
    or fraudulent claims for payment to the government,
(5) reassignment of payment rules that prohibit certain
    types of billing and collection practices in connection with
    claims payable by the Medicare programs,
(6) similar state law provisions pertaining to
    anti-kickback, self-referral and false claims issues,
(7) state laws that prohibit general business corporations,
    such as us, from practicing medicine, controlling
    physicians' medical decisions or engaging in some practices
    such as splitting fees with
(8) laws that regulate debt collection practices as applied
    to our internal collection agency and debt collection practices,
(9) federal laws such as the Emergency Medical Treatment
    and Active Labor Act of 1986 that require the hospital and
    emergency department or urgent care center physicians to provide
    care to any patient presenting to the emergency department or
    urgent care center in an emergent condition regardless of the
    patient's ability to pay, and similar state laws, and
(10) state and federal statutes and regulations that govern
    workplace health and safety.
(11) a provision of the Social Security Act that imposes
    criminal penalties on healthcare providers who fail to disclose
    or refund known overpayments.
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(12) federal and state laws that prohibit providers from
    billing and receiving payment from Medicare and Medicaid for
    service unless the services are medically necessary, adequately
    and accurately documented, and billed using codes that
    accurately reflect the type and level of services rendered.
(13) federal and state laws and policies that require
    healthcare providers to enroll in the Medicare and Medicaid
    programs, to report certain changes in their operations to the
    agencies that administer these programs and, in some cases, to
    re-enroll in these programs when changes in direct or indirect
    ownership occur, and
(14) federal and state laws pertaining to the provision of
    services by nurse practitioners and physician assistants in the
    emergency department and urgent care settings, physician
    supervision of those services, and reimbursement requirements
    that may be dependent on the manner in which the services are
    provided and documented.
Each of the above may have related rules and regulations which
are subject to interpretation and may not provide definitive
guidance as to the application of those laws, rules or
regulations to our operations, including our arrangements with
hospitals, physicians and professional corporations. See
"Business — Regulatory Matters".
We have structured our operations and arrangements with third
parties in an attempt to comply with these laws, rules and
regulations based upon what we believe are reasonable and
defensible interpretations of these laws, rules and regulations.
However, we cannot assure you that the government will not
successfully challenge our interpretation as to the
applicability of these laws, rules and regulations as they
relate to our operations and arrangements with third parties.
In the ordinary course of business and like others in the
healthcare industry, we receive requests for information from
government agencies in connection with their regulatory or
investigational authority. We review such requests and notices
and take appropriate action. We have been subject to certain
requests for information in the past and could be subject to
such requests for information in the future, which could result
in significant penalties, as well as adverse publicity. The
results of any current or future investigation or action could
have a material adverse effect.
With respect to state laws that relate to the practice of
medicine by general business corporations and to fee splitting,
while we seek to comply substantially with existing applicable
laws, we cannot assure you that state officials who administer
these laws will not successfully challenge our existing
organization and our contractual arrangements, including
noncompetition agreements with physicians, professional
corporations and hospitals as unenforceable or as constituting
the unlicensed practice of medicine or prohibited fee-splitting.
We cannot assure you that a professional corporation will not
seek to terminate an agreement with us on the basis that it
violates the applicable state laws prohibiting the corporate
practice of medicine or any other basis, nor can we assure you
that governmental authorities in those states will not seek
termination of these arrangements on the same basis. If any
state governmental authority or professional corporation with
which we have a practice management agreement were to succeed in
such a termination, our business could be materially harmed.
If federal or state government officials challenge our
operations or arrangements with third parties that we have
structured based upon our interpretation of these laws, rules
and regulations, the challenge could potentially disrupt our
business operations and we may incur substantial defense costs,
even if we successfully defend our interpretation of these laws,
rules and regulations.
In the event regulatory action were to limit or prohibit us from
carrying on our business as we presently conduct it or from
expanding our operations to certain jurisdictions, we may need
to make structural and organizational modifications of our
company and/or our contractual arrangements with physicians,
professional corporations and hospitals. Our operating costs
could increase significantly as a result. We could also lose
contracts or our revenues could decrease under existing
contracts as a result of a restructuring. Moreover, our
financing agreements may also prohibit modifications to our
current structure and consequently require us to obtain the
consent of the holders of this indebtedness or require the
refinancing of this indebtedness. Any restructuring would also
negatively impact our operations because our management's
time and attention would be diverted from running our business
in the ordinary course.
Federal and state laws are broadly worded and may be interpreted
or applied by prosecutorial, regulatory or judicial authorities
in ways that we cannot predict. Accordingly, we cannot assure
you that our
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arrangements and business practices will not be the subject of
government scrutiny or be found to violate applicable laws. In
March 2004, we received a subpoena from the Department of Health
and Human Services Office of Inspector General, or OIG, located
in Concord, California requesting certain information for the
period from 1999 to the present relating to our billing
practices. We responded with information pertaining to the
request. The OIG has indicated to us that it intends to file a
notice to intervene in the related case. See
"Business" — "Legal Proceedings."
Our use and disclosure of patient information is subject
to privacy regulations
Numerous state, federal and international laws and regulations
govern the collection, dissemination, use and confidentiality of
patient — identifiable health information, including
HIPAA. In the provision of services to our customers, we may
collect, use, maintain and transmit patient information in ways
that will be subject to many of these laws and regulations. The
three rules that were promulgated pursuant to HIPAA that could
most significantly affect our business are the Standards for
Electronic transactions, or Transactions Rule; the Standards for
Privacy of Individuality Identifiable Health Information, or
Privacy Rule; and the Health Insurance Reform: Security
Standards or Security Rule. The respective compliance dates for
these rules for most entities were October 16, 2003,
April 16, 2003 and April 21, 2005. HIPAA applies to
covered entities, which include most healthcare facilities and
health plans that will contract for the use of our protocols and
our services. The HIPAA rules require covered entities to bind
contractors to compliance with certain burdensome HIPAA rule
requirements. Other federal and state laws restricting the use
and protecting the privacy of patient information also apply to
our customers directly and to us, either directly or indirectly.
The HIPAA Transactions Rule establishes format and data content
standards for eight of the most common healthcare transactions.
When we perform billing and collection services on behalf of our
customers we may be engaging in one of more of these standard
transactions and will be required to conduct those transactions
in compliance with the required standards. The HIPAA Privacy
Rule restricts the use and disclosure of patient information,
requires entities to safeguard that information and to provide
certain rights to individuals with respect to that information.
The HIPAA Security Rule establishes elaborate requirements for
safeguarding patient information transmitted or stored
electronically. We may be required to make costly system
purchases and modifications to comply with the HIPAA rule
requirements that will be imposed on us and our failure to
comply may result in liability and adversely affect our business.
Federal and state consumer laws are being applied increasingly
by the Federal Trade Commission, or FTC, and state attorneys
general to regulate the collection, use and disclosure of
personal or patient information, through web sites or otherwise,
and to regulate the presentation of web site content. Courts may
also adopt the standards for fair information practices
promulgated by the FTC, which concern consumer notice, choice,
security and access.
Numerous other federal and state laws protect the
confidentiality of patient information. These laws in many cases
are not preempted by HIPAA rules and may be subject to varying
interpretations by courts and government agencies, creating
complex compliance issues for us and our customers and
potentially exposing us to additional expense, adverse publicity
and liability.
New health information standards, whether implemented pursuant
to HIPAA, congressional action or otherwise, could have a
significant effect on the manner in which we must handle
healthcare related data, and the cost of complying with
standards could be significant. If we do not properly comply
with existing or new laws and regulations related to patient
health information we could be subject to criminal or civil
sanctions. See "Business — Regulatory
Matters."
If we fail to comply with the federal anti-kickback
statute, we could be subject to criminal and civil penalties,
loss of licenses and exclusion from the Medicare and Medicaid
programs, which could have a material adverse effect on our
business, financial condition and results of operations.
A provision of the Social Security Act, commonly referred to as
the federal anti-kickback statute, prohibits the offer, payment,
solicitation or receipt of any form of remuneration in return
for referring, ordering, leasing, purchasing or arranging for or
recommending the ordering, purchasing or leasing of items or
services payable by the Medicare and Medicaid programs or any
other federally funded healthcare program. The federal
anti-kickback statute is very broad in scope, and many of its
provisions have not been uniformly or definitively interpreted
by courts or regulations.
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In the operation of our business, we pay various healthcare
providers or other referral sources for items or services they
provide to us, and healthcare providers or other referral
sources pay us for items or services we provide to them. In
addition, we have non-financial relationships with referral
sources. All of our financial relationships with healthcare
providers and other referral sources, and with referral
recipients (such as service agreements, equipment leases, space
leases, etc.) potentially implicate the federal anti-kickback
law to the extent Medicare or Medicaid pays for the item or
service that is referred by or to those parties, and some of our
non-financial relationships may implicate the federal
anti-kickback law. In addition, most of the states in which we
operate also have adopted laws similar to the federal
anti-kickback law, although some of them are broader and apply
regardless of the source of payment for the item or service
provided.
Violations of the federal anti-kickback law and similar state
laws may result in significant fines, imprisonment and exclusion
from the Medicare and Medicaid programs. Such fines and
exclusion could have a material adverse effect on our business,
financial condition and results of operations. While we believe
that our arrangements with healthcare providers and other
referral sources and recipients fall within applicable safe
harbors or otherwise do not violate the law, there can be no
assurance that federal or state regulatory authorities will not
challenge these arrangements under anti-kickback laws. See
"Business — Regulatory Matters."
If future regulation forces us to restructure our
operations, including our arrangements with physicians,
professional corporations, hospitals and other facilities, we
may incur additional costs, lose contracts and suffer a
reduction in revenue under existing contracts and we may need to
refinance our debt or obtain debt holder consent.
Legislators have introduced and may introduce in the future
numerous proposals into the United States Congress and state
legislatures relating to healthcare reform in response to
various healthcare issues. We cannot assure you as to the
ultimate content, timing or effect of any healthcare reform
legislation, nor is it possible at this time to estimate the
impact of potential legislation. Further, although we exercise
care in structuring our arrangements with physicians,
professional corporations, hospitals and other facilities to
comply in all significant respects with applicable law, we
cannot assure you that: (1) government officials charged
with responsibility for enforcing those laws will not assert
that we, or transactions into which we have entered, violate
those laws or (2) governmental entities or courts will
ultimately interpret those laws in a manner consistent with our
interpretation.
The continual flux of healthcare rules and regulations at the
federal, state and local level could revise the future of our
relationships with the hospitals and physicians with whom we
contract. In addition to the regulations referred to above,
aspects of our operations are also subject to state and federal
statutes and regulations governing workplace health and safety
and, to a small extent, the disposal of medical waste.
Changes in ethical guidelines and operating standards of
professional and trade associations and private accreditation
commissions such as the American Medical Association and the
Joint Commission on Accreditation of Healthcare Organizations
may also affect our operations.
Accordingly, changes in existing laws and regulations, adverse
judicial or administrative interpretations of these laws and
regulations or enactment of new legislation could force us to
restructure our relationships with physicians, professional
corporations, hospitals and other facilities. This could cause
our operating costs to increase significantly. A restructuring
could also result in a loss of contracts or a reduction in
revenues under existing contracts. Moreover, if these laws
require us to modify our structure and organization to comply
with these laws, our financing agreements may prohibit such
modifications and require us to obtain the consent of the
holders of such indebtedness or require the refinancing of such
indebtedness.
If we fail to comply with physician self-referral laws as
they are currently interpreted or may be interpreted in the
future, or if other legislative restrictions are issued, we
could incur a significant loss of reimbursement revenue and be
subject to significant monetary penalties, which could have a
material adverse effect on our business, financial condition and
results of operations.
We are subject to federal and state laws and regulations that
limit the circumstances under which physicians who have a
financial relationship with us may refer patients to us for the
provision of certain services (including clinical laboratory
services, home health services, physical therapy services,
occupational therapy services, and certain diagnostic services).
These laws and regulations also prohibit our billing for
services provided in violation of the laws and regulations.
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We have financial relationships with physicians in the form of
compensation arrangements for services rendered. In addition, we
have financial relationship with physicians to the extent they
own a beneficial interest in our common stock. While we believe
our compensation arrangements with physicians are in material
compliance with applicable laws and regulations, government
authorities might take a contrary position or prohibited
referrals may occur. Further, because we cannot be certain that
we will have knowledge of all physicians who may own a
beneficial interest in our common stock, we also cannot be
certain that referrals from any such physicians will not cause
us to violate these laws and regulations.
Violation of these laws and regulations may result in
prohibition of payment for services rendered, significant fines
and penalties, and exclusion from the Medicare and Medicaid
programs, any of which could have a material adverse effect on
our business, financial condition and results of operations. In
addition, expansion of our operations to new jurisdictions, new
interpretations of laws in our existing jurisdictions or new
physician self–referral laws, could require structural and
organizational modifications of our relationships with
physicians to comply with those jurisdictions' laws. Such
structural and organizational modifications could result in
lower profitability and failure to achieve our growth
objectives. See "Business — Regulatory
Matters."
We could experience a loss of contracts with our
physicians or be required to sever relationships with our
affiliated professional corporations in order to comply with
antitrust laws.
Our contracts with physicians include contracts with physicians
organized as separate legal professional entities (e.g.
professional medical corporations) and as individuals. As such,
the antitrust laws deem each such physician/ practice to be
separate, both from Team Health and from each other and,
accordingly, each such physician/ practice is subject to a wide
range of laws that prohibit anti-competitive conduct among
separate legal entities or individuals. A review or action by
regulatory authorities or the courts, which is negative in
nature as to the relationship between us and the
physicians/practices we contract with, could force us to
terminate our contractual relationships with physicians and
affiliated professional corporations. Since we derive a
significant portion of our revenues from these relationships,
our revenues could substantially decrease. Moreover, if any
review or action by regulatory authorities required us to modify
our structure and organization to comply with such action or
review, our debt covenants may not permit such modifications,
thereby requiring us to obtain the consent of the holders of
such indebtedness or requiring the refinancing of such
indebtedness.
Risks Related to this Offering
Since our common stock has never been publicly traded, a
trading market may not develop for our common stock, and you may
not be able to sell your stock.
There has not been a public market for our common stock. A
liquid trading market for our common stock may not develop. The
initial public offering price will be determined in negotiations
among representatives of the underwriters, the selling
shareholders and us and may not be indicative of prices that
will prevail in the trading market.
You will experience immediate and substantial
dilution.
The price you pay for shares of our common stock sold in this
offering is substantially higher than the per share value of our
net assets, after giving effect to this offering. Assuming an
initial public offering price for our common stock of
$          per
share (the midpoint of the initial public offering price range
indicated on the cover of this prospectus), you will incur
immediate dilution in net tangible book value per share of
$          .
Additionally, new investors in this offering will have
contributed           %
of our total equity as
of                     ,
2005, but will own
only           %
of our outstanding shares upon completion of this offering. As
of June 30, 2005, we had 1,394,025 outstanding options to
purchase 1,394,025 shares of our common stock at a
weighted average price of $11.86 per share. To the extent
these options are exercised, you will suffer additional dilution.
If securities analysts do not publish research or reports
about our business or if they downgrade our stock or our sector,
the price of our stock could decline.
The trading market for our common stock will rely in part on the
research and reports that industry or financial analysts publish
about us or our business. We do not control these analysts.
Furthermore, if one or more of the analysts who do cover us
downgrades our stock or our industry, or the stock of any of our
competitors, the price of our stock could decline. If one or
more of these analysts ceases coverage of our company, we could
lose visibility in the market, which in turn could cause our
stock price to decline.
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Future sales of our common stock or the possibility or
perception of such future sales may depress our stock
price.
After this offering, we will
have                      shares
of common stock outstanding. Sales of a substantial number of
shares of common stock in the public market following this
offering, or the perception that these sales could occur, could
substantially decrease the market price of our common stock. All
the shares sold in this offering will be freely tradable.
Substantially all of the remaining shares of our common stock
are available for resale in the public market, subject to the
restrictions on sale or transfer during the 180-day lockup
period after the date of this prospectus that is described in
"Shares Eligible for Future Sale." Certain of our
existing shareholders are parties to agreements that provide for
registration rights. Registration of the sale of these shares of
our common stock would permit their sale into the market
immediately. As restrictions on resale end or upon registration
of any of these shares for resale, the market price of our
common stock could drop significantly if the holders of these
shares sell them or are perceived by the market as intending to
sell them.
We will incur increased costs as a result of being a
public company.
As a public company, we will incur significant legal,
accounting, reporting and other expenses that we did not incur
as a private company. We expect these rules and regulations to
increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. We also expect
these new rules and regulations may make it more difficult and
more expensive for us to obtain director and officer liability
insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the
same or similar coverage. As a result, we may experience more
difficulty attracting and retaining qualified individuals to
serve on our board of directors or as executive officers. We
cannot predict or estimate the amount of additional costs we may
incur as a result of these requirements or the timing of such
costs.
We will be exposed to risks relating to the evaluation of
our internal controls over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act.
We are in the process of evaluating, testing and implementing
internal controls over financial reporting to enable management
to report on, and our independent registered accounting firm to
attest to, such internal controls as required by
Section 404 of the Sarbanes-Oxley Act. While we anticipate
being compliant with the requirements of Section 404 by our
December 31, 2006 deadline, we cannot be certain as to the
timing of the completion of our evaluation, testing and
remediation actions or the impact of the same on our operations.
If we are not able to implement the requirements of
Section 404 in a timely manner or with adequate compliance,
we may be subject to investigation and sanctions by regulatory
authorities, such as the SEC. As a result, there could be a
negative reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements. In
addition, we may be required to incur costs in improving our
internal controls and the hiring of additional personnel. Any
such actions could negatively affect our results of operations.
The interests of our controlling equityholders may be in
conflict with your interests.
Madison Dearborn Partners Cornerstone Equity Investors and
Beecken Petty O'Keefe and Company own the majority of the
interest in our equity shares. Circumstances may occur in which
the interests of these equity holders could be in conflict with
your interests. Madison Dearborn Partners Cornerstone Equity
Investors and Beecken Petty O'Keefe and Company are able
to, subject to applicable law, designate a majority of the
members of the board of directors and control actions to be
taken by us and our board of directors, including amendments to
our charter and bylaws and approval of significant corporate
transactions, including mergers and sales of substantially all
of our assets. The directors so elected will have the authority,
subject to the terms of our indebtedness and the rules and
regulations of the NYSE to issue additional stock, implement
stock repurchase programs, declare dividends and make other
decisions. These equity holders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though
such transactions might involve risks to you. See
"Management," "Principal and Selling
Shareholders" and "Certain Relationships and Related
Transactions."
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We are a "controlled company," within the
meaning of The New York Stock Exchange rules and, as a result,
will avail ourselves of exemptions from certain corporate
governance requirements.
Upon completion of this offering, Madison Dearborn Partners,
Cornerstone Equity Investors and Beecken Petty O'Keefe and
Company will own
approximately           %
of our outstanding common stock. Because Madison Dearborn
Partners Cornerstone Equity Investors and Beecken Petty
O'Keefe and Company will own more than 50% of the voting
power of Team Health after giving effect to this offering, we
are considered a "controlled company" for the purposes
of the New York Stock Exchange listing requirements. As such, we
are permitted to, and have, opted out of the New York Stock
Exchange corporate governance requirements that: our board of
directors, our compensation committee and our nominating and
corporate governance committee meet the standard of independence
established by those corporate governance requirements. As a
result, our board of directors and those committees may have
more directors who do not meet the New York Stock Exchange
independence standards than they would if those standards were
to apply. The New York Stock Exchange independence standards are
intended to ensure that directors who meet the independence
standard are free of any conflicting interest that could
influence their actions as directors. The significant ownership
interest of these equity holders could adversely affect
investors' perception of our corporate governance or delay,
prevent or cause a change in control of our company, any of
which could adversely affect the market price of our common
stock.
Tennessee law and certain anti-takeover provisions of our
corporate documents could delay or prevent a third party from
acquiring us or a change in control even if it would benefit our
shareholders.
Our restated certificate of incorporation and bylaws will
contain a number of provisions that may delay, deter or inhibit
a future acquisition or change in control that is not first
approved by our board of directors. This could occur even if our
shareholders receive an attractive offer for their shares or if
a substantial number or even a majority of our shareholders
believe the takeover may be in their best interest. These
provisions are intended to encourage any person interested in
acquiring us to negotiate with and obtain approval from our
board of directors prior to pursuing a transaction. For example,
our restated charter will provide that shareholders may not act
by written consent and that only our board of directors may call
a special meeting. In addition, shareholders will be required to
provide us with advance notice if they wish to nominate any
persons for election to our board of directors or if they intend
to propose any matters for consideration at an annual
shareholders meeting. Our restated charter will authorize the
issuance of preferred stock without shareholder approval and
upon such terms as the board of directors may determine. The
rights of the holders of shares of our common stock will be
subject to, and may be adversely affected by, the rights of
holders of any class or series of preferred stock that may be
issued in the future. Our restated charter will also provide for
a classified board with staggered terms. The existence of a
staggered board may delay a successful tender offeror from
obtaining majority control of our board, and therefore may deter
a potential offeror. Additionally, there are various Tennessee
laws that may have the general effect of discouraging, or
rendering more difficult, unfriendly takeover or acquisition
attempts. Consequently, such provisions would be beneficial to
current management in an unfriendly takeover attempt but could
have an adverse effect on shareholders who might wish to
participate in such a transaction.
We will incur charges against our future earnings in the
quarter in which this offering is consummated.
As of June 30, 2005, unamortized deferred financing costs
were approximately $6.3 million. Upon consummation of this
offering, in addition to any applicable premium, we will take a
pro rata charge against earnings related to the write-off of
unamortized deferred financing costs from the early
extinguishment of our existing indebtedness.
We do not intend to pay cash dividends.
We do not intend to pay cash dividends on our common stock. We
currently expect to retain future earnings, if any, for use in
the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Our ability to pay dividends on our common stock is limited by
the covenants of our senior credit and term loan facilities as
well as our senior subordinated notes and may be further
restricted by the terms of any future debt or preferred
securities. As a result, capital appreciation, if any, of our
common stock will be your sole source of potential gain for the
foreseeable future.
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USE OF PROCEEDS
We will receive net proceeds of approximately
$
million
from the sale
of           shares
of common stock at a public offering price of
$           per
share (the mid-point of the range set forth on the cover of this
prospectus) after deducting estimated offering expenses and
underwriting discounts and commissions of
$                     million.
We will not receive any proceeds from shares of common stock
sold by the selling shareholders. We will use the proceeds of
the sale of our common stock for the repayment of debt.
26
Table of Contents
DIVIDEND POLICY
We currently expect to retain future earnings, if any, for use
in the operation and expansion of our business and do not
anticipate paying any cash dividends in the foreseeable future.
Our ability to pay dividends on our common stock is limited by
the covenants of our senior credit and term loan facilities as
well as our 9% senior subordinated notes due 2012 and may
be further restricted by the terms of any future debt or
preferred securities.
27
Table of Contents
CAPITALIZATION
The table below sets forth our actual consolidated cash and cash
equivalents and capitalization as of June 30, 2005, and on
an as adjusted basis to give effect to this offering and the use
of proceeds as if this offering were consummated on
June 30, 2005.
See "Summary Consolidated Financial Data,"
"Selected Consolidated Financial Data" and "Use
of Proceeds."
The table below should be read in conjunction with our
consolidated financial statements and the related notes thereto
included elsewhere in this prospectus.
June 30, 2005
Actual
As Adjusted
(unaudited)
(Dollars in millions,
except par value)
Cash and cash equivalents
$
15.2
$
Long-term Debt
Term loan facilities
$
202.3
$
9% senior subordinated notes due 2012
145.7
Total debt:
348.0
Preferred stock: $0.01 par value per share; No shares of
    preferred stock issued and outstanding on June 30, 2005
    (200,000 shares authorized and no shares of preferred stock
    issued and outstanding upon completion of this offering as if it
    had occurred on June 30, 2005)
—
—
Common stock: $0.01 par value per share;
    9,816,000 shares of common stock issued and outstanding on
    June 30, 2005 (12,000,000 shares authorized
    and        shares of common
    stock issued and outstanding upon completion of this offering as
    if it had occurred on June 30, 2005)
0.1
Additional paid-in capital
1.5
Retained earnings (deficit)
(168.8
)
Less treasury shares at cost
(0.4
)
Accumulated other comprehensive earnings
0.1
Total shareholders' equity (deficit)
(167.5
)
Total capitalization
$
180.5
$
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DILUTION
Dilution is the amount by which the portion of the offering
price paid by the purchasers of the common stock to be sold in
the offering exceeds the net tangible book value or deficiency
per share of our common stock after the offering. Net tangible
book value or deficiency per share of our common stock is
determined at any date by subtracting our total liabilities from
our total assets less our intangible assets and dividing the
difference by the number of shares of common stock deemed to be
outstanding at that date.
Our net tangible book deficiency as of June 30, 2005
(unaudited) was approximately $277.9 million, or
$          per
share of common stock. After giving effect to our receipt and
intended use of approximately
$           million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering based on an
assumed initial public offering price of
$          per
share of common stock (the midpoint of the range set forth on
the cover page of this prospectus) our pro forma as adjusted net
tangible book deficiency as of June 30, 2005 (unaudited)
would have been approximately
$           million,
or
$           per
share of common stock. This represents an immediate increase in
net tangible book value of $ per share of our common stock
to existing shareholders and an immediate dilution of
$          per
share of our common stock to new investors purchasing shares of
common stock in this offering.
The following table illustrates this substantial and immediate
dilution to new investors:
Per Share of
Common Stock
Initial public offering
    price per share of common stock
$
Net tangible book deficit
    per share as of June 30, 2005 (unaudited)
Increase per share
    attributable to cash payments made by investors in this offering
Pro forma as adjusted net
    tangible book deficit after this offering
Dilution in net tangible
    book value per share to new investors
$
The following table sets forth on a pro forma basis as of
June 30, 2005, assuming no exercise of the over-allotment
option:
•
the total number of shares of our common stock to be owned by
    the existing equity holders and the total number of shares of
    our common stock to be owned by the new investors purchasing
    shares of common stock in this offering;
•
the total consideration to be paid by the existing equity
    holders and to be paid by the new investors purchasing shares of
    common stock in this offering; and
•
the average price per share of common stock to be paid by
    existing equity holders (cash and stock) and the average price
    per share of common stock to be paid by new investors purchasing
    shares of common stock in this offering:
Shares Purchased
Total Consideration
Average
Price Per
Number
Percent
Amount
Percent
Share
Existing shareholders
%
$
%
$
New investors
Total
100.0
%
$
100.0
%
$
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Table of Contents
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected historical
consolidated financial data as of the dates and for the periods
indicated. The financial data as of and for the five years ended
December 31, 2004 has been derived from our audited
historical consolidated financial statements and the financial
data as of and for each of the six month periods ended
June 30, 2004 and 2005 were derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. You should read the data presented below together
with, and qualified by reference to, our consolidated financial
statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," each of which is included herein.
Six Months Ended
Year Ended December 31,
June 30,
2000
2001
2002
2003
2004
2004
2005
(Unaudited)
(Dollars in thousands, except per share data)
Statement of Operations Data:
Net revenues less provision for uncollectibles
$
589,683
$
629,067
$
834,098
$
999,746
$
1,008,691
$
517,404
$
508,308
Cost of Services Rendered:
Professional service expenses
444,320
493,380
635,573
746,409
754,222
385,948
366,643
Professional liability costs
24,276
29,774
36,992
115,970
59,839
29,891
18,392
Gross profit
121,087
105,913
161,533
137,367
194,630
101,565
123,273
General and administrative expenses
57,794
63,998
81,744
95,554
100,473
48,819
50,765
Terminated transaction expenses
2,000
—
—
—
—
—
—
Management fee and other expenses
591
649
527
505
1,387
613
2,162
Impairment losses
—
4,137
2,322
168
73,177
65,819
1,560
Depreciation and amortization
12,638
14,978
20,015
22,018
13,689
6,944
6,166
Interest expense, net
25,467
22,739
23,906
23,343
28,949
14,326
13,913
Refinancing costs
—
—
3,389
—
14,731
14,731
—
Earnings (loss) before income taxes and cumulative effect of
    change in accounting principle
22,957
(588
)
29,630
(4,221
)
(37,776
)
(49,687
)
48,707
Provision (benefit) for income taxes
9,317
871
13,198
(1,410
)
11,436
6,266
18,641
Earnings (loss) before cumulative effect of change in accounting
    principle
13,280
(1,459
)
16,432
(2,811
)
(49,212
)
(55,953
)
30,066
Cumulative effect of change in accounting principle, net of
    income tax benefit
—
—
(294
)
—
—
—
—
Net earnings (loss)
13,280
(1,459
)
16,138
(2,811
)
(49,212
)
(55,953
)
30,066
Dividends on preferred stock
10,783
11,889
13,129
14,440
3,602
3,602
—
Net earnings (loss) attributable to common shareholders
$
2,497
$
(13,348
)
$
3,009
$
(17,251
)
$
(52,814
)
$
(59,555
)
$
30,066
Per Share Data:
Net income (loss) per common share:
Basic
$
$
$
$
$
$
$
Diluted
$
$
$
$
$
$
$
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As of December 31,
As of June 30,
2000
2001
2002
2003
2004
2004
2005
(Unaudited)
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents and short term investments
$
55,404
$
70,183
$
47,789
$
100,964
$
82,582
$
54,971
$
15,187
Working capital
124,105
104,039
70,163
86,729
99,372
93,231
71,049
Total assets
502,098
500,198
674,240
731,049
610,391
598,886
560,396
Total debt
229,201
217,300
320,500
299,415
428,125
429,375
347,975
Mandatory redeemable preferred stock
118,890
130,779
144,405
158,846
—
—
—
Total shareholders' equity (deficit)
(86,123
)
(99,690
)
(97,432
)
(115,203
)
(198,880
)
(203,745
)
(167,537
)
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Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze our
consolidated financial condition, liquidity and capital
resources and results of operations. You should read the
following discussion in conjunction with our consolidated
financial statements and the notes thereto that appear elsewhere
in this prospectus. The following discussion contains
forward-looking statements that reflect our plans, estimates and
beliefs, and which involve risks, uncertainties and assumptions.
Our actual results may differ materially from those discussed in
the forward-looking statements. Factors that might cause future
results to differ materially from those discussed in the
forward-looking statements include, but are not limited to,
those discussed in "Special Note Regarding
Forward-Looking Statements," "Risk Factors," and
elsewhere in this prospectus.
Introduction
We are the largest national provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States based on revenues and
patient visits. We have focused primarily on providing
outsourced services to hospital emergency departments, which
accounts for the majority of our revenue. Approximately 40% of
all hospital admissions originate in the Emergency Department,
or ED. As a result, this area is critical to a hospital's
patient satisfaction rates and overall success.
Due to market growth, as well as our ability to increase patient
volumes and improve billing and collections, our revenues from
ED staffing contracts grew by 22% from 2001 to 2004. Partially
offsetting this growth has been the impact of certain changes in
the market for outsourced military healthcare staffing during
the same period. We believe that our revenues from ED staffing
contracts will continue to represent an increasing percentage of
our total revenues in the future.
Our regional operating models also include comprehensive
programs for inpatient care, radiology, anesthesiology,
pediatrics other health care services, principally within
hospital departments and other healthcare treatment facilities.
The following discussion provides an assessment of our results
of operations, liquidity and capital resources and should be
read in conjunction with our consolidated financial statements
and notes thereto included elsewhere in this document.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States, which requires us to make estimates and assumptions.
Management believes the following critical accounting policies,
among others, affect its more significant judgments and
estimates used in the preparation of its consolidated financial
statements.
Revenue Recognition
Net Revenues.
Net revenues consist of fee-for-service
revenue, contract revenue and other revenue. Net revenues are
recorded in the period services are rendered. Our net revenues
are principally derived from the provision of healthcare
staffing services to patients within healthcare facilities. The
form of billing and related risk of non-collection for such
services may vary by customer. The following is a summary of the
principal forms of our billing arrangements and how net revenues
are recognized for each.
A significant portion (77% and 74% of our net revenues in the
six months ended June 30, 2005 and in fiscal 2004,
respectively) resulted from fee-for-service patient visits.
Fee-for-service revenue represents revenue earned under
contracts in which we bill and collect the professional
component of charges for medical services rendered by our
contracted and employed physicians. Under the fee-for-service
arrangements, we bill patients for services provided and receive
payment from patients or their third-party payers.
Fee-for-service revenue is reported net of contractual
allowances and policy discounts. All services provided are
expected to result in cash flows and are therefore reflected as
net revenues in the financial statements. Fee-for-service
revenue is recognized in the period that the services are
rendered to specific patients and reduced immediately for the
estimated impact of contractual allowances in the case of those
patients having third-party payer coverage. The recognition of
net revenues (gross charges less contractual allowances) from
such visits is dependent on such factors as proper completion of
medical charts following a
32
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patient visit, the forwarding of such charts to one of our
billing centers for medical coding and entering into our billing
systems and the verification of each patient's submission
or representation at the time services are rendered as to the
payer(s) responsible for payment of such services. Net revenues
are recorded based on the information known at the time of
entering of such information into our billing systems as well as
an estimate of the net revenues associated with medical charts
for a given service period that have not been processed yet into
our billing systems. The above factors and estimates are subject
to change. For example, patient payer information may change
following an initial attempt to bill for services due to a
change in payer status. Such changes in payer status have an
impact on recorded net revenues due to differing payers being
subject to different contractual allowance amounts. Such changes
in net revenues are recognized in the period that such changes
in payer become known. Similarly, the actual volume of medical
charts not processed into our billing systems may be different
from the amounts estimated. Such differences in net revenues are
adjusted in the following month based on actual chart volumes
processed.
Contract revenue represents revenue generated under contracts in
which we provide physician and other healthcare staffing and
administrative services in return for a contractually negotiated
fee. Contract revenue consists primarily of billings based on
hours of healthcare staffing provided at agreed to hourly rates.
Revenue in such cases is recognized as the hours are worked by
our staff. Additionally, contract revenue also includes
supplemental revenue from hospitals where we may have a
fee-for-service contract arrangement. Contract revenue for the
supplemental billing in such cases is recognized based on the
terms of each individual contract. Such contract terms generally
either provide for a fixed monthly dollar amount or a variable
amount based upon measurable monthly activity, such as hours
staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on
variable arrangements are usually contractually fixed on a
monthly, quarterly or annual calculation basis considering the
variable factors negotiated in each such arrangement. Such
supplemental revenues are recognized as revenue in the period
when such amounts are determined to be fixed and therefore
contractually obligated as payable by the customer under the
terms of the respective agreement.
Other revenue consists primarily of revenue from management and
billing services provided to outside parties. Revenue is
recognized for such services pursuant to the terms of the
contracts with customers. Generally, such contracts consist of
fixed monthly amounts with revenue recognized in the month
services are rendered or as hourly consulting fees recognized as
revenue as hours are worked in accordance with such
arrangements. Additionally, we derive a small percentage of our
revenues from providing administrative and billing services that
are contingent upon the collection of third-party physician
billings, either by us on their behalf or other third-party
billing companies. Such revenues are not considered earned and
therefore not recognized as revenue until actual cash
collections are achieved in accordance with the contractual
arrangements for such services.
Net Revenues Less Provision for Uncollectibles.
Net
revenues less provision for uncollectibles reflects
management's estimate of billed amounts that ultimately
will be collected. Management, in estimating the amounts to be
collected resulting from its over six million annual
fee-for-service patient visits and procedures, considers such
factors as prior contract collection experience, current period
changes in payer mix and patient acuity indicators,
reimbursement rate trends in governmental and private sector
insurance programs, resolution of credit balances, the estimated
impact of billing system effectiveness improvement initiatives
and trends in collections from self-pay patients. Such estimates
are substantially formulaic in nature. The estimates are
continuously updated and adjusted if subsequent actual
collection experience indicates a change in estimate is
necessary. Such provisions and any subsequent changes in
estimates may result in adjustments to our operating results
with a corresponding adjustment to our accounts receivable
allowance for uncollectibles on our balance sheet.
Accounts Receivable.
As described above and below, we
determine the estimated value of our accounts receivable based
on estimated cash collection run rates of estimated future
collections by contract for patient visits under our
fee-for-service contract revenue. Accordingly, we are unable to
report the payer mix composition on a dollar basis of our
outstanding net accounts receivable. Our days revenue
outstanding at June 30, 2005, was 60.9 days and at
December 31, 2004, was 63.3 days. The number of days
outstanding will fluctuate over time due to a number of factors.
The decrease in average days revenue outstanding of
approximately 2.4 days includes a decrease of 5.1 days
resulting from an increase in average revenue per day
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between periods and a decrease of 1.5 days related to an
increase in collections on contract accounts receivable related
primarily to military staffing contracts offset by an increase
of 4.0 days associated with an increased valuation of
fee-for-service accounts receivable. Our allowance for doubtful
accounts totaled $138.1 million as of June 30, 2005.
Approximately 98% of our allowance for doubtful accounts is
related to gross fees for fee-for-service patient visits. Our
principal exposure for uncollectible fee-for-service visits is
centered in self pay patients and, to a lesser extent, for
co-payments and deductibles from patients with insurance. While
we do not specifically allocate the allowance for doubtful
accounts to individual accounts or specific payer
classifications, the portion of the allowance associated with
fee-for-service charges as of June 30, 2005, was
approximately 97% of self-pay accounts outstanding as
fee-for-service patient visits at June 30, 2005. The
majority of our fee-for-service patient visits are for the
provision of emergency care in hospital settings. Due to federal
government regulations governing the providing of such care, we
are obligated to provide emergency care regardless of the
patient's ability to pay or whether or not the patient has
insurance or other third-party coverage for the cost of the
services rendered. While we attempt to obtain all relevant
billing information at the time emergency care services are
rendered, there are numerous patient encounters where such
information is not available at time of discharge. In such cases
where detailed billing information relative to insurance or
other third-party coverage is not available at discharge, we
attempt to obtain such information from the patient or client
hospital billing record information subsequent to discharge to
facilitate the collections process. Collections at the time of
rendering such services (emergency room discharge) are not
significant.
Primary responsibility for collection of fee-for-service
accounts receivable resides within our internal billing
operations. Once a claim has been submitted to a payer or an
individual patient, employees within our billing operations have
responsibility for the follow up collection efforts. The
protocol for follow up differs by payer classification. For self
pay patients, our billing system will automatically send a
series of dunning letters on a prescribed time frame requesting
payment or the provision of information reflecting that the
balance due is covered by another payer, such as Medicare or a
third-party insurance plan. Generally, the dunning cycle on a
self pay account will run from 90 to 120 days. At the end
of this period, if no collections or additional information is
obtained from the patient, the account is no longer considered
an active account and is transferred to a collection agency.
Upon transfer to a collection agency, the patient account is
written-off as a bad debt. Any subsequent cash receipts on
accounts previously written off are recorded as a recovery. For
non-self pay accounts, billing personnel will follow up and
respond to any communication from payers such as requests for
additional information or denials until collection of the
account is obtained or other resolution has occurred. For
contract accounts receivable, invoices for services are prepared
in our various operating areas and mailed to our customers,
generally on a monthly basis. Contract terms under such
arrangements generally require payment within thirty days of
receipt of the invoice. Outstanding invoices are periodically
reviewed and operations personnel with responsibility for the
customer relationship will contact the customer to follow up on
any delinquent invoices. Contract accounts receivable will be
considered as bad debt and written-off based upon the individual
circumstances of the customer situation after all collection
efforts have been exhausted, including legal action if
warranted, and it is the judgment of management that the account
is not expected to be collected.
Methodology for Computing Allowance for Doubtful
Accounts.
We employ several methodologies for determining
our allowance for doubtful accounts depending on the nature of
the net revenues recognized. We initially determine gross
revenue for our fee-for-service patient visits based upon
established fee schedule prices. Such gross revenue is reduced
for estimated contractual allowances for those patient visits
covered by contractual insurance arrangements to result in net
revenues. Net revenues are then reduced for our estimate of
uncollectible amounts. Fee-for-service net revenues less
provision for uncollectibles represents our estimated cash to be
collected from such patient visits and is net of our estimate of
account balances estimated to be uncollectible. The provision
for uncollectible fee-for-service patient visits is based on
historical experience resulting from the over six million annual
patient visits. The significant volume of annual patient visits
and the terms of thousands of commercial and managed care
contracts and the various reimbursement policies relating to
governmental healthcare programs do not make it feasible to
evaluate fee-for-service accounts receivable on a specific
account basis. Fee-for-service accounts receivable collection
estimates are reviewed on a quarterly basis for each of our
fee-for-service contracts by period of accounts
34
Table of Contents
receivable origination. Such reviews include the use of
historical cash collection percentages by contract adjusted for
the lapse of time since the date of the patient visit. In
addition, when actual collection percentages differ from
expected results, on a contract by contract basis supplemental
detailed reviews of the outstanding accounts receivable balances
may be performed by our billing operations to determine whether
there are facts and circumstances existing that may cause a
different conclusion as to the estimate of the collectibility of
that contract's accounts receivable from the estimate
resulting from using the historical collection experience. Facts
and circumstances that may result in an adjustment to the
formulaic result are generally few and are usually related to
third-party payer processing problems that are temporary in
nature. Contract related net revenues are billed based on the
terms of the contract at amounts expected to be collected. Such
billings are typically submitted on a monthly basis and aged
trial balances prepared. Allowances for estimated uncollectible
amounts related to such contract billings are made based upon
specific accounts and invoice periodic reviews once it is
concluded that such amounts are not likely to be collected. The
methodologies employed to compute allowances for doubtful
accounts were unchanged between 2005 and 2004.
Insurance Reserves.
The nature of our business is such
that it is subject to professional liability lawsuits.
Historically, to mitigate a portion of this risk, we have
maintained insurance for individual professional liability
claims with per incident and annual aggregate limits per
physician for all incidents. Prior to March 12, 2003, we
obtained such insurance coverage from a commercial insurance
provider. Professional liability lawsuits are routinely reviewed
by our insurance carrier and management for purposes of
establishing ultimate loss estimates. Provisions for estimated
losses in excess of insurance limits have been provided at the
time such determinations are made. In addition, where as a
condition of a professional liability insurance policy the
policy includes a self-insured risk retention layer of coverage,
we have recorded a provision for estimated losses likely to be
incurred during such periods and within such limits based on our
past loss experience following consultation with our outside
insurance experts and claims managers.
Subsequent to March 11, 2003, we have provided for a
significant portion of our professional liability loss exposures
through the use of a captive insurance company and through
greater utilization of self-insurance reserves. Accordingly,
beginning on March 12, 2003, a substantial portion of our
provision for professional liability losses is based on periodic
actuarial estimates of such losses for periods subsequent to
March 11, 2003. An independent actuarial firm is
responsible for preparation of the periodic actuarial studies.
Management's estimate of our professional liability costs
resulting from such actuarial studies is significantly
influenced by assumptions, which are limited by the uncertainty
of predicting future events, and assessments regarding
expectations of several factors. These factors include, but are
not limited to: the frequency and severity of claims, which can
differ significantly by jurisdiction; coverage limits of
third-party insurance; the effectiveness of our claims
management process; and the outcome of litigation.
Our commercial insurance policy for professional liability
losses for the period March 12, 1999 through March 11,
2003, included insured limits applicable to such coverage in the
period. In March 2003 we had an actuarial projection made of our
potential exposure for losses under the provisions of our
commercial insurance policy that ended March 11, 2003. The
results of that actuarial study indicated that we would incur a
loss for claim losses and expenses in excess of the
$130.0 million aggregate limit. Based on the results of an
annual actuarial study completed in April 2005, the estimated
loss discounted at 4% for claim losses and expenses in excess of
the $130.0 million aggregated limit was $50.5 million
as of June 30, 2005.
The payment of any losses realized by us under the aggregate
loss provision discussed above will only be after our previous
commercial insurance carrier has paid such losses and expenses
up to $130.0 million for the applicable prior periods. The
pattern of payment for professional liability losses for any
incurrence year typically is as long as six years. Accordingly,
our portion of our loss exposure under the aggregate policy
feature, if realized, is not expected to result in an outflow of
cash until 2006 based on the most recent actuarial projection.
Since March 12, 2003, our professional liability costs
consist of annual projected costs resulting from an actuarial
study along with the cost of certain professional liability
commercial insurance premiums and programs available to us that
remain in effect. The provisions for professional liability
costs will fluctuate as a result of several factors, including
hours of exposure as measured by hours of physician and related
professional staff services as well as actual loss development
trends.
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Our provisions for losses under the aggregate loss limits of our
policy in effect prior to March 12, 2003, and under our
captive insurance and self-insurance programs since
March 12, 2003, are subject to periodic actuarial
reevaluation. The results of such periodic actuarial studies may
result in either upward or downward adjustment to our previous
loss estimates.
The accounts of the captive insurance company are fully
consolidated with those of the other operations of the Company
in the accompanying financial statements.
Impairment of Intangible Assets.
In assessing the
recoverability of our intangibles we must make assumptions
regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these
estimates or their related assumptions change in the future, we
may be required to record impairment charges for these assets.
Stock-Based Compensation.
As described in more detail in
Note 15 to our Consolidated Financial Statements, we have
issued stock options to employees, consultants and directors to
purchase our common stock under the Team Health Inc. Stock
Option Plan, or the 1999 Stock Option Plan, which we refer to as
the Option Plan. Effective as of January 1, 2003, we have
accounted for the Option Plan in accordance with the fair value
recognition provisions of SFAS No. 123,
"Accounting for Stock Based Compensation,"
prospectively to all new awards granted to employees after
January 1, 2003. Prior to January 1, 2003, we applied
the recognition and measurement provisions of Accounting
Principles Board, or APB, Opinion No. 25, "Accounting
for Stock Issued to Employees". We measure compensation
expense for this option plan using the intrinsic value method as
prescribed by APB Opinion No. 25. Under the intrinsic value
method, compensation is measured as the amount the market value
of the underlying equity instrument on the grant date exceeds
the exercise price of the option. This amount, if any, is then
charged to compensation expense over the vesting period. No
stock-based compensation expense is reflected in net earnings
for 2002 as all options granted prior to January 1, 2003
had an exercise price equal to the market value of the
underlying common stock on the date of grant. Therefore, the
expense related to stock-based employee compensation included in
the determination of net earnings for 2002 is less than that
which would have been recognized if the fair value method had
been applied to all awards since adoption of the Option Plan.
During the year ended December 31, 2004 and the six-month
period ended June 30, 2005, the following awards were
granted under the Option Plan.
Number of
Weighted -
Intrinsic
Options Granted
Average
Fair Value
Value per
Date of Grants
(000s)
Exercise Price
per Interest
Interest
June 1, 2004
20
$
15.18
$
5.27
$
15.18
November 1, 2004
5
$
15.18
$
5.27
$
15.18
March 11, 2005
669
$
16.85
$
5.55
$
16.85
Significant Factors, Assumptions, and Methodologies Used in
Determining our Fair Value.
As described in more detail in
Note 15 to our Consolidated Financial Statements, members
of management possessing the requisite financial experience
estimated the fair value of the options granted under the Option
Plan from January 1, 2004 to June 30, 2005 based on
the fair value of our common equity, as calculated by our board
of directors. Our board of directors calculated the fair value
of the common equity by applying a market valuation multiple
(based upon current market valuations of comparable
publicly-traded healthcare services companies) to trailing
earnings before interest, tax, depreciation and amortization
(EBITDA) to calculate the enterprise value. The enterprise value
was then adjusted (reduced for charges such as outstanding debt
and increased for assets such as cash) in order to calculate the
total equity value of Team Health. The total equity value was
divided by the total outstanding number of common shares and
options in order to calculate the common equity valuation on a
per share basis. The board of directors also made other
adjustments it deemed appropriate, including those based on
current trends and the liquidity of the shares. Our Board of
Directors did not obtain contemporaneous valuations by an
unrelated valuation specialist because, at the time of the
issuances of stock options during this period, they believed
that they possessed the requisite valuation expertise to prepare
a reasonable estimate of the fair value of the interests.
Determining the fair value of our common and preferred equity
interests required them to make complex and subjective judgments.
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Table of Contents
Factors and Trends that Affect Our Results of Operations
In reading our financial statements, you should be aware of the
following factors and trends that our management believes are
important in understanding our financial performance.
TRICARE Program
We are a provider of health care professionals that serve
military personnel and their dependents in military treatment
facilities nationwide. During 2004, the Department of Defense
made a decision to re-contract all of its outsourced health care
staffing positions. Such positions were formerly staffed through
managed care organizations, which in turn subcontracted with
staffing providers, including Team Health. The change made by
the military was to primarily contract directly with health care
staffing providers through each branch of service. The
re-contracting of such services across all branches of the
military was completed on approximately November 1, 2004.
Based on the results of such re-contracting, we concluded that
our revenue and operating margins would be materially adversely
affected and that a portion of goodwill related to our military
business had been impaired. An impairment loss of
$73.2 million was recorded in 2004.
Our revenues derived from military health care staffing totaled
approximately $74.7 million in the first six months of 2005
compared to approximately $123.9 million in the same period
in 2004. Revenues for the full year 2004 totaled approximately
$207.5 million, reflecting our staffing revenues as both a
subcontractor and a direct contractor during the year.
Our net revenues and cash flow in the six months ended
June 30, 2005, have been affected as a result of the
re-contracting process. We won through competitive bidding a
number of new contracts. The staffing of such new contracts
requires locating, recruiting and hiring new healthcare staff,
some of whom, such as nurses, are in significant demand in
today's workforce. Our realization of net revenues in the
initial months of certain of the new contracts has been
adversely affected by unfilled staffing positions either due to
worker shortages or due to higher rates of turnover in certain
positions, leaving periods of vacancies in such positions.
Additionally, the billing process for our military staffing
services has changed following completion of the re-contracting
period. Our services are now billed directly to the respective
military treatment facilities or as a subcontractor to a
third-party direct contract holder who requires payment from the
military prior to reimbursing us. The change in military billing
practices and payment flow has caused a slow-down in the payment
cycle for our military staffing services. The average days
outstanding for our military staffing accounts receivable
totaled 79.1 days at June 30, 2005. Prior to the new
contracting process, our average days outstanding for military
staffing accounts receivable was 56.1 days.
Approximately $64.8 million of estimated annual revenue won
by us as part of the military's contract bidding process in
2004 was awarded to us on a one-year contract basis and is
subject to re-bid and award on or about October 1, 2005.
Approximately $79.1 million of estimated annual revenue won
during the bidding process in 2004 was awarded to us on a
two-five year contract basis which gives the government the
option to exercise available option years. We anticipate an
estimated $100.0 million of annual revenue derived from
contracts presently held by other staffing providers will also
be up for re-bid and award on or about October 1, 2005.
However, we expect to be ineligible to bid on a substantial
portion of the business held by other staffing providers due to
the government's practice of reserving a substantial
portion of its contracts for award to small businesses. Our
ability to participate in such small business bid awards will be
limited to the extent we can serve as a sub-contractor to small
businesses that win such bids. We are unable at this time to
estimate the outcome of such expected bidding process or its
impact on the results of our operations subsequent to such award
dates.
We have remaining goodwill related to our military staffing
business of $54.7 million. The outcome of the
military's re-bidding of its staffing contracts through
October 1, 2005 could impact our valuation of the remaining
goodwill once the bid awards are known.
Radiology Related Services
We have historically provided several types of radiology related
services, including the operation of diagnostic imaging centers,
teleradiology physician services and providing radiologist
staffing services to hospital radiology departments. Some of
these operations have not achieved earnings targets resulting in
management's assessment of the various components of these
services for purposes of improving operating results derived
from radiology related services. As a result of such assessment,
a decision was reached on
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July 1, 2005, to cease operations at our two remaining
imaging centers and to end the provision of physician staffing
and related billing services for five hospital staffing
contracts that have failed to meet targeted levels of
profitability. We intend to cease operations relative to the
imaging center locations by August 31, 2005, and to give
contract termination notices to identified hospitals during the
third quarter of 2005 and, following discussions with such
affected hospitals, to cease the provision of services as soon
as practical thereafter.
Net revenues less provision for uncollectibles related to
radiology operations planned for closure or termination are
approximately $8.8 million for the six months ended
June 30, 2005. The operating losses related to such
operations are not directly identifiable as the result of back
office billing and support costs not being totally allocated to
such operations on an historical basis.
During the three months ended June 30, 2005, we recorded an
impairment loss related to imaging center equipment and other
property in the estimated amount of $1.6 million. We are
currently evaluating the potential for additional costs relating
to the remaining estimated future lease payments and other
property used in the provision of such radiology related
services. Any impairment loss related to future lease payments
and other property related items will be recorded in the period
that operations cease (currently anticipated to be in the three
months ended September 30, 2005). As of June 30, 2005,
future lease payments, not reduced for potential sub-lease
proceeds, are approximately $1.0 million.
The termination of imaging center operations and hospital
contracts will result in the payment of severance and other
related employee costs once such operations and services cease
at various dates beginning in the third quarter of 2005. We have
not yet determined the amount of such severance costs, however,
on a preliminary basis, such costs are estimated to be
approximately $1.0 million. The determination of the amount
of such actual costs is subject to the results of negotiations
with affected hospitals and by the results of any potential sale
of the imaging centers. The amount of such costs will be
recorded in periods subsequent to June 30, 2005.
Results of Operations
The following discussion provides an analysis of our results of
operations and should be read in conjunction with our unaudited
consolidated financial statements. The operating results of the
periods presented were not significantly affected by general
inflation in the U.S. economy. Net revenues less the
provision for uncollectibles is an estimate of future cash
collections and as such it is a key measurement by which
management evaluates performance of individual contracts as well
as our company as a whole. The following table sets forth the
components of net earnings (loss) as a percentage of net
revenues less provision for uncollectibles for the periods
indicated:
Six Months
Year Ended December 31,
Ended June 30,
2002
2003
2004
2004
2005
Net revenues less provision for uncollectibles
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Professional services expenses
76.2
74.7
74.8
74.6
72.1
Professional liability costs
4.4
11.6
5.9
5.8
3.6
Gross profit
19.4
13.7
19.3
19.6
24.3
General and administrative expenses
9.8
9.6
10.0
9.4
10.0
Management fee and other expenses
0.1
0.1
0.1
0.1
0.4
Depreciation and amortization
2.4
2.1
1.4
1.3
1.2
Interest expense, net
2.8
2.3
2.9
2.8
2.7
Refinancing costs
0.4
—
1.5
2.8
—
Impairment loss/impairment of intangibles
3.6
(0.4
)
(3.7
)
12.7
0.3
Earnings (loss) before income taxes
0.3
—
7.3
(9.6
)
9.6
Provision from income taxes
1.6
(0.1
)
1.1
1.2
3.7
Net earnings (loss)
2.0
(0.3
)
(4.9
)
(10.8
)
5.9
Dividends on preferred stock
1.6
1.4
0.4
0.7
—
Net earnings (loss) attributable to common shareholders
0.4
(1.7
)
(5.2
)
(11.5
)
5.9
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Six Months Ended June 30, 2005 Compared to the Six
    Months Ended June 30, 2004
Net Revenues.
Net revenues in the six months ended
June 30, 2005 increased $13.6 million, or 1.7%, to
$799.7 million from $786.0 million in the six months
ended June 30, 2004. The increase in net revenues of
$13.6 million included an increase of $50.0 million in
fee-for-service revenue and $0.9 million in other revenue.
Such increases were partially offset by a decrease in contract
revenue of $37.3 million. In the six months ended
June 30, 2005, fee-for-service revenue was 76.9% of net
revenues compared to 71.9% in 2004, contract revenue was 21.1%
of net revenues compared to 26.2% in 2004 and other revenue was
2.0% in 2005 compared to 1.9% in 2004. The change in the mix of
net revenues is primarily due to a reduction in military
staffing contract revenues between periods.
Provision for Uncollectibles.
The provision for
uncollectibles was $291.4 million in the six months ended
June 30, 2005 compared to $268.6 million in the
corresponding period in 2004, an increase of $22.8 million
or 8.5%. The provision for uncollectibles as a percentage of net
revenues was 36.4% in 2005 compared with 34.2% in 2004. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts that is not expected
to be fully collected. Excluding the effect of the reduction in
military staffing contract net revenues between periods, the
provision for uncollectibles as a percentage of net revenues was
40.2% in 2005 and 40.6% in 2004.
Net Revenues Less Provision for Uncollectibles.
Net
revenues less provision for uncollectibles in the six months
ended June 30, 2005 decreased $9.1 million, or 1.8%,
to $508.3 million from $517.4 million in the six
months ended June 30, 2004. The $9.1 million decrease
is primarily related to a net reduction of $49.2 million in
military staffing business as a result of the military's
re-contracting process completed in 2004. Excluding the impact
of the re-contracting process, net revenues less provision for
uncollectibles increased $40.1 million. Same contract
revenues, which consists of contracts under management in both
periods, increased $46.4 million, or 13.2%, to
$397.4 million in 2005 compared to $351.1 million in
2004. The increase in same contract revenue of 13.2% consists of
an increase in estimated net revenues per billing unit as well
as an increase in overall patient dollar volume between periods.
Approximately 8.2% of this increase was due to higher estimated
net revenues per billing unit. Approximately 2.5% of the
increase in estimated net revenues per billing unit is due to an
increase in estimated amounts to be collected for periods prior
to 2005, including new start-up contracts in 2004, and favorable
resolution of third-party insurer payment disputes. The
remainder of the increase between periods is principally due to
rate and level of acuity increases.
Professional Service Expenses.
Professional service
expenses, which include physician costs, billing and collection
expenses, and other professional expenses, totaled
$366.6 million in the six months ended June 30, 2005
compared to $385.9 million in the six months ended
June 30, 2004, a decrease of $19.3 million or 5.0%.
The decrease of $19.3 million is primarily due to the
reduction in military staffing business offset by increases in
other staffing areas due to higher volumes as well as an
increase in average rates paid per hour of provider service on a
same contract basis.
Professional Liability Costs.
Professional liability
costs were $18.4 million in the six months ended
June 30, 2005 compared with $29.9 million in the six
months ended June 30, 2004 for a decrease of
$11.5 million or 38.5%. Professional liability costs
include reductions in professional liability reserves relating
to prior years resulting from actuarial studies completed in
April of each year of $7.6 million in 2005 and
$1.6 million in 2004. Also contributing to the decrease is
a lowering of coverage limits for certain contracts and lower
costs relating to the military staffing business.
Gross Profit.
Gross profit was $123.3 million in the
six months ended June 30, 2005 compared to
$101.6 million in the same period in 2004 for an increase
of $21.7 million between periods. Included in the
$21.7 million increase is a $7.6 million reduction in
professional liability costs as the result of a 2005 actuarial
study. The remaining increase in gross profit is attributable to
higher patient volumes and average estimated collection rates
per patient encounter increasing faster than professional
expenses and billing and collection related costs. Gross profit
as a percentage of revenue less provision for uncollectibles
increased to 24.3% in 2005 compared with 19.6% in 2004.
Excluding the effect of the actuarial adjustment of
$7.6 million, the gross profit percentage was 22.8% in the
six months ended June 30, 2005.
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General and Administrative Expenses.
General and
administrative expenses increased $1.9 million to
$50.8 million in the six months ended June 30, 2005
from $48.8 million in the six months ended June 30,
2004. General and administrative expenses as a percentage of net
revenues less provision for uncollectibles were 10.0% in 2005
compared to 9.4% in 2004. Included in the $1.9 million
increase in general and administrative expenses in 2005 is a
$2.0 million increase in management incentive plan costs as
well as increases related to inflationary growth in salaries
offset by $1.2 million of expense related to a bonus to
stock option holders in 2004 in connection with the refinancing
of the our debt structure and a decrease in professional
consulting expenses between periods of $1.3 million.
Management Fee and Other Expenses.
Management fee and
other operating expenses were $2.2 million in the six
months ended June 30, 2005 and $0.6 million in the
corresponding period in 2004 for an increase of
$1.6 million. The $1.6 million increase is primarily
related to costs associated with the purchase and retirement of
9% subordinated debentures in 2005.
Impairment Loss.
Estimated impairment loss totaled
$1.6 million in 2005 and $65.8 million in 2004. The
$1.6 million impairment loss in 2005 is with respect to
equipment and other property costs associated with the planned
disposition of two radiology imaging centers. The impairment
loss in 2004, which was not deductible for tax purposes,
resulted from contracting changes in the military's TRICARE
program with a resulting negative impact on such business.
Depreciation and Amortization.
Depreciation and
amortization was $6.2 million in the six months ended
June 30, 2005 compared to $6.9 million in the six
months ended June 30, 2004. Depreciation and amortization
expense decreased due to such related assets becoming fully
depreciated or fully amortized, respectively, between periods.
Net Interest Expense.
Net interest expense decreased
$0.4 million to $13.9 million in 2005, compared to
$14.3 million in 2004. The decrease in net interest expense
includes approximately a $2.0 million decrease related to a
realized hedge instrument loss as part of a debt refinancing in
2004 partially offset by increases due to higher interest rates
as well as an increased level of net outstanding debt between
periods.
Refinancing Costs.
We expensed $14.7 million in the
six months ended June 30, 2004 of deferred financing costs
and bond repayment premiums related to its previously
outstanding bank and bond borrowings that were refinanced in
2004.
Earnings (loss) before Income Taxes.
Earnings before
income taxes for the six months ended June 30, 2005 were
$48.7 million compared to a loss of $49.7 million for
the corresponding period in 2004.
Provision for Income Taxes.
The provisions for income
taxes were $18.6 million in 2005 compared to
$6.3 million in 2004.
Net Earnings (Loss).
Net earnings were $30.1 million
for the six months ended June 30, 2005 compared to a net
loss of $56.0 million for the six months ended
June 30, 2004.
Dividends on Preferred Stock.
We recognized
$3.6 million of dividends for the six months ended
June 30, 2004.
Year Ended December 31, 2004 Compared to the Year
    Ended December 31, 2003
Net Revenues.
Net revenues in 2004 increased
$93.2 million or 6.3%, to $1,572.2 million from
$1,479.0 million in 2003. The increase in net revenues of
$93.2 million included an increase of $127.1 million
in fee-for-service revenue and $0.3 million in other
revenue, partially offset by a decrease in contract revenue of
$34.2 million. In 2004, fee-for-service revenue was 74.3%
of net revenues compared to 70.4% in 2003, contract revenue was
23.8% of net revenues compared to 27.6% in 2003 and other
revenue was 1.9% of net revenues compared to 2.0% in 2003.
Provision for Uncollectibles.
The provision for
uncollectibles was $563.5 million in 2004 compared to
$479.3 million in 2003, an increase of $84.2 million
or 17.6%. The provision for uncollectibles as a percentage of
net revenues was 35.8% in 2004 compared to 32.4% in 2003. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts that is not expected
to be fully collected. The increase in the provision for
uncollectibles as a percentage of net revenues resulted from fee
schedule and average acuity pricing increases in excess of
increased average collection rates for self-pay patients. In
addition, the increase in the provision for uncollectibles as a
percentage of revenue was affected
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by an estimated 1.0% payer mix shift toward more self-insured
patient encounters in 2004 and a reduction in contract revenues
between years.
Net Revenues Less Provision for Uncollectibles.
Net
revenues less provision for uncollectibles in 2004 increased
$8.9 million, or 0.9%, to $1,008.7 million from
$999.7 million in 2003. Same contract revenue less
provision for uncollectibles, which consists of contracts under
management in both periods, increased $28.4 million, or
4.2%, to $710.6 million in 2004 from $682.2 million in
2003. The increase in same contract revenue of 4.2% is
principally due to increased net revenues per billing unit
offset by a decrease in overall patient dollar volumes between
periods. Same contract revenue increased approximately 6.6%
between periods due to higher estimated net revenues per billing
unit. Billing volume for same contract fee-for-service decreased
0.6% between periods while contract revenues declined due to
lower billable hours in our locum tenens and radiology staffing
contracts based services, principally as a result of terminating
certain operating services and contracts in these staffing
areas. Acquisitions contributed $7.6 million between
periods. The aforementioned increases were partially offset by a
net $27.1 million of revenue derived from contracts that
terminated during the periods less revenue obtained through new
sales.
Professional Service Expenses.
Professional service
expenses, which includes physician costs, billing and collection
expenses and other professional expenses, totaled
$754.2 million in 2004 compared to $746.4 million in
2003, an increase of $7.8 million or 1.0%. The increase of
$7.8 million in professional service expenses included an
increase of approximately $15.0 million which resulted
principally from increases in average rates paid per hour of
provider service on a same contract basis. Acquisitions
contributed $6.2 million of the increase. These increases
were partially offset by a net decrease of approximately
$13.4 million due to terminated contracts.
Professional Liability Costs.
Professional liability
costs were $59.8 million in 2004 compared with
$116.0 million in 2003 for a decrease of
$56.1 million. The decrease in professional liability
expenses is due primarily to a provision for losses in excess of
an aggregate insured limit for periods prior to March 12,
2003 of $50.8 million in 2003. Excluding the
$50.8 million provision, professional liability expenses
decreased $5.3 million or 8.1% between periods. The
decrease of $5.3 million includes a reduction of
$2.0 million in 2004 in self-insured retention reserves for
excess limits provided for certain physicians in prior years as
a result of a review of remaining outstanding claims pertaining
to such coverage periods and approximately $1.6 million in
2004 resulting from favorable actuarial results related to 2003
initial self-insured loss year reserves. Also contributing to
the decrease is a reduction in exposure associated with the
termination of staffing contracts in higher risk territories or
specialties.
Gross Profit.
Gross profit was $194.6 million in
2004, compared to $137.4 million in 2003 for an increase of
$57.2 million. The increase in gross profit is attributable
to the effect of the aggregate provision for professional
liability insurance losses of $50.8 million in 2003 and
increased contribution from steady state operations, partially
offset by the net effect of terminated contracts between
periods. Gross profit as a percentage of revenue less provision
for uncollectibles in 2004 was 19.3% compared to 18.8% before
the provision for excess professional liability losses in 2003.
General and Administrative Expenses.
General and
administrative expenses increased $4.9 million in 2004 to
$100.5 million from $95.6 million in 2003. General and
administrative expenses as a percentage of net revenues less
provision for uncollectibles were 10.0% in 2004 compared to 9.6%
in 2003. Included in general and administrative expenses in 2004
is approximately $1.7 million related to a bonus to stock
option holders in connection with a refinancing of our debt
structure. Excluding the effect of the stock option bonus
expense, general and administrative expenses increased
approximately $3.2 million, or 3.3%. The remaining increase
in general and administrative expenses between years was
principally due to increases in salaries and benefits of
approximately $1.0 million, net of a decrease in cost of
approximately $1.0 million under our management incentive
plan, an increase in professional consulting expenses between
years of $1.7 million (including in 2004 approximately
$2.4 million related to improving our billing and
collection processes), with the remainder of the increase due to
an increase in travel related and lease costs, respectively, of
approximately $0.5 million each.
Management Fee and Other Expenses.
Management fee and
other operating expenses were $1.4 million in 2004 and
$0.5 million for the corresponding period in 2003. Other
operating expenses in 2004 included a loss on asset disposals
totaling $0.9 million.
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Impairment Loss.
During 2004, an impairment loss in the
amount of $73.2 million was recorded related to goodwill
associated with our military staffing business. The results of a
re-bidding of our healthcare staffing contracts under the
military's TRICARE Program indicated a net loss of contract
revenues and margin related to such staffing services. Based on
the results of the re-bidding, an impairment analysis using
expected future cash flows and estimated fair values relating to
the underlying business to which the goodwill applies indicated
that the goodwill previously recorded in the amount of
$127.9 million was impaired.
Depreciation and Amortization.
Depreciation and
amortization was $13.7 million in 2004 and
$22.0 million in 2003. Amortization expense decreased by
$7.7 million between periods due to certain of the our
intangibles becoming fully amortized in 2003.
Net Interest Expense.
Net interest expense increased
$5.6 million to $28.9 million in 2004, compared to
$23.3 million in 2003. The increase in net interest expense
includes approximately $7.8 million due to an increased
level of net outstanding debt between periods and a realized
hedge instrument loss of approximately $1.0 million in 2004
partially offset by lower interest rates and non-cash
amortization of loan costs between periods.
Refinancing Costs.
We expensed $14.7 million of
deferred financing costs and bond repayment premiums related to
its previously outstanding bank and bond borrowings that were
refinanced in 2004.
Loss before Income Taxes.
Loss before income taxes in
2004 was $37.8 million compared to $4.2 million in
2003.
Provision (Benefit) for Income Taxes.
Provision for
income taxes in 2004 was $11.4 million compared to a
benefit of $1.4 million in 2003.
Net Loss.
Net loss for 2004 was $49.2 million
compared to a net loss of $2.8 million in 2003.
Dividends on Preferred Stock.
We recognized
$3.6 million of dividends in 2004 and $14.4 million in
2003, on our Class A mandatorily redeemable preferred stock.
Year Ended December 31, 2003 Compared to the Year
    Ended December 31, 2002
Net Revenues.
Net revenues in 2003 increased
$248.3 million, or 20.2%, to $1,479.0 million from
$1,230.7 million in 2002. The increase in net revenues of
$248.3 million included an increase of $133.4 million
in fee-for-service revenue and $115.4 million in contract
revenue, offset by a decrease of $0.5 million in other
revenue. Fee-for-service revenue was 70.4% of net revenues in
2003 compared to 73.7% in 2002, contract revenue was 27.6% of
net revenues in 2003 compared to 23.8% in 2002 and other revenue
was 2.0% of net revenues in 2003 compared to 2.5% in 2002. The
change in the mix of revenues is principally due to an
acquisition in 2002. The acquired operation derives a higher
percentage of its revenues from hourly contract billings than
fee-for-service contracts.
Provision for Uncollectibles.
The provision for
uncollectibles was $479.3 million in 2003 compared to
$396.6 million in 2002, an increase of $82.7 million
or 20.9%. As a percentage of net revenues, the provision for
uncollectibles was 32.4% in 2003 compared to 32.2% in 2002. The
provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts which is not expected
to be fully collected. The increase in the provision for
uncollectibles percentage resulted from increased patient
visits, fee schedule increases and a continued payer mix shift
toward more self-insured patients.
Net Revenues Less Provision for Uncollectibles.
Net
revenues less provision for uncollectibles in 2003 increased
$165.6 million, or 19.9% to $999.7 million from
$834.1 million in 2002. Same contract revenue less
provision for uncollectibles, which consists of contracts under
management from the beginning of the prior period through the
end of the subsequent period, increased $61.9 million or
8.9%, to $757.7 million in 2003 from $695.8 million in
2002. The increase in same contract revenue of 8.9% includes the
effects of both increased billing volume and higher estimated
net revenues per billing unit between periods. Overall, same
contract revenue increased approximately 4.0% between periods
due to an increase in billing volume and physician mix.
Acquisitions contributed $55.1 million and new contracts
obtained through internal sales contributed $105.5 million
of the remaining increase. The increases noted above were
partially offset by $56.9 million of revenue derived from
contracts that terminated during the periods.
Professional Service Expenses.
Professional service
expense, which includes physician costs, billing and collection
expenses and other professional expenses, totaled
$746.4 million in 2003 compared to
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$635.6 million in 2002 for an increase of
$110.8 million or 17.4%. The increase of
$110.8 million included $43.5 million resulting from
acquisitions between periods. The remaining increase in
professional service expenses was principally due to increases
in provider hours as the result of new contract sales,
principally for staffing within military treatment facilities,
including increases resulting from troop deployments in 2003, as
well as increases in average rates paid per hour of provider
service.
Professional Liability Costs.
Professional liability
costs were $116.0 million in 2003, including a provision
for losses in excess of an aggregate insured limit for periods
prior to March 12, 2003 of $50.8 million. The total
professional liability cost of $116.0 million in 2003
compared with $37.0 million in 2002 increased
$79.0 million (76.2% excluding the effect of the
$50.8 million provision for excess insurance losses). The
increase in professional liability costs, in addition to
increases resulting from the provision for excess losses
($50.8 million) and from acquisitions ($1.3 million)
is due to an increase between periods in our commercial
insurance program premium through its expiration date of
March 11, 2003, plus an increased level of cost resulting
from an estimate of our losses on a self-insured basis
subsequent to March 11, 2003.
Gross Profit.
Gross profit decreased to
$137.4 million in 2003 from $161.5 million in 2002.
The decrease in gross profit is attributable to the effect of
the provision for excess losses of $50.8 million partially
offset by the effect of acquisitions, net new contract growth
and increased profitability of steady state operations between
periods. Gross profit as a percentage of revenue less provision
for uncollectibles was 18.8% before the provision for excess
losses for prior periods compared to 19.4% for 2002. The
decrease was principally due to increases in professional
liability costs increasing faster than growth in revenues.
General and Administrative Expenses.
General and
administrative expenses in 2003 increased to $95.6 million
from $81.7 million in 2002, for an increase of
$13.8 million, or 16.9% between years. General and
administrative expenses as a percentage of net revenues less
provision for uncollectibles were 9.6% in 2003 compared to 9.8%
in 2002. The increase in general and administrative expenses
between years included expenses associated with acquired
operations of $4.9 million accounting for 6.0% of the 16.9%
increase between periods. The remaining net increase of 10.9% or
$8.9 million was principally due to increases in salaries
and benefits of approximately $7.8 million. Included in the
increase in salaries and benefits between periods was an
increase of approximately $3.3 million related to our
management incentive plan. Non salary related general and
administrative expenses increased $1.1 million between
years principally due to costs related to a disputed contract
settlement of approximately $0.6 million and a net increase
in outside consulting and services fees of approximately
$0.6 million. Other general and administrative expenses
remained approximately unchanged between years.
Management Fee and Other Expenses.
Management fee and
other expenses were $0.5 million in 2003 and 2002.
Impairment of Intangibles.
Impairment of intangibles was
$0.2 million and $2.3 million in 2003 and 2002,
respectively. During 2003 an ED contract with a noncompete
intangible terminated and two of our contracts were determined
to be impaired during 2002.
Depreciation and Amortization.
Depreciation and
amortization expense was $22.0 million in 2003 compared to
$20.0 million in 2002. Depreciation expense decreased by
$0.4 million between years while amortization expense
increased $2.4 million between years. The increase in
amortization expense is principally due to acquisitions between
periods.
Net Interest Expense.
Net interest expense decreased
$0.6 million to $23.3 million in 2003 compared to
$23.9 million in 2002. The decrease in net interest expense
is due to lower interest rates on outstanding debt and increased
investment income in 2003 offset by an increase in debt
outstanding resulting from acquisitions in 2002.
Refinancing Costs.
We expensed in 2002 $3.4 million
of deferred financing costs related to its previously
outstanding bank debt which was refinanced in 2002.
Earnings (Loss) before Income Taxes and Cumulative Effect of
Change in Accounting Principle.
Earnings (loss) before
income taxes and cumulative effect of change in accounting
principle was a loss of $4.2 million in 2003 compared with
earnings of $29.6 million in 2002.
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Provision (Benefit) for Income Taxes.
Provision for
income taxes in 2003 was a benefit of $1.4 million compared
to a provision of $13.2 million in 2002. The decrease in
the provision for income taxes in 2003 from 2002 was due to the
decreased level of earnings before income taxes in 2003.
Earnings (Loss) before Cumulative Effect of Change in
Accounting Principle.
Earnings (loss) before cumulative
effect of change in accounting principle in 2003 was a loss of
$2.8 million compared with earnings of $16.4 million
in 2002.
Cumulative Effect of Change in Accounting Principle.
In
connection with implementing SFAS No. 142, Goodwill
and Other Intangible Assets, as of January 1, 2002, we
completed a transitional impairment test of existing goodwill
and concluded that a portion of our goodwill was impaired.
Accordingly, an impairment loss of $0.5 million
($0.3 million net of taxes) was recorded as the cumulative
effect of a change in accounting principle in 2002.
Net Earnings (Loss).
Net loss in 2003 was
$2.8 million compared to net earnings of $16.1 million
in 2002.
Dividends on Preferred Stock.
We accrued
$14.4 million and $13.1 million of dividends in 2003
and 2002, respectively, on our outstanding Class A
mandatory redeemable preferred stock.
Liquidity and Capital Resources
Our principal ongoing uses of cash are to meet working capital
requirements, fund debt obligations and to finance our capital
expenditures and acquisitions. Funds generated from operations
during the past two years have been sufficient to meet the
aforementioned cash requirements.
During 2004, we restructured our capital structure. The
restructuring resulted in the following transactions occurring:
•
Our Board of Directors authorized the redemption of our 10%
    Cumulative Preferred Stock in the amount of approximately
    $162.4 million, including accrued dividends.
•
We completed a tender offer for our outstanding 12% Senior
    Subordinated Notes resulting in $100.0 million of such
    bonds being repaid, plus payment of a call premium of
    $8.2 million.
•
We issued new 9% Senior Subordinated Notes in the amount of
    $180.0 million.
•
We retired our existing bank debt in the amount of
    $199.4 million and entered into a new senior bank credit
    facility, including a $250.0 million senior secured term
    loan and an $80.0 million revolving credit facility.
•
We incurred and paid approximately $8.2 million in costs
    (in addition to an $8.2 million call premium on our
    previously outstanding 12% Senior Subordinated Bonds) to
    complete the above transactions.
In addition, the Board of Directors declared and paid to our
shareholders a cash dividend of approximately $27.6 million
on March 23, 2004. The Board of Directors also authorized a
cash payment to holders of stock options in the form of a
compensatory bonus in the approximate amount of
$1.3 million.
As a result of the above transactions, we had total debt
outstanding of $428.1 million as of December 31, 2004,
compared to $299.4 million as of December 31, 2003.
Effective April 6, 2005, we and our lenders agreed to an
amendment of the terms of our senior credit facility. As a
result of such amendment, the following occurred or was agreed
to:
•
we made a voluntary prepayment of our term debt in the amount of
    $30.0 million
•
our existing term loan B was converted to a new term
    loan C in the amount of $203.1 million
•
our senior credit facility lenders agreed to a reduction in the
    pricing for term loan borrowings to LIBOR plus 275 basis
    points, a reduction of 50 basis points
•
a further reduction or increase of up to 50 basis points in
    the pricing for term loan borrowings from LIBOR plus
    275 basis points in the event that the credit ratings for
    our borrowings are increased or decreased, respectively, and
•
the ability was granted to us to repurchase at our option up to
    $35.0 million of our outstanding 9% Subordinated Bonds
    so long as we are in compliance with the terms and covenants of
    our senior credit facility agreement.
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During the six months ended June 30, 2005, we reduced our
outstanding long-term debt by $80.1 million. The repayment
of such debt was made through the use of available cash in the
form of liquidated marketable securities as well as operating
cash flow. The debt repaid consisted of a $15.8 million
prepayment required under the terms of the underlying senior
credit facility agreement due to "excess cash flow,"
as defined therein, a voluntary prepayment of our term debt of
$30.0 million and the repurchase and redemption of
$34.3 million of our 9% senior subordinated notes. As
a result of the foregoing repayments, we had total debt
outstanding of $348.0 million as of June 30, 2005,
compared to $428.1 million as of December 31, 2004.
Cash provided from operating activities in 2004 was
$64.6 million compared to cash provided by operating
activities in 2003 of $101.7 million. The
$37.1 million decrease in cash provided by operating
activities was principally due to an increase in interest and
tax payments between periods and operating cash flows used in
the refinancing transaction. Cash used in investing activities
in 2004, was $75.8 million compared to a use of cash in
2003 of $26.3 million. The $49.5 million change in
cash used in investing activities was principally due to the
purchase of short-term investments offset by the redemption of
assets held in a deferred compensation plan which were
liquidated as part of the refinancing as well as reduced levels
of capital expenditures in 2004. Cash used in financing
activities in 2004 and 2003 was $71.8 million and
$22.3 million, respectively. The $49.5 million
decrease in cash resulting from financing activities was due to
the debt restructuring and dividend paid in 2004.
Cash provided by operating activities in the six months ended
June 30, 2005 was $28.0 million compared to
$26.2 million in the corresponding period in 2004. The
$1.8 million increase in cash provided by operating
activities was principally due to improved profitability between
periods as well as cash used in 2004 for the payout of a
deferred compensation plan which was part of a refinancing,
partially offset by an increase in accounts receivable and tax
payments between years. Cash provided by investing activities in
the six months ended June 30, 2005, was $49.9 million
compared to a use of cash of $2.3 million in 2004. The
$52.2 million increase in cash provided by investing
activities was principally due to an increase resulting from the
redemption of short-term investments offset by the redemption of
assets held in a deferred compensation plan which were
liquidated as part of a refinancing in 2004, as well as
increased levels of capital expenditures in 2005 and earnout
payments related to previous acquisitions in 2005. Cash used in
financing activities in the six months ended June 30, 2005
and 2004 was $80.6 million and $70.0 million,
respectively. The $10.6 million increase in cash used in
financing activities was due to a voluntary partial prepayment
of our term debt as well as the early redemption of a portion of
our 9% senior subordinated notes in 2005 offset by a debt
restructuring, preferred stock redemption and common stock
dividend paid in 2004.
We spent $6.7 million in 2004 and $9.0 million in 2003
for capital expenditures. We spent $4.6 million in the
first six months of 2005 and $2.6 million in the first six
months of 2004 for capital expenditures. These expenditures were
primarily for information technology investments and related
development projects.
We have historically been an acquirer of other physician
staffing businesses and interests. Such acquisitions in recent
years have been completed for cash. Cash payments made in
connection with acquisitions, including contingent payments,
were $3.2 million in 2004 and $2.5 million in 2003.
Cash payments made in connection with acquisitions, including
contingent payments, were $5.8 million during the six
months ended June 30, 2005 and $2.3 million in the
corresponding period in 2004. Future contingent payment
obligations are approximately $3.0 million as of
June 30, 2005.
We made scheduled debt maturity payments of $1.9 million in
2004 in accordance with its applicable term loan facilities in
effect at the time.
Our senior credit facility at June 30, 2005 provides for up
to $80.0 million of borrowings under a senior revolving
credit facility and $202.3 million of term loans.
Borrowings outstanding under the senior credit facility mature
in various years with a final maturity date of March 31,
2011. The senior credit facility agreement contains both
affirmative and negative covenants, including limitations on our
ability to incur additional indebtedness, sell material assets,
retire, redeem or otherwise reacquire our capital stock, acquire
the capital stock or assets of another business, pay dividends.
It also requires us to meet or exceed certain coverage, leverage
and indebtedness ratios. The senior credit agreement also
includes a provision for the prepayment of a portion of the
outstanding term loan amounts at any year-end if we generate
"excess cash
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flow," as defined in the agreement. During the six months
ended June 30, 2005, we made prepayments totaling
$15.8 million on our bank term debt under the excess cash
flow provision calculation for 2004.
We began providing effective March 12, 2003, for
professional liability risks in part through a captive insurance
company. Prior to such date we insured such risks principally
through the commercial insurance market. The change in the
professional liability insurance program has resulted in
increased cash flow due to the retention of cash formerly paid
out in the form of insurance premiums to a commercial insurance
company coupled with a long period (typically 2-4 years or
longer on average) before cash payout of such losses occurs. A
portion of such cash retained is retained within our captive
insurance company and therefore not immediately available for
general corporate purposes. As of June 30, 2005, cash or
cash equivalents and related investments held within the captive
insurance company totaled approximately $28.6 million.
Based on the results of our most recent actuarial report,
anticipated cash outflow to the captive insurance company or
third-party insurance providers for the period July 1, 2005
to December 31, 2005 is estimated at $16.6 million.
We had as of December 31, 2004, total cash, cash
equivalents and short-term investments of approximately
$82.6 million and a revolving credit facility borrowing
availability of $76.2 million. Our ongoing cash needs in
2004 were met from internally generated operating sources and
there were no borrowings under our revolving credit facility. We
had as of June 30, 2005, total cash and cash equivalents of
approximately $15.2 million and a revolving credit facility
borrowing availability of $74.9 million. Our ongoing cash
needs in the six months ended June 30, 2005, were met from
internally generated operating sources. Borrowings under our
revolving credit facility were limited in the period to
$6.7 million for a total of six days as the result of
needing cash to meet bank funding obligations.
On July 19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was $13.0 million in excess of
third-party insurance coverage in effect at the date of the
incident. The jury award is subject to the issuance of a final
judgment by the court. When the trial court renders its final
judgment with respect to the jury award, the amount in excess of
applicable insurance coverage, if any, plus interest for two
years related to such amount, will be required to be posted as
an appeal bond with the court while an appeal of the
court's decision runs its course. Management at this time
is unable to estimate the cash flow effect, if any, related to
this matter.
We believe that our cash needs, other than for significant
acquisitions, will continue to be met through the use of our
remaining existing available cash, cash flows derived from
future operating results and cash generated from borrowings
under our senior revolving credit facility.
The following tables reflect a summary of obligations,
commitments outstanding and estimated uses of nonrestricted cash
to meet estimated professional liability insurance obligations
as of December 31, 2004, after giving effect to the
refinancing transactions (in thousands):
Payments Due by Period
Less than
After
1 year
1-3 years
4-5 years
5 years
Total
Contractual cash obligations:
Long-term debt
$
15,000
$
4,746
$
4,746
$
403,633
$
428,125
Operating leases
8,716
13,925
6,431
1,554
30,626
Interest payments
30,746
60,812
59,977
53,354
204,889
Subtotal
54,462
79,483
71,154
458,541
663,640
Amount of Commitment Expiration Per Period
Less than
After
1 year
1-3 years
4-5 years
5 years
Total
Other commitments:
Standby letters of credit
$
3,831
$
—
$
—
$
—
$
3,831
Contingent acquisition payments
7,076
1,697
—
—
8,773
10,907
1,697
—
—
12,604
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Amount of Actuarily Estimated Payments for
Professional Liability Losses(1)
Less than
After
1 year
1-3 years
4-5 years
5 years
Total
Excess of aggregate under insured plan ended March 11, 2003
$
—
$
29,720
$
22,639
$
7,714
$
60,073
Captive insurance subsidiary funding
48,657
35,832
1,782
—
86,271
Total estimated payments
48,657
65,552
24,421
7,714
146,344
Total obligations, commitments and estimated use of
    nonrestricted cash to fund professional liability losses
$
114,026
$
146,732
$
95,575
$
466,255
$
822,588
(1)
Amounts represent estimated use of unrestricted cash to pay
    claims in excess of an insured $130 million aggregate plan
    limit in existence prior to March 11, 2003, and amounts
    estimated to be funded into the Company's captive insurance
    subsidiary for self-insured claims subsequent to March 11,
    2003. The amounts represent estimated payments for loss
    reporting periods prior to January 1, 2005.
Inflation
We do not believe that general inflation in the
U.S. economy has had a material impact on our financial
position or results of operations.
Seasonality
Historically, our revenues and operating results have reflected
minimal seasonal variation due to the significance of revenues
derived from patient visits to emergency departments, which are
generally open on a 365 day basis, and also due to our
geographic diversification. Revenue from our non-emergency
department staffing lines is dependent on a healthcare facility
being open during selected time periods. Revenue in such
instances will fluctuate depending upon such factors as the
number of holidays in the period.
Recently Issued Accounting Standards
In June 2005, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standard, or SFAS,
No. 154,
Accounting Changes and Error
Corrections — a replacement of APB Opinion No. 20
and FASB Statement No. 3.
This standard replaces APB
Opinion No. 20,
Accounting Changes,
and FASB
Statement No. 3,
Reporting Accounting Changes in Interim
Financial Statements,
and changes the requirements for the
accounting and reporting of a change in accounting principle.
SFAS No. 154 applies to all voluntary changes in
accounting principle and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions.
SFAS No. 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle.
SFAS No. 154 requires that the change in accounting
principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings for that period rather than being reported in
an income statement. In the event of a change in accounting
principle, SFAS No. 154 will require a restatement of
previously issued financial statements to reflect the effect of
the change in accounting principle on prior periods presented.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of SFAS No. 154
is not expected to have a material effect on our consolidated
financial position, results of operations or cash flows.
On December 16, 2004, the FASB issued
SFAS No. 123 (revised 2004),
Share-Based
Payment,
which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees,
and amends
SFAS No. 95,
Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
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The provisions of SFAS No. 123(R) are effective for us
beginning January 1, 2006. Early adoption is permitted in
periods in which financial statements have not been issued. We
expect to adopt SFAS No. 123(R) beginning
January 1, 2006.
We adopted the fair-value-based method of accounting for
share-based payments effective January 1, 2003 using the
prospective method described in SFAS No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure.
Currently, we use the minimum
value method to estimate the value of stock options granted to
employees. In accordance with the transition provisions of
SFAS No. 123(R) we will continue to account for
nonvested awards outstanding at the date of adoption of
SFAS No. 123(R) in the same manner as they had been
accounted for prior to adoption for financial statement
recognition purposes. For those options that are granted after
the adoption of SFAS No. 123(R), we will no longer be
permitted to use the minimum-value method and instead will be
required to use an acceptable option-pricing model. We have not
yet determined which specific option-pricing model we will use.
SFAS No. 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While we cannot estimate what
those amounts will be in the future (because they depend on,
among other things, when employees exercise stock options), the
amounts recognized in operating cash flows for such excess tax
deductions were $463,000 and $59,000 for the six months ended
June 30, 2005 and 2004, respectively.
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BUSINESS
Our Company
Team Health is the largest provider of outsourced physician
staffing and administrative services to hospitals and other
healthcare providers in the United States, based upon revenues
and patient visits. We serve more than 470 hospital clients and
their affiliated clinics and surgical centers in 44 states
with a team of approximately 4,700 physicians, mid-level
practitioners and nurses. Since our inception in 1979, we have
focused primarily on providing outsourced services to hospital
emergency departments, which accounted for 72% of our net
revenues less provision for uncollectibles in the six months
ended June 30, 2005. We also provide comprehensive programs
for inpatient services, radiology, anesthesiology, pediatrics
and other healthcare services, by providing permanent staffing
that enables the management teams of hospitals and other
healthcare facilities to outsource their recruiting, hiring,
payroll, billing and collection and benefits functions.
Emergency departments, or EDs, generate approximately 40% of all
hospital admissions, making this department critical to a
hospital's patient satisfaction rates and overall success.
This dynamic, combined with the challenges involved in billing
and collections and physician recruiting and retention, is a
primary driver for hospitals to outsource their clinical
staffing and management services to companies such as Team
Health. Our revenues from ED contracts increased by
approximately 22% from 2001 to 2004. The emergency departments
that we staff generally are located in larger hospitals that
treat over 15,000 patients annually in the ED. We believe
that our experience and expertise in managing the complexity of
higher volume emergency departments enables our hospital clients
to provide higher quality and more efficient physician and
administrative services. In this type of environment we can
establish stable long-term relationships, recruit and retain
high quality physicians and other providers and staff, and
obtain attractive payer mixes and profit margins.
We recruit and hire or subcontract with healthcare professionals
who then provide professional services within the healthcare
facilities with which we contract. The range of physician and
non-physician staffing and administrative services that we
provide to our clients includes the following:
•
recruiting, scheduling and credentials coordination for clinical
    and non-clinical medical professionals,
•
coding, billing and collection of fees for services provided by
    medical professionals,
•
administrative support services, such as payroll, insurance
    coverage, continuing medical education services and management
    training, and
•
claims and risk management services.
We are a national company delivering our services through 13
regional operating offices located in key geographic markets.
This operating model enables us to provide a localized presence
combined with the benefits of scale in centralized
administrative and other back office functions that accrue to a
larger, national company. The teams in our regional offices have
responsibility for managing our customer and physician
relationships and providing administrative healthcare services.
Industry Overview
With the increasing complexity of clinical, regulatory, managed
care and reimbursement matters in today's healthcare
environment, healthcare facilities are under significant
pressure from the government and private payers both to improve
the quality and reduce the cost of care. Furthermore, most
healthcare facilities do not have billing systems that properly
handle the large volumes of payments that are typical in the
emergency and other specialty departments. They may also lack
the infrastructure and personnel necessary to recruit physicians
and other providers. In response to these factors, healthcare
facilities have increasingly outsourced the staffing and
management of multiple clinical areas to companies with
specialized skills, standardized models and information
technology to improve service, increase the overall quality of
care and reduce administrative costs.
We target certain clinical areas within healthcare facilities
including, emergency medicine, hospitalist, radiology,
anesthesiology and pediatrics, as well as civilian medical
staffing within military treatment facilities. Each of these
clinical areas currently faces severe physician shortages, and
many healthcare
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facilities lack the resources necessary to identify and attract
specialized, career-oriented physicians. Moreover, physician
shortages are exacerbated by growing demand for services in
these clinical areas. For example:
Emergency Medicine.
We believe that the healthcare
    industry in general is experiencing an increasing trend toward
    outpatient treatment rather than traditional inpatient
    treatment. Additionally, healthcare reform efforts in recent
    years have placed an increasing emphasis on reducing the time
    patients spend in hospitals. Finally, today's office-based
    physicians have far fewer office hours readily available to
    patients, especially on short notice. As a result, we believe
    that the frequency and severity of illnesses and injuries
    treated in an emergency department or other hospital setting is
    likely to continue to increase. Between 1999 and 2003, the
    number of patient visits per hospital emergency department
    increased 10.8%. This increase in ED visits, combined with the
    fact that approximately 40% of all hospital inpatient admissions
    originate in the emergency department, represents a significant
    contributing factor to the outsourcing of emergency departments
    since inpatient satisfaction is strongly tied to the
    patient's initial treatment in the emergency department.
Hospitalist.
Demand for hospitalists, or doctors whose
    primary professional focus is the general medical care of
    hospitalized patients, is driven by an increasing recognition
    that hospitalist-attended patients experience lower costs,
    shorter lengths of stay and better outcomes, including higher
    survival rates. According to the Society of Hospital Medicine,
    the number of hospitalists in the U.S. has steadily
    increased from 800 in the mid-1990s to approximately 10,000 in
    2005, and this workforce is projected to increase to 25,000 by
    2010. We believe that the hospitalist model will experience
    continued growth as a result of continued cost pressures on
    hospitals, physician groups and managed care organizations, the
    increased acuity of hospitalized patients and the accelerated
    pace of their hospitalizations, the time pressures on
    office-based primary care physicians and an increasing
    governmental focus on patient safety and comparative hospital
    metrics. We believe there is potential for significant growth in
    this service line over the coming years.
Radiology.
Demand for radiology services is driven by a
    number of factors including population growth, shifting
    demographics, and advancements in radiological technology and
    procedures. Older patients utilize x-rays and other imaging
    modalities at three times the rate of younger people. Therefore,
    we expect that as the population ages, the demand for
    radiological services will continue to increase. A survey
    published in October 2004 by the American Medical Group
    Association indicated that from 1999-2003, radiologists saw
    larger percentages and dollar increases in their salaries than
    any of the other 27 medical specialties studied. Given that the
    single biggest driver of salaries is the availability of
    specialists, the rising salaries underscore the continuing
    shortage of radiologists. The national shortage of radiologists
    presents a significant opportunity for companies with the
    resources to recruit skilled, career-oriented radiologists
    effectively. The current market for radiologists and their
    services has altered traditional fee-for-service compensation
    arrangements with hospitals, making cost-plus arrangements more
    common. These arrangements reduce the economic risk for
    outsourced providers of such services in a time of escalating
    professional compensation for radiologists.
Anesthesiology.
Demand for anesthesiology services, like
    radiology services, is driven in part by technological advances,
    an increased number of reimbursable procedures and an aging
    population. As a result of these factors, demand is increasing
    for anesthesiology services not only for life-threatening
    conditions, but also cosmetic and other quality-of-life
    procedures. The market is served primarily by groups of
    physicians typically ranging in size from 10-20 physician
    anesthesiologists, or MDAs, and few groups have more than 60
    MDAs. The groups are largely self-governed, and many enjoy
    exclusive contracts with hospitals and outpatient centers. The
    majority of the groups require a variety of management services,
    and most of them outsource their billing needs to third-party
    providers.
Pediatrics.
According to the American College of
    Emergency Physicians, emergency physicians and nurses treat more
    than 30.0 million sick and injured children in
    America's emergency departments annually. Many of these
    cases are classified as nonemergent, indicating the growing need
    for alternative sites for pediatric urgent care. Changing
    demographics and lifestyles indicate a growing trend in the
    ability to receive medical care outside of
    "traditional" physician office hours. We believe all
    of these indicators result in a growing demand for freestanding,
    after-hours urgent care pediatric clinics.
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Military Staffing.
Demand for healthcare services among
    military personnel has increased commensurately with growth in
    the number of military retirees and the use of services by
    active duty personnel and their dependents. Military treatment
    facilities today make extensive use of permanent civilian
    staffing due to an inability to recruit and retain sufficient
    numbers of physicians, nurses and other healthcare professionals
    and the goal of reducing the instances of military personnel
    seeking off-base civilian medical care that results in higher
    costs. Industry sources project the military permanent medical
    staffing market to increase from approximately $570 million
    to at least $765 million over the next five years,
    representing a 6% compounded annual growth rate.
The market for outsourced services in each of these areas tends
to be highly fragmented. However, local providers often lack the
operating capital, experience, breadth of services and
sophisticated information systems necessary to meet the
increasingly complex needs of hospitals. As a result, healthcare
facilities seek third-party physician staffing and
administrative service providers that can not only improve
department productivity and patient satisfaction while reducing
overall costs, but also offer a breadth of staffing and
management services, billing and reimbursement expertise, a
reputation for regulatory compliance, financial stability and a
demonstrated ability to recruit and retain qualified physicians,
technicians and nurses. In particular, emergency departments
face significant challenges with respect to capturing patient
billing data and billing and collecting a high volume of
relatively small dollar amounts. As a result, they seek
third-party providers with the billing expertise, IT
infrastructure and systems necessary to reduce their
administrative burden and complexity.
Competitive Strengths
We help our more than 470 hospital clients and their affiliated
clinics' and surgical centers to address these industry
challenges by providing them with a comprehensive range of
high-quality, integrated, cost-effective outsourced services for
their emergency medicine, inpatient services, radiology,
anesthesiology, pediatrics and related programs. We believe that
our competitive position is attributable to a number of key
strengths, including the following:
Trusted Reputation for Consistent and Reliable Services.
Team Health helped found the clinical outsourcing industry and
    has over 25 years of experience providing physician
    staffing and administrative services. Our current roster of
    hospital clients includes long-term relationships with some of
    the leading medical institutions in the country. We believe the
    strength of our reputation is evidenced by the fact that
    approximately one-third of our contracts have been in place for
    more than ten years. On average, we have held contracts with our
    current clients for eight years, and our overall emergency
    department contract retention rate is over 90%.
We have an equally outstanding reputation with our affiliated
    physicians. In our most recent emergency physician survey, 97%
    of respondents indicated that we were attending to business
    functions in ways that allowed them to focus on their patients
    and their clinical practices, and 95% of respondents said they
    would recommend us to a colleague.
Leading Market Position.
We were founded in 1979 and are
    affiliated with approximately 4,700 healthcare professionals and
    over 470 civilian and military hospitals. We are the largest
    national provider of outsourced physician staffing and
    administrative services in the United States, based on revenues
    and patient visits. We are also a significant provider of
    healthcare staffing on a permanent basis to military treatment
    facilities under the U.S. government's TRICARE
    Program. We believe our ability to spread the cost of our
    corporate infrastructure over a broad national contract and
    revenue base generates significant cost efficiencies that are
    generally not available to smaller competitors. As a
    full-service provider with a comprehensive understanding of
    changing healthcare regulations and policies and the management
    information systems that provide support to manage these
    changes, we believe we are well positioned to maintain and grow
    our market share from other service providers and from new
    outsourcing opportunities.
Regional Operating Models Supported by a National
    Infrastructure.
We service our clients from 13 regional
    management sites organized under eight operating units. Many of
    our current regional sites were independent local companies that
    we added through acquisition. These businesses have been fully
    integrated, but because they originated locally, have retained
    deep roots in their communities. This combination of local
    relationships and national infrastructure allows us to deliver
    locally focused services
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with the resources and sophistication of a national provider.
    For example, our local presence helps us foster community-based
    relationships with healthcare facilities, which we believe
    results in responsive service, high physician retention rates
    and an ability to market our services effectively to local
    hospital administrators, who generally are involved in making
    decisions regarding contract awards and renewals. Our regional
    operating units are supported by our national infrastructure,
    which includes integrated information systems and standardized
    procedures that enable us to manage the operations and billing
    and collections processes efficiently. Our national
    infrastructure allows us to provide broad economies of scale
    across all the services we provide at the local level, including
    recruiting, billing and collection, payroll administration,
    staffing support, purchasing, managed care contract negotiation,
    regulatory compliance, and risk management. We believe our
    regional operating models supported by our national
    infrastructure improve productivity and quality of care while
    reducing the cost of care.
Significant Investment in Information Systems and
    Procedures.
Our information systems link our billing,
    collections, recruiting, scheduling, credentials coordination
    and payroll functions among our regional management sites,
    allowing our best practices and procedures to be delivered and
    implemented nationally. These systems include:
•
IDX Billing System, our coding, billing and accounts receivable
    system that contains fee schedules that vary for the level of
    care rendered, contractually agreed-upon allowances (in the case
    of commercial and managed care insurance payers) and
    reimbursement policy parameters (in the case of governmental
    payers) to allow us to bill such payers;
•
Lawson is an integrated system which incorporates financial
    reporting, payroll and accounts payable functions and allows our
    regional managers to monitor contract-level profitability and
    operational trends; and
•
TeamWorks™ our proprietary national physician database and
    software package that facilitates the recruitment and retention
    of physicians and supports our contract requisition, credentials
    coordination, automated application generation, scheduling and
    payroll operations.
The cumulative strengths of these systems have enhanced our
    ability to properly collect patient payments and reimbursements
    in an orderly and timely fashion, monitor and analyze our
    operating performance and attract and retain specialized,
    career-oriented professionals in short supply. As a result of
    our investments in information systems and the company-wide
    application of best practices policies, we believe our average
    cost per patient billed and average recruiting cost per
    physician and other healthcare professionals are among the
    lowest in the industry.
Financial Performance.
We believe that financial
    stability, including a demonstrated ability to pay healthcare
    professionals in a timely manner and provide adequate
    professional liability insurance, is one of the key
    discriminating factors used by clients in the healthcare
    industry when choosing outsourcing providers. We have generated
    positive operating cash flow for each of the last five years.
    Cash flow from operations for the six months ended June 30,
    2005 was approximately $28.0 million. We believe that our
    operating cash needs will continue to be met through cash
    generated from operations.
Risk Management.
We have a comprehensive risk management
    program designed to prevent or minimize medical errors and
    attendant professional liability claims. The program includes
    incident reporting and tracking systems, pre-hire testing and
    screening procedures, staff education, service and review
    programs, procedures for early intervention in professional
    liability claims, and a risk management quality assurance
    program. The breadth and depth of our efforts in this area are a
    critical component of our business strategy and our ability to
    meet our client retention and acquisition goals. Over the last
    two years we have significantly reduced the number of new
    patient claims filed. In 2003 and 2004, claims declined 12% and
    26%, respectively.
Ability to Recruit and Retain High Quality Physicians.
We
    believe our ability to recruit and retain high quality
    physicians to service our contracts. While our local presence
    provides us with the knowledge to properly match physicians with
    hospitals and military treatment facilities, our national
    presence and infrastructure enable us to provide physicians with
    a variety of attractive client locations, advanced information
    and reimbursement systems and standardized procedures.
    Furthermore, we offer
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physicians substantial flexibility in terms of geographic
    location, type of facility, scheduling of work hours, benefit
    packages and opportunities for relocation and career
    development. This flexibility, combined with fewer
    administrative burdens, improves physician retention rates and
    stabilizes our contract base. We believe we have among the
    highest physician retention rates in the industry.
Experienced Management Team with Significant Equity
    Ownership.
Our senior management team has extensive
    experience in the outsourced physician staffing and
    administrative services industries. Our chief executive officer,
    H. Lynn Massingale, M.D., co-founded Team Health's
    predecessor entity in 1979. Our senior corporate and affiliate
    executives have an average of over 20 years of experience
    in the outsourced physician staffing and medical services
    industries. After the offering, members of our management team
    will have, with the inclusion of performance-based options, an
    indirect fully diluted ownership interest of
    approximately      % of Team Health,
    Inc. As a result of this substantial equity interest, we believe
    our management team has a significant incentive to maintain and
    grow our client base, and increase our revenue and profitability.
Business Strategy
We intend to utilize our competitive strengths to capitalize on
favorable industry trends and execute on the following business
strategies:
Increase Revenues from Existing Customers.
We have a
strong record of achieving growth in revenues from our existing
customer base. In 2004 and the six months ended June 30,
2005, our net revenues less provision for uncollectibles from
same contracts, which consist of contracts under management from
the beginning of a period through the end of the subsequent
period, grew by approximately 4.2% and 13.2% on a year-over-year
and period-over-period basis, respectively. We plan to continue
to increase revenue from existing customers by:
•
capitalizing on increasing patient volumes,
•
implementing enhanced point of service capture of non-clinical
    patient data, resulting in improved billing and collection for
    services rendered,
•
continuing to improve documentation of clinical care delivered,
    thereby capturing appropriate reimbursement for services
    provided,
•
implementing fee schedule increases, where appropriate,
•
cross-selling additional services within contracted healthcare
    facilities, and
•
increasing staffing levels and expanding services at current
    military sites of service to recapture patients who might
    otherwise receive services off-base.
Capitalize on Outsourcing Opportunities to Win New
Contracts.
As hospitals and other healthcare providers
continue to experience pressure from managed care companies and
other payers to reduce costs while maintaining or improving the
quality of service, we believe hospitals and other contracting
parties will increasingly turn to a single-source with an
established track record of success for outsourced physician
staffing and administrative services. We believe we are well
positioned to capitalize on the growth in emergency department
medicine and our other target outsourcing markets, due to our:
•
demonstrated ability to improve productivity, patient
    satisfaction and quality of care while reducing overall cost to
    the healthcare facility,
•
successful record of recruiting and retaining high quality
    physicians and other healthcare professionals,
•
national presence,
•
sophisticated information systems and standardized procedures
    that enable us to efficiently manage our core staffing and
    administrative services as well as the complexities of the
    billing and collections process, and
•
financial strength and resources.
Furthermore, we seek to obtain new contracts that meet our
financial targets by:
•
replacing competitors at hospitals that currently outsource
    their services,
•
obtaining new contracts from healthcare facilities that do not
    currently outsource, and
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•
expanding our present base of military treatment facility
    contracts by successfully competing for new staffing contracts.
Increase Revenue from Additional Clinical Areas.
In
addition to pursuing growth in our core ED staffing business, we
believe significant opportunities exist to increase revenues
from our inpatient services, radiology, anesthesiology and
pediatrics offerings. We believe we are well positioned to
increase our market share in these areas due to our ability to
leverage our infrastructure and existing client relationships as
well as our recruiting and risk management expertise. We intend
to grow our presence in these sectors by increasing revenue from
existing clients, adding new clients with whom we do not
currently have a relationship with and marketing these services
to our existing ED clients.
Leverage Infrastructure to Enhance Profitability.
Our
revenue growth strategy along with our established regional and
corporate infrastructure is designed to allow for continued
enhancement of profitability. Our information systems and
economies of scale allow us to enhance profitability with
revenue growth without compromising the quality of operations or
clinical care. Our strategy is to continually seek to reduce
costs, improve efficiencies and provide employee incentives in
order to maximize our profitability.
Focus on Risk Management.
Through our risk management
staff, quality assurance staff and medical directors, we conduct
an aggressive risk management program for loss prevention and
early intervention. We have a proactive role in promoting early
reporting, evaluation and resolution of serious incidents that
may evolve into claims or suits. The risk management function is
designed to prevent or minimize medical professional liability
claims and includes:
•
incident reporting systems,
•
tracking/trending the cause of accidents and claims,
•
pre-hire risk testing and screening, semi-annual risk review for
    all providers,
•
risk management quality improvement programs,
•
physician education and service programs, including peer review
    and monitoring,
•
loss prevention information such as audio tapes and risk alert
    bulletins, and
•
early intervention of potential professional liability claims
    and pre-deposition review.
Pursue Selective Acquisitions.
Although we are the
largest provider of outsourced physician staffing and
administrative services in the U.S., based on revenues and
patient visits, our current market share is less than 10%. We
intend to acquire complementary businesses selectively in the
fragmented outsourcing market. We have successfully completed
and integrated four acquisitions in the period 2002-2004 for an
aggregate purchase price of approximately $21.3 million, as
well as the acquisition of a military staffing company in 2002.
Service Lines
We provide a full range of outsourced physician staffing and
administrative services in emergency medicine, inpatient
services, radiology, anesthesiology, pediatrics, and other
hospital-based functions. We also provide a full range of
healthcare management services to military treatment facilities
for the beneficiaries of U.S. military personnel through
the TRICARE program. In addition to physician related services
within a military treatment facility setting, we also provide
non-physician staffing services to military treatment
facilities, including such services as para-professional
providers, nursing, specialty technicians and administrative
staffing.
Emergency Department.
We are the largest provider of
outsourced physician staffing and administrative services for
hospital emergency departments in the United States, based upon
revenues and patient visits. We contract with the hospitals to
provide qualified emergency physicians and other healthcare
providers for their emergency departments. In addition to the
core services of contract management, recruiting, credentials
coordination, staffing and scheduling, we provide our client
hospitals with enhanced services designed to improve the
efficiency and effectiveness of the emergency department.
Specific programs like the Operational Assessment, Patient
Throughput Program, and 60 to 0 Door to Doc Program, apply
proven process improvement methodologies to departmental
operations. Physician documentation templates promote
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compliance with federal documentation guidelines, enhance
patient care and risk management and allow for more accurate
patient billing. By providing these enhanced services, we
believe we increase the value of services we provide to our
clients and improve client relations. Additionally, we believe
these enhanced services also differentiate us in sales
situations and improve the chances of being selected in a
competitive bidding process. As of June 30, 2005, we
independently contracted with or employed approximately 2,500
hospital emergency department physicians.
Inpatient Services.
We also provide physician staffing
and administrative functions for inpatient services, which
include hospitalist, intensivist, and house coverage services.
Our inpatient contracts with hospitals are generally on a
cost-plus or flat rate basis. As of June 30, 2005, we
independently contracted with or employed approximately 140
inpatient physicians.
Radiology.
We provide outsourced radiology physician
staffing and administrative services in the U.S., both on a
fee-for-service basis and a cost-plus basis. We contract
directly with radiologists to provide radiology physician
staffing and administrative services. A typical radiology
management team consists of clinical professionals,
board-certified radiologists that are trained in all modalities,
and non-clinical professionals and support staff that are
responsible for the scheduling, purchasing, billing and
collections functions. A component of our radiology business is
teleradiology support services. The customers for these services
are typically radiologists or radiology groups. The business
provides nighttime support to our customers from a centralized
reading location. As of June 30, 2005, we independently
contracted with or employed approximately 50 radiologists.
Anesthesiology.
We provide a wide range of management
services to anesthesia practices on a fee basis, including
strategic management, management information systems,
third-party payer contracting, financial and accounting support,
benefits administration and risk management, scheduling support,
operations management and quality improvement services using
proprietary anesthesia management practice software. We also
arrange for the provision of billing and other management
services on a management fee basis to anesthesia practices.
These services are organized under an operating unit called Team
Health Anesthesiology Management Services (THAMS). THAMS
currently provides management and/or billing services to 15
integrated anesthesia practices whose members number more than
600 providers. Overall, we are able to offer essential services
to anesthesia groups that enable them to focus on the clinical
practice of medicine while leaving the group's day-to-day
business management functions to us.
Pediatrics.
We provide outsourced pediatric physician
staffing and administrative services for general and pediatric
hospitals. These services include pediatric emergency medicine
and radiology, neonatal intensive care, pediatric intensive
care, urgent care centers, primary care centers, observation
units and inpatient services. We also operate seven after-hours
pediatric urgent care centers in Florida. We have experienced
growth of our contracts and net revenues less provision for
uncollectibles in our outsourced pediatric physician staffing
and administrative services business due primarily to new
contract sales and acquisitions, and, to a lesser extent, rate
increases on existing contracts. As of June 30, 2005, we
independently contracted with or employed approximately
120 pediatric physicians.
Temporary Staffing.
We provide temporary staffing (locum
tenens) of physicians and paraprofessionals to hospitals and
other healthcare organizations through our subsidiary Daniel and
Yeager, Inc. (D&Y). Specialties placed through D&Y
include anesthesiology, radiology and primary care among others.
Revenues from these services are generally derived from a
standard contract rate based upon the type of service provided.
Primary Care Clinics and Occupational Medicine.
We
provide primary care staffing and administrative services in
stand-alone primary care clinics and in clinics located within
the work-site of industrial clients. While such clinics are not
a primary focus of our business, they are complementary to our
hospital clients' interests. We generally contract with
hospitals or industrial employers to provide cost-effective,
high quality primary care physician staffing and administrative
services.
Other Non-Physician Staffing Services.
Other
non-physician staffing services, including such services as
nursing, specialty technician and administrative staffing are
provided primarily in military treatment facilities. These
services are currently provided on an hourly contract basis. Net
revenues less provision for
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uncollectibles derived from such non-physician staffing services
were approximately 12% of our revenues less provision for
uncollectibles in 2004.
Medical Call Center Services.
Through our subsidiary,
Access Nurse, we provide medical call center services to
hospitals, physician groups and managed care organizations. Our
24-hour medical call center is staffed by registered nurses and
specially trained telephone representatives with backup support
from board-certified, practicing physicians.
The services provided by Access Nurse include:
•
physician after-hours call coverage;
•
community nurse lines;
•
ED advice calls;
•
physician referral;
•
class scheduling;
•
appointment scheduling;
•
web response; and
•
nurse chat.
In addition, Access Nurse can provide for our emergency
department clients with outbound follow-up calls to patients who
have been discharged from the ED. We believe this service
results in increased patient satisfaction and decreased
liability for the hospital.
Access Nurse is one of the few call centers nationwide that is
accredited by URAC, an independent nonprofit organization that
provides accreditation and certification programs for call
centers.
Contractual Arrangements
We earn revenues from both fee-for-service arrangements and from
flat-rate or hourly contracts. Neither form of contract requires
any significant financial outlay, investment obligation or
equipment purchase by us other than the professional expenses
associated with obtaining and staffing the contracts.
Our contracts with hospitals generally have terms of three
years. Our present contracts with military treatment facilities
are generally for one year. Both types of contracts often
include automatic renewal options under similar terms and
conditions unless either party gives notice of an intent not to
renew. Despite the fact that most contracts are terminable by
either party upon notice of as little as 30 days, the
average tenure of our existing hospital contracts is
approximately eight years. The termination of a contract is
usually due to either an award of the contract to another
staffing provider as a result of a competitive bidding process
or termination of the contract by us due to a lack of an
acceptable profit margin on fee-for-service patient volumes
coupled with inadequate contract subsidies. Less frequently,
contracts may be terminated as a result of a hospital facility
closing due to facility mergers or a hospital attempting to
insource the service being provided by us.
Hospitals.
We provide outsourced physician staffing and
administrative services to hospitals under fee-for-service
contracts and flat-rate contracts. Hospitals entering into
fee-for-service contracts agree, in exchange for granting
exclusivity to us for such services, to authorize us to bill and
collect the professional component of the charges for such
professional services. Under the fee-for-service arrangements,
we bill patients and third party payers for services rendered.
Depending on the underlying economics of the services provided
to the hospital, including its payer mix, we may also receive
supplemental revenue from the hospital. In a fee-for-service
arrangement, we accept responsibility for billing and
collections.
Under flat-rate contracts, the hospital performs the billing and
collection services of the professional component and assumes
the risk of collectibility. In return for providing the
physician staffing and administrative services, the hospital
pays us a contractually negotiated fee, often on an hourly basis.
Military Treatment Facilities.
Our present contracts to
provide staffing for military treatment facilities provide such
staffing on an hourly or fee basis.
Physicians.
We contract with physicians as independent
contractors or employees to provide services to fulfill our
contractual obligations to our hospital clients. We typically
pay physicians: (1) an hourly rate for each hour of
coverage provided at rates comparable to the market in which
they work; (2) a relative value unit, or RVU, based
payment, or (3) a combination of both a fixed rate and an
RVU-based component. The
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hourly rate varies depending on whether the physician is
independently contracted or an employee. Independently
contracted physicians are required to pay a self-employment tax,
social security, and workers' compensation insurance
premiums. In contrast, we pay these taxes and expenses for
employed physicians.
Our contracts with physicians generally have
"evergreen" provisions and can be terminated at any
time under certain circumstances by either party without cause,
typically upon 180 days notice. In addition, we generally
require physicians to sign non-compete and non-solicitation
agreements. Although the terms of our non-compete agreements
vary from physician to physician, they generally have terms of
two years after the termination of the agreement. We also
generally require our employed physicians to sign similar
non-compete agreements. Under these agreements, the physician is
restricted from divulging confidential information, soliciting
or hiring our employees and physicians, inducing termination of
our agreements and competing for and/or soliciting our clients.
As of June 30, 2005, we had working relationships with
approximately 2,800 physicians, of which approximately 2,300
were independently contracted. See "Risk
Factors — Risks Related to Our Business — We
may not be able to successfully recruit and retain qualified
physicians to serve as our independent contractors or
employees."
Other Healthcare Professionals.
We provide
para-professionals, nurses, specialty technicians and
administrative support staff on a long-term contractual basis to
military treatment facilities. These healthcare professionals
under our current military staffing contracts are compensated on
an hourly or fee basis. As of June 30, 2005, we employed or
contracted with approximately 2,900 other healthcare
professionals.
Services
We provide a full range of outsourced physician and
non-physician healthcare professional staffing and
administrative services including the following:
Contract Management.
Our delivery of services for a
clinical area of a healthcare facility is led by an experienced
contract management team of clinical and other healthcare
professionals. The team includes a regional medical director, an
on-site medical director and a client services manager. The
on-site medical director is a physician with the primary
responsibility of managing the physician component of a clinical
area of the facility. The medical director works with the team,
in conjunction with the nursing staff and private medical staff,
to improve clinical quality and operational effectiveness.
Additionally, the medical director works closely with the
regional operating unit's operations staff to meet the
client's ongoing recruiting and staffing needs.
Staffing.
We provide a full range of staffing services to
meet the unique needs of each healthcare facility. Our dedicated
clinical teams include qualified, career-oriented physicians and
other healthcare professionals responsible for the delivery of
high quality, cost-effective care. These teams also rely on
managerial personnel, many of whom have clinical experience, who
oversee the administration and operations of the clinical area.
As a result of our staffing services, healthcare facilities can
focus their efforts on improving their core business of
providing healthcare services for their communities as opposed
to recruiting and managing physicians. We also provide temporary
staffing services of physicians and other healthcare
professionals to healthcare facilities on a national basis.
Recruiting.
Many healthcare facilities lack the resources
necessary to identify and attract specialized, career-oriented
physicians. We have a staff of approximately 68 professionals
dedicated to the recruitment of qualified physicians and other
clinicians. These professionals are regionally located and focus
on matching qualified, career-oriented physicians with
healthcare facilities. Common recruiting methods include the use
of our proprietary national physician database, attendance at
trade shows, the placement of website and professional journal
advertisements and telemarketing efforts.
We have committed significant resources to the development of a
proprietary national physician database to be shared among our
regional operating units. This database is utilized at all of
our operating units. The database uses the American Medical
Association master file, which contains more than 690,000
physicians as the initial data source on potential candidates.
Recruiters contact prospects through telemarketing, direct mail,
conventions, journal advertising and our Internet site to
confirm and update physicians' information. Prospects
expressing interest in one of our practice opportunities then
provide more extensive background on their training, experience,
and references, all of which is added to our database. Our goal
is to ensure that the practitioner is a good match with both the
facility and the community before proceeding with an interview.
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Credentials Coordination.
We gather primary source
information regarding physicians to facilitate the review and
evaluation of physicians' credentials by the healthcare
facility.
Scheduling.
Our scheduling department assists the on-site
medical directors in scheduling physicians and other healthcare
professionals within the clinical area on a monthly basis.
Payroll Administration and Benefits.
We provide payroll
administration services for the physicians and other healthcare
professionals with whom we contract. Our clinical employees
benefit significantly from our ability to aggregate physicians
and other healthcare professionals to negotiate more favorable
employee benefit packages and to provide professional liability
coverage at lower rates than many hospitals or physicians could
negotiate individually. Additionally, healthcare facilities
benefit from the elimination of the overhead costs associated
with the administration of payroll and, where applicable,
employee benefits.
Information Systems.
We have invested in advanced
information systems and proprietary software packages designed
to assist hospitals in lowering administrative costs while
improving the efficiency and productivity of a clinical area.
These systems include TeamWorks™, our national physician
database and software package that facilitates the recruitment
and retention of physicians and supports our contract
requisition, credentials coordination, automated application
generation, scheduling and payroll operations.
While the entering of patient data remains principally manual in
nature, the strength of our IDX Billing System and other
information systems has enhanced our ability to properly collect
patient payments and reimbursements in an orderly and timely
fashion and has increased our billing and collections
productivity. As a result of our investments in information
systems and the company-wide application of best practices
policies, we believe our average cost per patient billed and
average recruiting cost per physician and other healthcare
professionals are among the lowest in the industry.
Billing and Collections.
Our billing and collection
services are a critical component of our business. Excluding the
military staffing business, which has its own proprietary
billing processes, our billing and collections operations are
conducted through five billing facilities and operate on a
uniform billing system — the IDX software system. The
IDX system is a powerful billing and accounts receivable
software package with comprehensive reporting capabilities. We
maintain within our IDX billing system fee schedules that vary
for the level of care rendered. In addition, within our IDX
billing system we maintain contractually agreed upon allowances
(in the case of commercial and managed care insurance payers)
and reimbursement policy parameters (in the case of governmental
payers) to allow us to bill such payers at levels that are less
than the gross charges resulting from our fee schedules. Our IDX
billing system calculates the contractual allowances at the time
of processing of third-party payer remittances. The contractual
allowance calculation within the IDX system is used principally
to determine the propriety of subsequent third-party payer
payments. The nature of emergency care services and the
requirement to treat all patients in need of such care and often
times under circumstances where complete and accurate billing
information is not readily available at the time of discharge,
precludes the use of the IDX system to accurately determine
contractual allowances for financial reporting purposes. As a
result, management estimates net revenues less provision for
uncollectibles, which is our revenue estimated to be collected
after considering our contractual allowance obligations and our
estimates of doubtful accounts, as further discussed in detail
in the "Management's Discussion and Analysis of
Financial Condition and Results of Operation" section of
this prospectus.
We have interfaced a number of other software systems with the
IDX system to further improve productivity and efficiency.
Foremost among these is an electronic registration interface
that has the capability to gather registration information
directly from a hospital's management information system.
Additionally, we have invested in electronic submission of
claims, as well as electronic remittance posting. These programs
have resulted in lower labor and postage expenses. At the
present time, approximately 97% of over six million
fee-for-service annual patient visits are processed by one of
the five billing facilities.
We also operate an internal collection agency. Substantially all
collection placements generated from our billing facilities are
sent to the agency. Comparative analysis has shown that the
internal collection agency is more cost effective than the use
of outside agencies and has improved the collectibility of
existing placements. Our advanced comprehensive billing and
collection systems allow us to have full control of accounts
receivable at each step of the process.
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Risk Management.
Through our risk management staff,
quality assurance staff and our medical directors, we conduct an
aggressive risk management program for loss prevention and early
intervention. We are proactive in promoting early reporting,
evaluation and resolution of serious incidents that may evolve
into claims or suits. Our risk management function is designed
to prevent or minimize medical professional liability claims and
includes:
•
incident reporting systems through which we monitor errors that
    may potentially become claims,
•
tracking/trending the cause of errors and claims looking for
    preventable sources of erroneous medical treatment or
    decision-making,
•
pre-hire risk assessment and screening and semi-annual risk
    review for all providers seeking to offer hospitals the
    highest-quality physicians,
•
risk management quality improvement programs providing clinical
    guidelines for consideration by the clinician,
•
physician education and service programs, including peer review
    and monitoring and the provision of approximately
    100,000 hours of continuing medical education in 2004,
•
loss prevention information via audio tapes and risk alert
    bulletins enabling providers to review current topics in medical
    care at their convenience, and
•
early intervention of potential professional liability claims
    and pre-deposition review to minimize negative outcomes in
    malpractice cases.
In addition, we are in the process of converting our risk
management database over to the STARS 8.5 Risk Management
Information System (RMIS). The STARS system is one of the most
comprehensive RMIS on the market, and will be used to enhance
our physician risk management assessments, malpractice
claims/litigation management, and the analysis of claims data to
identify loss patterns/trends. Claim and serious event data will
be linked with provider profile data to benchmark the
provider's loss performance. The collection and analysis of
claims data will enable us to identify the actual cause of
losses, and target risk management intervention to proactively
address potential liability exposures.
Continuing Medical Education Services.
The Team Health
Institute for Education and Patient Safety is fully accredited
by the Accreditation Council for Continuing Medical Education.
This allows us to grant our physicians and nurses continuing
medical education credits for both externally and internally
developed educational programs at a lower cost than if such
credits were earned through external programs. In addition to
providing life support certification courses, we have designed a
series of client support seminars entitled
Successful
Customer Relations and Beyond Clinical Competence
for
physicians, nurses and other personnel to learn specific
techniques for becoming effective communicators and delivering
top-quality customer service. These seminars help the clinical
team sharpen its customer service skills, further develop
communication skills and provide techniques to help deal with
people in many critical situations.
Consulting Services.
We have a long history of providing
outsourced physician staffing and administrative services to
healthcare facilities and, as a result, have developed extensive
knowledge in the operations of certain areas of the facilities
we service. As such, we provide consulting services to
healthcare facilities to improve the productivity, quality and
cost of care delivered by them. These services include:
•
Process Improvement.
We have developed a number of
    utilization review programs designed to track patient flow and
    identify operating inefficiencies. To rectify such
    inefficiencies, we have developed a Fast Track system to
    expedite patient care in the hospital emergency department and
    urgent care center by separating patients who can be treated in
    a short period of time from patients who have more serious or
    time-consuming problems. Fast Track patients, once identified
    through appropriate triage categorization, are examined and
    treated in a separate area of the hospital emergency department
    or urgent care center, controlled by its own staff and
    operational system. We have substantial experience in all phases
    of development and management of Fast Track programs, including
    planning, equipping, policy and procedure development, and
    staffing. In addition, we employ
    WaitLoss
tm
,
    a proprietary process improvement system designed to assist the
    hospital in improving the efficiency and productivity of a
    department.
•
Quality Improvement.
We provide a quality improvement
    program designed to assist a healthcare facility in maintaining
    a consistent level of high quality care. We periodically measure
    the
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performance of the healthcare facility, based on a variety of
    benchmarks, including patient volume, quality indicators and
    patient satisfaction. This program is typically integrated into
    our process improvement program to ensure seamless delivery of
    high quality, cost-effective care.
•
Managed Care Contracting.
We have developed extensive
    knowledge of the treatment protocols and related documentation
    requirements of a variety of managed care payers. As a result,
    we often participate in the negotiation of managed care
    contracts to make those managed care relationships effective for
    patients, payers, physicians and hospitals. We provide managed
    care consulting services in the areas of contracting,
    negotiating, reimbursement analysis/projections, payer/hospital
    relations, communications and marketing. We have existing
    managed care agreements with health maintenance organizations,
    preferred provider organizations and integrated delivery systems
    for commercial, Medicaid and Medicare products. While the
    majority of our agreements with payers continue to be
    traditional fee-for-service contracts, we are experienced in
    providing managed, prepaid healthcare to enrollees of managed
    care plans.
•
Nursing Services.
We maintain highly regarded,
    experienced nurse consultants on our client support staff. These
    nurse consultants provide assistance to nurse managers and
    medical directors of the client healthcare facility on a variety
    of issues, including risk management and overall performance
    improvement. In addition, the nurse consultants are available to
    make site visits to client facilities on request to assess
    overall operations, utilization of personnel and patient flow.
Sales and Marketing
Contracts for outsourced physician staffing and administrative
services are generally obtained either through direct selling
efforts or requests for proposals. We have a team of eight sales
professionals located throughout the country. Each sales
professional is responsible for developing sales and acquisition
opportunities for the operating unit in their territory. In
addition to direct selling, the sales professionals are
responsible for working in concert with the regional operating
unit president and corporate development personnel to respond to
a request for proposal or take other steps to develop new
business relationships.
Although practices vary, healthcare facilities generally issue a
request for proposal with demographic information of the
facility department, a list of services to be performed, the
length of the contract, the minimum qualifications of bidders,
the selection criteria and the format to be followed in the bid.
Supporting the sales professionals is a fully integrated
marketing campaign comprised of a telemarketing program,
Internet website, journal advertising, and a direct mail and
lead referral program.
Operations
We currently operate through eight operating units with
management located at thirteen regional sites. Our regional
sites are listed in the table below. The operating units are
managed semi-autonomously, in most cases by senior physician
leaders, and are operated as profit centers with the
responsibility for pricing new contracts, recruiting and
scheduling physicians and other healthcare professionals,
marketing locally and
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conducting day-to-day operations. The management of corporate
functions such as accounting, payroll, billing and collection,
capital spending, information systems and legal are centralized.
Name
Location
Principal Service Lines
After Hours Pediatrics
Tampa, FL
Pediatrics
Daniel and Yeager
Huntsville, AL
Locum Tenens
Emergency Coverage Corporation
Knoxville, TN
Emergency Department
Emergency Physician Associates
Woodbury, NJ
Emergency Department
Emergency Professional Services
Middleburg Heights, OH
Emergency Department
Health Care Financial Services
Plantation, FL
Billing
InPhyNet Medical Management
Ft. Lauderdale, FL
Emergency Department
Northwest Emergency Physicians
Seattle, WA
Emergency Department
Spectrum Healthcare Resources
St. Louis, MO
Military Staffing
Southeastern Emergency Physicians
Knoxville, TN
Emergency Department
Team Health Anesthesia Management Services
Knoxville, TN
Anesthesiology
Team Health West
Pleasanton, CA
Emergency Department
Team Radiology
Knoxville, TN
Radiology
We require the physicians with whom we contract to obtain
professional liability insurance coverage. For both our
independently contracted and employed physicians, we typically
arrange the provision of claims-made coverage with per incident
and annual aggregate per physician limits and per incident and
annual aggregate limits for all corporate entities. These limits
are deemed appropriate by management based upon historical
claims, the nature and risks of the business and standard
industry practice.
Beginning in 2003, we began providing for a significant portion
of our professional liability loss exposures through the use of
a captive insurance company and through greater utilization of
self-insurance reserves. We base a substantial portion of our
provision for professional liability losses on periodic
actuarial estimates of such losses for periods subsequent to
March 11, 2003. An independent actuary firm is responsible
for preparation of the periodic actuarial studies.
We are usually obligated to arrange for the provision of
"tail" coverage for claims against our physicians for
incidents that are incurred but not reported during periods for
which the related risk was covered by claims-made insurance.
With respect to those physicians for whom we are obligated to
provide tail coverage, we accrue professional insurance expenses
based on estimates of the cost of procuring tail coverage.
We also maintain general liability, vicarious liability,
automobile liability, property and other customary coverages in
amounts deemed appropriate by management based upon historical
claims and the nature and risks of the business.
Employees
As of June 30, 2005, we had approximately 5,700 employees,
of which approximately 3,400 were physicians and other
clinicians, with remaining employees working in billing and
collections, operations and administrative support functions.
Our employees are not covered by any labor agreements nor are
they affiliated with any unions.
Competition
The market for outsourced emergency department staffing and
related management services is highly fragmented, with more than
800 national, regional and local providers handling over
113.9 million patient visits in 2003. There are more than
3,900 hospitals in the United States with emergency
departments, of which 67% currently outsource physician
services. Of these hospitals that outsource, we believe
approximately 50% contract with a local provider, 25% contract
with a regional provider and 25% contract with a national
provider.
Emergency Medical Services Corporation has the second largest
share of the emergency department services market based upon
revenues. Other national providers of outsourced emergency
department services
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include Sterling Healthcare, National Emergency Service and the
Schumacher Group, all of which tend to focus on hospitals with
low to medium volume emergency departments.
Regulatory Matters
General.
As a participant in the healthcare industry, our
operations and relationships with healthcare providers such as
hospitals are subject to extensive and increasing regulations by
numerous federal and state governmental entities as well as
local governmental entities. The management services provided by
us under contracts with hospitals and other clients include:
•
the identification and recruitment of physicians and other
    healthcare professionals for the performance of emergency
    medicine, radiology and other services at hospitals, outpatient
    imaging facilities and other facilities,
•
utilization and review of services and administrative overhead,
•
scheduling of staff physicians and other healthcare
    professionals who provide clinical coverage in designated areas
    of healthcare facilities, and
•
administrative services such as billing and collection of fees
    for professional services.
All of the above services are potentially subject to scrutiny
and review by federal, state and local governmental entities and
are subject to the rules and regulations promulgated by these
governmental entities. Specifically, but without limitation, the
following laws and regulations may affect our operations and
contractual relationships.
State Laws Regarding Prohibition of Corporate Practice of
Medicine and Fee Splitting Arrangements.
We currently
provide outsourced physician staffing and administrative
services to healthcare facilities in 44 states. The laws
and regulations relating to our operations vary from state to
state. The laws of many states, prohibit general business
corporations, such as us, from practicing medicine, controlling
physicians' medical decisions or engaging in some practices
such as splitting professional fees with physicians. The laws of
other states, including Florida, do not prohibit non-physician
entities from practicing medicine but may retain a ban on some
types of fee splitting arrangements. In 2004, we derived
approximately 18% of our net revenues less provision for
uncollectibles from services rendered in the state of Florida.
While we seek to comply substantially with existing applicable
laws relating to the corporate practice of medicine and fee
splitting, we cannot assure you that our existing contractual
arrangements, including non-competition agreements with
physicians, professional corporations and hospitals will not be
successfully challenged in certain states as unenforceable or as
constituting the unlicensed practice of medicine or prohibited
fee-splitting.
Debt Collection Regulation.
Some of our operations are
subject to compliance with the Fair Debt Collection Practices
Act and comparable statutes in many states. Under the Fair Debt
Collection Practices Act, a third-party collection company is
restricted in the methods it uses in contacting consumer debtors
and eliciting payments with respect to placed accounts.
Requirements under state collection agency statutes vary;
however, most require compliance similar to that required under
the federal Fair Debt Collection Practices Act. We believe that
we are in substantial compliance with the federal Fair Debt
Collection Practices Act and comparable state statutes.
Anti-Kickback Statutes.
We are subject to the federal
healthcare fraud and abuse laws including the federal
anti-kickback statute. The federal anti-kickback statute at
section 1128B(b) of the Social Security Act, or SSA,
("Anti-Kickback Statute") prohibits the knowing and
willful offering, payment, solicitation or receipt of any bribe,
kickback, rebate or other remuneration in return for referring
an individual to a person for the furnishing (or arranging for
the furnishing) of any item or service, or in return for the
purchasing, leasing, ordering, or arranging for or recommending
the purchasing, leasing, or ordering of any good, facility,
service, or item for which payment may be made, in whole or in
part, by a federal healthcare program. These fraud and abuse
laws define federal healthcare programs to include plans and
programs that provide health benefits, whether directly, through
insurance, or otherwise, which are funded directly by the United
States government or any state healthcare program. These
programs include Medicare and Medicaid, and TRICARE (formerly
the Civilian Health and Medical Program of the Uniformed
Services), among others. Violations of the Anti-Kickback statute
may result in civil and criminal penalties and exclusion from
participation in federal and state healthcare programs.
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As authorized by Congress, the United States Department of
Health and Human Services has issued "safe harbor"
regulations which describe some of the conduct and business
relationships immune from prosecution under the Anti-Kickback
Statute. The fact that a given business arrangement does not
fall within one of these "safe harbor" provisions does
not render the arrangement illegal, but business arrangements of
healthcare service providers that fail to satisfy the applicable
safe harbor criteria are reviewed based upon a facts and
circumstances analysis to determine whether a violation may have
occurred. Some of the financial arrangements that we may
maintain may not meet all of the requirements for safe harbor
protection. The authorities that enforce the Anti-Kickback
Statute may in the future determine that one or more of these
financial arrangements violate the Anti-Kickback Statute or
other federal or state laws. A determination that a financial
arrangement violates the Anti-Kickback Statute could subject us
to liability under the Social Security Act, including criminal
and civil penalties, as well as exclusion from participation in
government programs such as Medicare and Medicaid or other
federal healthcare programs. In addition, an increasing number
of states in which we operate have laws that prohibit some
direct or indirect payments, similar to the anti-kickback
statute, if those payments are designed to induce or encourage
the referral of patients to a particular provider. Possible
sanctions for violation of these restrictions include exclusion
from state funded healthcare programs, loss of licensure, and
civil and criminal penalties. Statutes vary from state to state,
are often vague, and have seldom been interpreted by courts or
regulatory agencies.
In order to obtain additional clarification on the federal
Anti-Kickback statute, a provider can obtain written
interpretative advisory opinions from the Department of Health
and Human Services, or HHS, regarding existing or contemplated
transactions. Advisory opinions are binding as to the Department
of Health and Human Services but only with respect to the
requesting party or parties. The advisory opinions are not
binding as to other governmental agencies, e.g., the Department
of Justice, and certain matters (e.g., whether certain payments
made in conjunction with conduct seeking to meet certain safe
harbor protection are at fair market value) are not within the
purview of an advisory opinion.
In 1998, the Office of Inspector General, or OIG, of HHS issued
an advisory opinion in which it concluded that a proposed
management services contract between a medical practice
management company and a physician practice, which provided that
the management company would be reimbursed for the fair market
value of its operating services and its costs and paid a
percentage of net practice revenues, may constitute illegal
remuneration under the federal Anti-Kickback statute. The
OIG's analysis focused on the marketing activities
conducted by the management company and concluded that the
management services arrangement described in the advisory
opinion included financial incentives to increase patient
referrals, contained no safeguards against over utilization, and
included financial incentives that increased the risk of abusive
billing practices. We believe that our contractual relationships
with hospitals and physicians are distinguishable from the
arrangement described in this advisory opinion with regard to
both the types of services provided and the risk factors
identified by the Inspector General. We provide outsourced
physician staffing and administrative services to hospitals and
other healthcare providers through contractual arrangements with
physicians and hospitals. In some instances, we may enter into a
contractual arrangement that provides that, as compensation for
staffing a hospital department, we will receive a percentage of
charges generated by the physician services rendered to patients
seeking treatment in that department. However, the nature of our
business distinguishes us from the management company in the
advisory opinion. We do not perform marketing or any other
management services for the hospital or the physicians by which
we can influence the number of patients who seek treatment at
the hospital department and thereby increase the compensation
received by us from the hospital or paid by us to physicians.
Additionally, in any percentage compensation arrangement we have
with a hospital, the compensation paid to us by that hospital
takes into account only the professional services rendered by
our physicians and does not contain financial incentives to
increase the referrals of patients by our physicians to the
hospital for hospital services. Nevertheless, we cannot assure
you that HHS will not be able to successfully challenge our
arrangements under the federal Anti-Kickback statute in the
future.
Physician Self-Referral Laws.
Our contractual
arrangements with physicians and hospitals may implicate the
federal physician self-referral statute commonly known as
Stark II. In addition, a number of the states in which we
operate have similar prohibitions on physician self-referrals.
In general, these state prohibitions track Stark II's
prohibitions and exceptions. Stark II prohibits the
referral of Medicare and (in
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certain contexts) Medicaid patients by a physician to an entity
for the provision of particular "designated health
services" if the physician or a member of such
physician's immediate family has a "financial
relationship" with the entity.
Stark II provides that the entity which renders the
"designated health services" may not present or cause
to be presented a claim for "designated health
services" furnished pursuant to a prohibited referral. A
person who engages in a scheme to circumvent
Stark II's prohibitions may be fined up to $100,000
for each applicable arrangement or scheme. In addition, anyone
who presents or causes to be presented a claim in violation of
Stark II is subject to payment denials, mandatory refunds,
monetary penalties of up to $15,000 per service, an
assessment of up to three times the amount claimed, and possible
exclusion from participation in federal healthcare programs.
The term "designated health services" includes
services commonly performed or supplied by hospitals (including
inpatient and outpatient hospital services) or medical clinics
to which we provide physician staffing. In addition, the term
"financial relationship" is broadly defined to include
any direct or indirect ownership or investment interest or
compensation arrangement. There are a number of exceptions to
the self-referral prohibition, including exceptions for many of
the customary financial arrangements between physicians and
providers, such as employment contracts, leases, professional
services agreements, non-cash gifts having a value less than
$300 and recruitment agreements. On January 4, 2001, the
Centers for Medicare & Medicaid Services, or CMS,
issued a final rule, subject to a comment period, intended to
clarify parts of the Stark Law and some of the exceptions to it.
The majority of the regulations contained in this rule became
effective on or before January 4, 2002. On March 26,
2004, CMS issued an interim final rule subject to a comment
period intended to clarify the remaining portions of the Stark
Law. These rules, known as "phase two" of the Stark
Law rulemaking, became effective July 26, 2004.
While these phase two rules help clarify the requirements of the
exceptions to the Stark Law, it is difficult to determine fully
their effect until the government begins enforcement of the
rules. Evolving interpretations of current laws and regulations,
or the adoption of new federal or state laws or regulations,
could affect many of the arrangements entered into by each of
the hospitals with which we contract. In addition, courts,
Congress, and law enforcement authorities, including the OIG,
are increasing the scrutiny of arrangements between healthcare
providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to improperly pay
for patient referrals and/or other business.
Additionally, we are subject to state statutes and regulations
that prohibit, among other things, payments for referral of
patients and referrals by physicians to healthcare providers
with whom the physicians have a financial relationship.
Violations of these state laws may result in prohibition of
payment for services rendered, loss of licenses, fines, and
criminal penalties. State statutes and regulations also may
require physicians or other healthcare professionals to disclose
to patients any financial relationship the physicians or
healthcare professionals have with a healthcare provider that is
recommended to the patients. These laws and regulations vary
significantly from state to state, are often vague, and, in many
cases, have not been interpreted by courts or regulatory
agencies. Exclusions and penalties, if applied to us, could
result in significant loss of reimbursement to us, thereby
significantly affecting our financial condition.
Other Healthcare Fraud and Abuse Laws.
For example,
section 1128B(a)(3) of SSA imposes criminal liability on
individuals who or entities which, having knowledge of the
occurrence of any event affecting their initial or continued
right to a benefit or payment under a Federal health program, or
the initial or continued right to any such benefit or payment of
any other individual in whose behalf they have applied for or
are receiving such benefit or payment, conceal or fail to
disclose such event with an intent fraudulently to secure such
benefit or payment either in a greater amount or quantity than
is due or when no such benefit or payment is authorized. A
violation of this section by a healthcare provider is a felony,
and may result in fines up to $25,000 and exclusion from
participation in federal healthcare programs.
The federal Civil False Claims Act imposes civil liability on
individuals and entities that submit or cause to be submitted
false or fraudulent claims for payment to the government.
Violations of the Civil False Claims Act may include treble
damages and penalties of up to $11,000 per false or
fraudulent claim.
In addition to actions being brought under the Civil False
Claims Act by government officials, the False Claims Act also
allows a private individual with direct knowledge of fraud to
bring a "whistleblower" or qui
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tam suit on behalf of the government against a healthcare
provider for violations of the Civil False Claims Act. In that
event, the whistleblower is responsible for initiating a lawsuit
that sets in motion a chain of events that may eventually lead
to the recovery of money by the government. After the
whistleblower has initiated the lawsuit, the government must
decide whether to intervene in the lawsuit and to become the
primary prosecutor. In the event the government declines to join
the lawsuit, the whistleblower plaintiff may choose to pursue
the case alone, in which case the whistleblower will have
primary control over the prosecution, although the government
must be kept apprised of the progress of the lawsuit and will
still receive at least 70% of any recovered amounts. In return
for bringing a whistleblower suit on the government's
behalf, the whistleblower plaintiff receives a statutory amount
of up to 30% of the recovered amount from the government's
litigation proceeds if the litigation is successful. Recently,
the number of whistleblower suits brought against healthcare
providers has increased dramatically.
In addition to the federal Civil False Claims Act, eleven states
and the District of Columbia have enacted false claims laws that
allow these jurisdictions to recover money which was
fraudulently obtained by a healthcare provider from the
jurisdiction, such as Medicaid funds provided by the state.
In addition to the Civil False Claims Act, under the Health
Insurance Portability and Accountability Act of 1996, or HIPAA,
there are five additional federal criminal statutes:
"Healthcare fraud," "False statements relating to
healthcare matters," "Theft or embezzlement in
connection with healthcare," "Obstruction of criminal
investigations of healthcare offenses," and
"Laundering of monetary instruments." These HIPAA
criminal statutes ostensibly encompass fraud against private
payers. Violations of these statutes constitute felonies and may
result in fines, imprisonment, and/or exclusion from
government-sponsored programs. The "healthcare fraud"
provisions of HIPAA prohibit knowingly and willfully executing a
scheme or artifice to defraud any healthcare benefit program,
including private payers. The "false statements"
provisions of HIPAA prohibit knowingly and willfully falsifying,
concealing or covering up a material fact by any trick, scheme
or device or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or
payment for healthcare benefits, items or services.
In addition to criminal and civil monetary penalties, healthcare
providers that are found to have defrauded the federal
healthcare programs may be excluded from participation in these
programs. Providers that are excluded are not entitled to
receive payment under Medicare, or other federal healthcare
programs for items or services provided to program
beneficiaries. Exclusion for a minimum of five years is
mandatory for a conviction with respect to the delivery of a
healthcare item or service. The presence of aggravating
circumstances in a case can lead to a longer period of
exclusion. The OIG also has the discretion to exclude providers
for certain conduct even absent a criminal conviction. Such
conduct includes participation in a fraud scheme, the payment or
receipt of kickbacks, and failing to provide services of a
quality that meets professionally recognized standards.
The federal government has made a policy decision to
significantly increase the financial resources allocated to
enforcing the general fraud and abuse laws. In addition, private
insurers and various state enforcement agencies have increased
their level of scrutiny of healthcare claims in an effort to
identify and prosecute fraudulent and abusive practices in the
healthcare area. We are subject to these increased enforcement
activities and may be subject to specific subpoenas and requests
for information.
Administrative Simplification.
HIPAA mandates the
adoption of standards for the exchange of electronic health
information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of
the healthcare industry. Ensuring privacy and security of
patient information was one of the key factors behind the
legislation.
In August 2000, HHS issued final regulations establishing
electronic data transmission standards that healthcare providers
must use when submitting or receiving certain healthcare data
electronically. Most affected entities, including us, were
required to comply with these regulations by October 16,
2002 or request an extension to comply with these regulations by
October 16, 2003 from CMS. We received confirmation from
CMS of CMS's receipt of our request and were therefore
required to comply with these regulations by October 16,
2003. We have completed the necessary actions to comply with
these new standards and are ready to convert electronic data
into this new format as carriers notify us of their ability to
accept the format.
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In December 2000, HHS issued final regulations concerning the
privacy of healthcare information which were subsequently
clarified in August 2002. These regulations regulate the use and
disclosure of individuals' healthcare information, whether
communicated electronically, on paper or verbally. Most affected
entities, including us, were required to comply with these
regulations by April 2003. The regulations also provide patients
with significant new rights related to understanding and
controlling how their health information is used or disclosed.
We have entered into business associate agreements with our
affiliated providers, including physicians, hospitals and other
covered entities, and have entered into business associate
agreements with our vendors and believe we are in substantial
compliance with the final regulations concerning the privacy of
healthcare information.
In February 2003, CMS issued final regulations concerning the
security of electronic protected healthcare information and
data. These regulations mandate the use of certain
administrative, physical and technical safeguards to protect the
confidentiality, integrity, and availability of electronic
protected healthcare information. Most affected entities,
including us, were required to comply with these regulations by
April 21, 2005. We believe we are currently in compliance
with the regulations.
In April 2003, CMS issued interim final regulations relating to
the enforcement and imposition of penalties on entities that
violate the HIPAA administrative simplification standards. These
regulations are the first installment of enforcement regulations
which, when issued in complete form, will set forth procedural
and substantive requirements for the enforcement and imposition
of penalties under HIPAA. Sanctions under the statute include
criminal penalties and civil sanctions. We have established a
plan and engaged the resources necessary to comply with the
administrative simplification requirements of HIPAA. At this
time, we believe our operations are currently conducted in
substantial compliance with these HIPAA requirements. Based on
the existing and proposed administrative simplification HIPAA
regulations, we believe that the cost of our compliance with
HIPAA will not have a material adverse effect on our business,
financial condition, or results of operations.
Related Laws and Guidelines.
Because we perform services
at hospitals, outpatient facilities and other types of
healthcare facilities, we and our affiliated physicians may be
subject to laws, which are applicable to those entities. For
example, our operations are impacted by the Emergency Medical
Treatment and Active Labor Act of 1986 which prohibits
"patient dumping" by requiring hospitals and hospital
emergency department physicians or urgent care center physicians
to provide care to any patient presenting to the hospital's
emergency department or urgent care center in an emergent
condition regardless of the patient's ability to pay. Many
states in which we operate have similar state law provisions
concerning patient dumping.
In addition to the Emergency Medical Treatment and Active Labor
Act of 1986 and its state law equivalents, significant aspects
of our operations are subject to state and federal statutes and
regulations governing workplace health and safety, dispensing of
controlled substances and the disposal of medical waste. Changes
in ethical guidelines and operating standards of professional
and trade associations and private accreditation commissions
such as the American Medical Association and the Joint
Commission on Accreditation of Healthcare Organizations may also
affect our operations. We believe our operations as currently
conducted are in substantial compliance with these laws and
guidelines.
Properties
We lease approximately 38,000 square feet at 1900 Winston
Road, Knoxville, Tennessee for our corporate headquarters. We
also lease or sublease facilities for the operations of the
clinics, billing centers, and certain regional operations. We
believe our present facilities are adequate to meet our current
and projected needs. The leases and subleases have various terms
primarily ranging from one to ten years and monthly rents
ranging from approximately $1,000 to $55,000. Our aggregate
monthly lease payments total approximately $670,000. We expect
to be able to renew each of our leases or to lease comparable
facilities on terms commercially acceptable to us.
Legal Proceedings
We are currently a party to various legal proceedings, including
those noted below. While we currently believe that the ultimate
outcome of such proceedings, individually and in the aggregate,
will not have a material adverse effect on our financial
position or overall trends in results of operations, litigation
is subject to inherent uncertainties. If an unfavorable ruling
were to occur, there exists the possibility of a material
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adverse impact on our net earnings in the period in which the
ruling occurs. The estimate of the potential impact from such
legal proceedings on our financial position or overall results
of operations could change in the future.
On March 30, 2004, we received a subpoena from the
Department of HHS Office of Inspector General, or OIG, located
in Concord, California, requesting certain information for the
period 1999 to present relating to our billing practices. To
date, we have produced and delivered to the OIG and the
Department of Justice certain requested information. We have
learned that the basis for the issuance of the subpoena is a
complaint filed in the United States District Court for the
Northern District of California by an individual on behalf of
the government. The identity of the qui tam relator and portions
of the qui tam complaint remain sealed by the Court pending the
government's investigation. The portions of the complaint
not under seal allege that we engaged in certain billing
practices that resulted in our receipt of duplicate payments for
the same medical service and that we misled certain providers
about the entities that were performing their billing services.
Additionally, the portions of the complaint not under seal
allege that we terminated the employment of the individual who
filed the complaint in retaliation for that individual's
bringing of these allegations to our attention. We deny these
allegations and do not believe that any of our current or prior
billing practices would form the basis for a violation of
federal law.
We are fully cooperating with the federal authorities in the
request described herein and have been producing and delivering
to the federal authorities the requested documents. However, due
to lack of more specific information available to us at this
time, we are unable to ascertain the full scope of the
government's inquiry or the qui tam relator's
complaint. Since cooperating with the federal authorities with
respect to the original realtor complaint, we have complied with
numerous federal authorities' requests for additional
information relative to our billing polices and practices for
all payers and have made members of our management available to
them for purposes of their further understanding of our billing
polices and practices. We cannot predict the outcome of this
investigation or suit or their respective durations. The federal
government has informed us that it intends to file a notice of
intention to intervene. If this investigation results in current
or prior billing practices being identified as violative of
applicable laws or regulations, results in penalties being
imposed upon us, or results in an adverse determination in the
qui tam relator's complaint against us, the impact could
have a material adverse effect on our business and financial
condition.
On July 19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was in the amount of
$15.0 million of which $2.0 million is covered under
an insurance policy in effect at the date of the incident. The
jury award is subject to the issuance of a final judgment by the
court. We do not believe the facts, circumstances or the law
presented in this case support the jury's award. We have
filed motions for a new trial and remitteur with the trial
court. If these motions are not granted, we intend to pursue a
request for relief through the appellate process.
When the trial court renders its final judgment with respect to
the jury award and if such judgment results in an amount payable
to the plaintiff by us in excess of our insurance coverage
limits, such excess will be recorded in our statement of
operations in the period when such final judgment is rendered.
In such event, there will be a requirement that we post an
appeal bond with the court while an appeal of the court's
decision runs its course. At this time, a loss amount relating
to this matter, if any, is not estimable.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning our
directors and executive officers at June 30, 2005.
Name
Age
Position
Lynn Massingale, M.D.
52
Chief Executive Officer and Director
Greg Roth
48
President and Chief Operating Officer
Robert J. Abramowski
54
Executive Vice President, Finance and Administration
Robert C. Joyner
57
Executive Vice President, General Counsel
Stephen Sherlin
59
Chief Compliance Officer
David P. Jones
37
Chief Financial Officer
Nicholas W. Alexos
41
Director
Glenn A. Davenport
51
Director
Earl P. Holland
59
Director
Dana J. O'Brien
49
Director
Kenneth W. O'Keefe
38
Director
Timothy P. Sullivan
46
Director
Lynn Massingale, M.D. has been Chief Executive Officer and
Director of Team Health since 1994 and also held the title of
President until October 2004. Prior to that, Dr. Massingale
served as President and Chief Executive Officer of Southeastern
Emergency Physicians, a provider of emergency physician services
to hospitals in the Southeast and the predecessor of Team
Health, which Dr. Massingale co-founded in 1979.
Dr. Massingale served as the director of Emergency Services
for the state of Tennessee from 1989 to 1993.
Dr. Massingale is a graduate of the University of Tennessee
Medical Center for Health Services.
Greg Roth joined Team Health in November 2004 as President and
Chief Operating Officer. Mr. Roth previously was employed
by HCA — The Healthcare Company since January 1995.
Beginning in July 1998, Mr. Roth served as President of
HCA's Ambulatory Surgery Division. Prior to his appointment
as President, Mr. Roth served in the capacity of Senior
Vice President of Operations, Western Region from May 1997 to
July 1998 and the Western Region's Chief Financial Officer
from January 1995 to May 1997. Prior to joining HCA,
Mr. Roth held various financial positions at Ornda
HealthCorp from July 1994 to January 1995 and at EPIC Healthcare
Group from April 1988 to July 1994. Prior to these positions,
Mr. Roth held various positions in the healthcare industry.
Robert J. Abramowski, CPA, joined Team Health in October 2000 as
its Executive Vice President, Finance and Administration. Prior
to joining Team Health, Mr. Abramowski was Senior Vice
President of Finance and Chief Financial Officer of ProVantage
Health Services, Inc., a publicly-traded pharmacy benefits
management company, from October 1999 until its sale to
Merck & Co., Inc. in June 2000. Mr. Abramowski
served with Extendicare Health Services, Inc. as Vice President
and Controller from October 1983 to December 1989, and as Vice
President of Finance and Chief Financial Officer from January
1990 to March 1998. Following his tenure with Extendicare,
Mr. Abramowski served as Chief Financial Advisor to
Americor Management Services, L.L.C. Mr. Abramowski also
spent 11 years with Arthur Andersen & Co.
Mr. Abramowski is a graduate of the University of
Wisconsin-Milwaukee.
Robert C. Joyner joined Team Health in August 1999 as Executive
Vice President and General Counsel. Prior to joining Team
Health, Mr. Joyner had a private practice of law from
September 1998 to July 1999, and from May 1997 to September 1998
he served as the Senior Vice President and General Counsel for
American Medical Providers, a regional physician practice
management company. From May 1986 to May 1997, Mr. Joyner
served as the Senior Vice President and General Counsel for
Paracelsus Healthcare Corporation, a privately held hospital
ownership and management company which became public in 1996 and
is now known as Clarent Hospital Corporation. Mr. Joyner
graduated with a B.S.B.A. degree in 1969 and a J.D. in 1972,
both from the University of Florida.
Stephen Sherlin was named Chief Compliance Officer effective
July 1, 2004. Mr. Sherlin previously served as
Executive Vice President, Healthcare Financial Services since
February 2000. Mr. Sherlin joined Team Health in January
1997 as Senior Vice President, Finance and Administration, and
was promoted to
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Executive Vice President, Finance and Administration in July
1998. From 1993 until 1996 Mr. Sherlin served as Vice
President and Chief Financial Officer of the Tennessee Division
of Columbia/ HCA. Mr. Sherlin has also served as Chief
Financial Officer for the Athens Community Hospital in Athens,
Tennessee; Park West Medical Center in Knoxville, Tennessee; and
Doctors Hospital in Little Rock, Arkansas. Mr. Sherlin is a
graduate of Indiana University.
David P. Jones, CPA has been our Chief Financial Officer since
May 1996. From 1994 to 1996, Mr. Jones was our Controller.
Prior to that, Mr. Jones worked at Pershing, Yoakley and
Associates, a regional healthcare audit and consulting firm, as
a Supervisor. Before joining Pershing, Yoakley and Associates,
Mr. Jones worked at KPMG Peat Marwick as an Audit Senior.
Mr. Jones received a B.S. in Business Administration from
the University of Tennessee.
Nicholas W. Alexos became a director in 1999. Prior to
co-founding Madison Dearborn Partners, LLC, Mr. Alexos was
with First Chicago Venture Capital for four years. Previously,
he was with The First National Bank of Chicago. Mr. Alexos
concentrates on investments in the healthcare and food
manufacturing industries and currently serves on the Boards of
Directors of Milnot Holding Corporation, National Mentor, Inc.,
Pierre Holding Corp. and Sirona Dental Systems GmbH.
Mr. Alexos received a B.B.A. from Loyola University and an
M.B.A. from the University of Chicago Graduate School of
Business.
Glenn A. Davenport became a director in 2001. Mr. Davenport
serves as President and Chief Executive Officer of Morrison
Management Specialists, which was acquired by Compass Group in
April 2001. Mr. Davenport has served in this role since
Morrison Management Specialists was spun off from Morrison
Restaurants, Inc. in 1996. Prior thereto, he served in various
management capacities with Morrison Restaurants, Inc. since
1973. Mr. Davenport also serves on the board of directors
of several other organizations associated with the food service
business.
Earl P. Holland became a director of our company in 2001.
Mr. Holland has over 32 years of experience working in
the healthcare industry. Prior to his retirement in January,
2001, Mr. Holland held several positions with Health
Management Associates, including the positions of Vice Chairman
and Chief Operating Officer at the time of his retirement.
Mr. Holland also serves on the board of directors of
several other companies engaged in the business of providing
healthcare services as well as other business services.
Mr. Holland graduated from Southeast Missouri State
University with a B.S. degree in business administration.
Dana J. O'Brien became a director in 1999.
Mr. O'Brien co-founded Prudential Equity Investors,
Inc. in 1984. Mr. O'Brien and the other principals of
Prudential Equity Investors, Inc. co-founded Cornerstone Equity
Investors, LLC in 1996. Mr. O'Brien currently serves
on the Boards of Directors of a number of private companies.
Mr. O'Brien received a B.A. from Hobart College and an
M.B.A. from the Wharton School of the University of Pennsylvania.
Kenneth W. O'Keefe became a director in 1999.
Mr. O'Keefe is a founding member of Beecken Petty
O'Keefe & Company, LLC, a private equity
investment firm focused in the healthcare industry.
Mr. O'Keefe currently serves on the Boards of
Directors of Valitas Healthcare Services, Inc., PerfectServe,
Inc. and Jazz Pharmaceuticals, Inc. Mr. O'Keefe
received a B.A. from Northwestern University and an M.B.A. from
the University of Chicago Graduate School of Business
Timothy P. Sullivan became a director in 1999. Prior to
co-founding Madison Dearborn Partners, LLC Mr. Sullivan was
with First Chicago Venture Capital. Mr. Sullivan
concentrates on investments in the healthcare industry and, in
addition to Team Health, currently serves on the Boards of
Directors of Milnot Holding Corporation, National Mentor, Inc.,
Sirona Dental Systems GmbH and Valitas Healthcare Services, Inc.
In addition, Mr. Sullivan serves as a member of the Board
of Trustee's for Cristo Rey Jesuit High School and
Northlight Theatre, and is a member of the WAVE committee for
Northwestern University. Mr. Sullivan received a B.S. from
the United States Naval Academy, an M.S. from the University of
Southern California and an M.B.A. from Stanford University
Graduate School of Business.
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Executive Compensation
The following table sets forth information concerning the annual
and long-term compensation for services in all capacities to us
for 2004 of those persons who served as
(1) the chief executive officer during 2004 and
(2) our other five most highly compensated executive
    officers for 2004, who we refer to as the Named Executive
    Officers:
Long-Term
Compensation
Awards
Annual
Compensation
Securities
Underlying
Special
All Other
Total
Name and Principal Position
Year
Salary
Bonus
Options(1)
Bonus(2)
Compensation
Compensation
Lynn Massingale, M.D.
2004
$
532,693
$
487,500
—
$
50,791
$
82,209
(3)
$
1,153,193
President and Chief
2003
516,566
164,497
—
—
77,550
(3)
758,613
Executive Officer
2002
418,022
206,813
45,000
75,000
78,922
(3)
778,757
Robert J. Abramowski
2004
362,030
239,913
—
86,203
18,189
(4)
706,335
Executive Vice President,
2003
289,913
64,998
—
—
15,247
(4)
370,158
Finance and Administration
2002
288,325
95,597
—
50,000
9,295
(4)
443,217
Robert C. Joyner
2004
255,693
180,000
—
41,009
20,914
(4)
497,616
Executive Vice President,
2003
235,732
50,546
—
—
19,290
(4)
305,568
General Counsel
2002
224,766
63,363
7,000
37,500
18,059
(4)
343,688
David P. Jones
2004
216,700
142,950
—
50,414
25,793
(4)
435,857
Chief Financial Officer
2003
188,850
41,284
—
—
23,703
(4)
253,837
2002
183,104
54,334
7,000
37,500
29,386
(4)
304,324
Stephen Sherlin
2004
206,068
184,789
—
41,009
18,948
(4)
450,814
Chief Compliance Officer
2003
236,385
70,679
—
—
15,836
(4)
322,900
2002
235,137
93,066
7,000
12,500
13,106
(4)
353,809
Michael L. Hatcher*
2004
477,115
307,125
—
25,395
28,479
(4)
838,114
2003
324,236
84,204
—
—
27,530
(4)
435,970
2002
270,652
106,509
22,500
25,000
25,666
(4)
427,827
*
Mr. Hatcher's employment with us ended effective
    February, 2004. Mr. Hatcher had served with us in the
    position of Chief Operating Officer — Specialty
    Services.
(1)
Represents options granted under the Team Health Option Plan (as
    defined below).
(2)
The 2004 Special Bonus represents cash payments authorized and
    approved by our Board of Directors to holders of stock options
    as a compensatory bonus in conjunction with dividends declared
    on our common stock. The 2002 Special Bonus represents bonuses
    authorized and approved by our Board of Directors in conjunction
    with a successful acquisition.
(3)
All other compensation for Dr. Massingale includes the
    following:
2004
2003
2002
Life insurance
$
51,600
$
51,660
$
46,210
Other
30,609
25,890
32,712
Life insurance represents premiums paid by us on behalf of
    Dr. Massingale. Such premiums are secured by a collateral
    interest in the policy and are repayable to us at the time any
    benefits under the policy are realized.
(4)
All other compensation for Mr. Abramowski, Mr. Joyner.
    Mr. Jones, Mr. Sherlin and Mr. Hatcher is less
    than 10% of their annual compensation each year.
Additionally, Dr. Massingale provides professional medical
    services to client hospitals under independent contractor
    agreements with our subsidiaries. During 2004, 2003, and 2002,
    Dr. Massingale was paid $0, $1,500 and $834, respectively.
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During 2004, the following named Executive Officers received a
    distribution in the following amounts from the Team Health
    Equity Deferred Compensation Plan in conjunction with a
    refinancing that occurred during the year:
Lynn Massingale, M.D.
$
1,515,546
Stephen Sherlin
$
341,593
David Jones
$
273,274
Michael L. Hatcher
$
519,992
Such amounts represent the payment of compensation originally
    deferred during 1999 in conjunction with our recapitalization.
    The deferred amounts had been invested in preferred stock of
    Team Health Holdings, LLC.
Stock Option Plans
In March 1999, we adopted the Team Health Inc. Stock Option
Plan. See "Team Health Inc. Stock Option Plan."
Information for the Team Health Option Plan is presented below.
Option Grants In Last Fiscal Year
No options were granted to the Named Executive Officers under
the Team Health Option Plan during 2004.
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values. The following table sets forth the number of shares
underlying unexercised options held by each of the Named
Executive Officers and the value of such options at the end of
2004.
Securities Underlying
Value of Unexercised In-
Unexercised Options at
The-Money Options at
Fiscal Year-End (#)
Fiscal Year-End ($)
Shares Acquired
on Exercise
Value Realized
Exercisable/Unexercisable
Exercisable/Unexercisable(1)
Lynn Massingale, M.D.
—
—
18,000/27,000
Robert J. Abramowski
—
—
30,550/16,450
Robert C. Joyner
—
—
14,530/12,466
David P. Jones
—
—
17,867/9,133
Stephen Sherlin
—
—
14,534/12,466
Michael L. Hatcher
9,000
$
136,710
—/—
(1)
Value of unexercised options at fiscal year-end represents the
    difference between the exercise price of any
    outstanding-in-the-money options and the fair market value of
    such options on December 31, 2004.
Pension Plans
Substantially all of the salaried employees, including our
executive officers, participate in our 401(k) savings plan.
Employees are permitted to defer a portion of their income under
our 401(k) plan. At the discretion of our Board of Directors, we
may make a matching contribution up to 50% of the first 6% of
employees' contributions under the Plan. Our Board of
Directors authorized the maximum discretionary amount as a match
on employees' 401(k) Plan contributions for 2004, including
the Named Executive Officers.
In addition, the Named Executive Officers are eligible to
participate in the Team Health, Inc. non-qualified Supplemental
Executive Retirement plan (SERP). Eligible employees are
permitted to defer a portion of their income under the SERP. At
the discretion of our Board of Directors, we may make a
contribution to participants in the SERP.
Employment Agreements
We entered into employment and non-compete agreements with
certain members of our senior management, including the Named
Executive Officers.
The employment agreements for the Named Executive Officers
include five-year terms beginning March 11, 1999 for
Dr. Massingale, Mr. Jones, and Mr. Sherlin, and
beginning August 1, 1999 for Mr. Joyner and beginning
October 2, 2000 for Mr. Abramowski. The employment
agreements include provision for the payment of an annual base
salary, subject to annual review and adjustment, as well as the
payment of a bonus based upon the achievement of certain
financial performance criteria. The base bonus
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Table of Contents
pool is established as a percentage of the employee's base
salary. Adjustments to the base bonus pool can occur based upon
over or under performance against established financial targets.
The maximum performance against the target is 105%, which can
result in an upward adjustment to the base bonus pool to 150%.
The minimum performance against the target is 95%, which can
result in a downward adjustment to the base bonus pool of 50%.
Financial performance between the maximum and minimum targets
results in a linear adjustment to the base bonus pool. The
annual base salaries as of December 31, 2004 and the base
bonus that can be earned by each of the named Executive officers
is as follows:
Annual
Base
Base Salary
Bonus %
Lynn Massingale, M.D.
$
517,500
65
%
Robert J. Abramowski
331,080
50
%
Robert C. Joyner
248,400
50
%
David P. Jones
215,000
50
%
Stephen Sherlin
125,000
50
%
The terms of the employment agreements include that, if the
executive is terminated by us without cause, or under certain
conditions, such as death or disability, by the executive, the
executive will receive a multiple of his base salary and may
receive a portion of his bonus for the year of termination. The
multiple of base salary in the case of Dr. Massingale is
two years and in the case of Mr. Sherlin, Mr. Jones,
Mr. Joyner and Mr. Abramowski is one year.
The executive, as a result of the non-compete agreements entered
into by us with each of the Named Executive Officers, has agreed
not to disclose our confidential information, solicit our
employees or contractors, or compete with us or interfere with
our business for two years after his employment with us has been
terminated. Dr. Massingale's agreement, however,
allows Dr. Massingale to practice medicine at any hospital
that we do not staff.
Team Health, Inc. Stock Option Plan
Our board of directors has adopted a stock option plan, which
provides for the grant to some of our key employees and/or
directors of stock options that are non-qualified options for
federal income tax purposes. The compensation committee of our
board of directors administers the stock option plan. The
compensation committee has broad powers under the stock option
plan, including exclusive authority (except as otherwise
provided in the stock option plan) to determine:
(1) who will receive awards,
(2) the type, size and terms of awards,
(3) the time when awards will be granted, and
(4) vesting criteria, if any, of the awards.
Options awarded under the plan are exercisable into shares of
our common stock. The total number of shares of common stock as
to which options may be granted may not exceed
1,245,926 shares of common stock. Options may be granted to
any of our employees, directors or consultants.
If we undergo a reorganization, recapitalization, stock dividend
or stock split or other change in shares of our common stock,
the compensation committee may make adjustments to the plan in
order to prevent dilution of outstanding options. The
compensation committee may also cause options awarded under the
plan to become immediately exercisable if we undergo specific
types of changes in the control of our company.
2005 Long-Term Incentive Plan
We will adopt our 2005 Long-Term Incentive Plan effective upon
the completion of this offering. The plan provides for grants of
stock options, restricted stock and performance awards. Our
directors, officers and other employees and persons who engage
in services for us are eligible for grants under the plan. The
purpose of the plan is to provide these individuals with
incentives to maximize shareholder value and otherwise
contribute to our success and to enable us to attract, retain
and reward the best available persons for positions of
responsibility.
A total
of                      shares
of our common stock,
representing           %
of our common stock outstanding upon completion of this
offering, will be available for issuance under the plan, subject
to adjustment in the
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Table of Contents
event of a reorganization, stock split, merger or similar change
in our corporate structure or the outstanding shares of common
stock. Our compensation committee will administer the plan. Our
board also has the authority to administer the plan and to take
all actions that the compensation committee is otherwise
authorized to take under the plan. The terms and conditions of
each award made under the plan, including vesting requirements,
will be set forth consistent with the plan in a written
agreement with the grantee.
Stock Options.
Under the plan, the compensation committee
or the board may award grants of incentive stock options and
other non-qualified stock options. The compensation committee
also has the authority to grant options that will become fully
vested and exercisable automatically upon a change in control.
The compensation committee may not, however, award to any one
person in any calendar year options to purchase common stock
equal to more than 10% of the total number of shares authorized
under the plan, and it may not award incentive options first
exercisable in any calendar year whose underlying shares have a
fair market value greater than $100,000, determined at the time
of grant.
The compensation committee will determine the exercise price and
term of any option in its discretion. The exercise price of an
incentive option, however, may not be less than 100% of the fair
market value of a share of common stock on the date of grant and
the option must be exercised within 10 years of the date of
grant. The exercise price of an incentive option awarded to a
person who owns stock constituting more than 10% of our voting
power may not be less than 110% of such fair market value on
such date and the option must be exercised within five years of
the date of grant.
Restricted Stock.
Under the plan, the compensation
committee may award restricted stock subject to the conditions
and restrictions, and for the duration that it determines in its
discretion.
Performance Awards.
The compensation committee may grant
performance awards contingent upon achievement by the grantee or
by us, of set goals and objectives regarding specified
performance criteria, over a specified performance cycle. Awards
may include specific dollar-value target awards, performance
units, the value of which is established at the time of grant,
and/or performance shares, the value of which is equal to the
fair market value of a share of common stock on the date of
grant. The value of a performance award may be fixed or
fluctuate on the basis of specified performance criteria. A
performance award may be paid out in cash and/or shares of
common stock or other securities.
Amendment and Termination of the Plan.
The board may
amend or terminate the plan in its discretion, except that no
amendment will become effective without prior approval of our
shareholders if such approval is necessary for continued
compliance with the performance-based compensation exception of
Section 162(m) of the Internal Revenue Code or any stock
exchange listing requirements. If not previously terminated by
the board, the plan will terminate on the tenth anniversary of
its adoption.
Board Composition
According to the current terms of our restated charter and
bylaws, the board of directors of Team Health is unclassified,
and is currently comprised of 7 directors. Following this
offering, our charter will provide for a classified board of
directors consisting of three staggered classes of directors. At
each annual meeting of shareholders, a class of directors will
be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the
directors will expire upon election and qualification of
successor directors at the annual meeting of shareholders to be
held during the years 2006 for the Class I directors, 2007 for
the Class II directors and 2008 for the Class III directors.
Our by-laws, as in effect immediately prior to this offering,
will provide that the authorized number of directors may be
changed by a resolution adopted by at least a majority of our
directors then in office. Any additional directorships resulting
from an increase in the number of directors may only be filled
by the directors and will be distributed among the three classes
so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of our board of
directors could have the effect of delaying or preventing
changes in control or changes in our management.
Following this offering, our Class I directors will
be          ,
our Class II directors will
be          ,
and our Class III directors will
be          .
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Board of Directors and Committees
We will be a controlled company under New York Stock
Exchange rules, and will therefore not need to have an
independent board, compensation committee or nominating and
governance committee. A company of which more than 50% of the
voting power is held by an individual, a group or another
company is considered to be a controlled company.
Compensation Committee.
The compensation committee of the
board is authorized to review our compensation and benefits
plans to ensure they meet our corporate objectives, approve the
compensation structure of our executive officers and evaluate
our executive officers' performance before setting salary,
bonus and other incentive and equity compensation.
Nominating and Governance Committee.
We intend to have a
nominating and governance committee to assist the board in
identifying individuals qualified to become board members,
making recommendations for nominees for committees and develops,
recommending to the board and reviewing our corporate governance
principles.
Audit Committee.
The audit committee of the board
consists of three members. The committee assists the board in
its oversight responsibilities relating to the integrity of our
financial statements, the qualifications, independence and
performance of our independent auditors, the performance of our
internal audit function and the compliance of our company with
any reporting and regulatory requirements we may be subject to.
Upon the consummation of this offering, we will have one
independent director serving on our audit committee. We intend
to have two independent directors within 90 days and a
completely independent audit committee within one year of the
effectiveness of our registration statement. Our audit committee
currently consists of Nicholas W. Alexos (Chairman), Glenn A.
Davenport and Kenneth W. O'Keefe.
Ethics Committee.
We intend to have an ethics committee
to assist the board with compliance procedures for our employee
code of business conduct.
Compensation Of Directors
We reimburse directors for any out-of-pocket expenses incurred
by them in connection with services provided in such capacity.
Two of our directors, Mr. Davenport and Mr. Holland,
are compensated for services they provide in their capacities as
directors. The compensation for Mr. Davenport and
Mr. Holland includes an annual stipend of $12,000 as well
as $3,000 for each meeting attended. Additionally, during 2004,
Mr. Davenport utilized our airplane for non-company related
travel in the amount of $2,111.
Compensation Committee Interlocks And Insider
Participation
The compensation committee of our board of directors is
comprised of Dana J. O'Brien, Timothy P. Sullivan and Earl
P. Holland, none of which are officers of Team Health.
Mr. O'Brien and Mr. Sullivan are directors of
Team Health and principals of Cornerstone Equity Investors, LLC
and Madison Dearborn Partners, LLC, respectively. Cornerstone
and Madison Dearborn are two of our equity sponsors.
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Table of Contents
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to us with
respect to the beneficial ownership of our common stock as of
August 15, 2005. The table reflects the beneficial
ownership and sale of common stock in this offering, by
(i) each shareholder known by us to own beneficially more
than 5% of our common stock, (ii) each of the named
executive officers, (iii) each of our directors,
(iv) each other shareholder selling in this offering and
(v) all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission. Such rules provide
that in calculating the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of
common stock subject to options held by that person that are
currently exercisable or will become exercisable within
60 days after August 15, 2005 are deemed outstanding.
Amount
Shares
and Nature
Being Sold
of Beneficial
Percent
in the
Shares Beneficially
Name of Beneficial Owner
Ownership(1)
of Class
Offering
Owned After the Closing(1)
% of
#
Shares Outstanding
Lynn Massingale, M.D.
348,151
(2)
3.6
%
Greg Roth
41,541
(3)
0.4
%
Robert J. Abramowski
43,050
(4)
0.4
%
Robert C. Joyner
25,935
(5)
0.4
%
Stephen Sherlin
58,378
(6)
0.6
%
David P. Jones
61,636
(7)
0.6
%
Nicholas W. Alexos
0
(8)
0.0
%
Glenn A. Davenport
23,834
(9)
0.2
%
Earl P. Holland
23,834
(10)
0.2
%
Dana J. O'Brien
0
(11)
0.0
%
Kenneth W. O'Keefe
782,182
(12)
8.0
%
Timothy P. Sullivan
0
(13)
0.0
%
Team Health Holdings, LLC
8,940,240
(14)
91.4
%
Madison Dearborn Partners II, L.P.
3,519,813
(15)
36.0
%
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
Cornerstone Equity Investors IV, L.P.
3,519,813
(16)
36.0
%
717 Fifth Avenue
Suite 1100
New York, New York 10022
Beecken Petty O'Keefe and Company
782,182
(17)
8.0
%
200 W. Madison Street
Suite 1910
Chicago, Illinois 60606
Pacific Physician Services, Inc.
732,727
(18)
7.5
%
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
All directors and executive officers as a group (12 persons)
8,406,100
85.2
%
(1)
For purposes of this table, information as to the percentage of
    shares beneficially owned is calculated based on
    9,782,235 shares of common stock outstanding on
    August 15, 2005. Under the rules of the Securities and
    Exchange Commission, a person is deemed to be a "beneficial
    owner" of a security if that person has or shares voting
    power, which includes the power to vote or direct the voting of
    such security, or investment power, which includes the power to
    dispose of or to direct the disposition of such security. Except
    as otherwise indicated in these footnotes, each of the
    beneficial owners has, to our
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knowledge, sole voting and investment power with respect to the
    indicated shares of common stock. Unless otherwise noted, the
    address of each beneficial owner is 1900 Winston Road,
    Suite 300, Knoxville, Tennessee 37919.
(2)
Includes 27,000 shares of directly held common stock and options
    to purchase 23,600 common shares (23,600 of which will vest upon
    this offering). Also includes (i) 291,551 indirectly held
    shares and (ii) 6,000 shares held by a family member and
    various family trusts that are represented by 297,527 common
    units of Team Health Holdings, LLC.
(3)
Includes options to purchase 17,800 common shares (all of which
    will vest upon this offering) 23,741 indirectly held shares that
    are represented by 23,739 common units of Team Health Holdings,
    LLC.
(4)
Includes 30,000 shares of common stock and options to purchase
    13,050 common shares (6,000 of which will vest upon this
    offering).
(5)
Includes 25,934 options to purchase common shares and 10,001
    indirectly held shares that are represented by 10,000 common
    units of Team Health Holdings, LLC.
(6)
Includes 24,667 options to purchase common shares (4,733 of
    which will vest upon this offering) and 33,711 indirectly held
    shares that are represented by 33,708 common units of Team
    Health Holdings, LLC.
(7)
Includes 20,000 shares of directly held common stock options to
    purchase 10,000 common shares (3,000 of which will vest upon
    this offering) and 31,636 indirectly held shares that are
    represented by 31,633 common units of Team Health Holdings, LLC.
(8)
Mr. Alexos' address is Three First National Plaza,
    Suite 3800, Chicago, Illinois 60602.
(9)
Includes 12,833 options to purchase common shares (6,000 of
    which will vest upon this offering) and 11,001 indirectly held
    shares that are represented by 11,000 common units of Team
    Health Holdings, LLC.
(10)
Includes 12,833 options to purchase common shares (6,000 of
    which will vest upon this offering) and 11,001 indirectly held
    shares that are represented by 11,000 common units of Team
    Health Holdings, LLC.
(11)
Mr. O'Brien's address is
    717 5
th
Avenue, Suite 1100, New York, New York 10022.
(12)
Mr. O'Keefe shares investment and voting control of
    shares beneficially owned by Beecken Petty O'Keefe and
    Company.
(13)
Mr. Sullivan's address is Three First National Plaza,
    Suite 3800, Chicago, Illinois 60602.
(14)
Includes 8,940,240 shares of common stock.
(15)
Includes 3,519,813 indirectly held shares that are represented
    by 3,519,529 common units of Team Health Holdings, LLC. The
    shares held by Madison Dearborn Capital Partners II, L.P.
    may be deemed to be beneficially owned by Madison Dearborn
    Partners II, L.P., its general partner. Messrs. Alexos
    and Sullivan are Managing Directors of Madison Dearborn
    Partners, Inc., the general partner of Madison Dearborn
    Partners II, L.P. They disclaim any beneficial ownership of
    the shares hold by Madison Dearborn Capital Partners II,
    L.P.
(16)
Includes 3,519,813 indirectly held shares that are represented
    by 3,519,529 common units of Team Health Holdings, LLC.
    Cornerstone IV, LLC, as the general partner of Cornerstone
    Equity Investors IV, L.P., has voting and investmetn
    control of the shares held by Cornerstone Equity IV, L.P.
    Dana OBrien is managing member of Cornerstone IV, LLC. He
    disclaims beneficial ownership of the shares held by Cornerstone
    Equity Investors IV, L.P.
(17)
Includes 782,182 indirectly held shares that are represented by
    782,119 common units of Team Health Holdings, LLC. Investment
    and voting control is shared with Mr. O'Keefe.
(18)
Includes 732,727 shares of common stock. Pacific Physician
    Services Inc. is a wholly-owned subsidiary of Caremark Rx, Inc.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Recapitalization Agreement
Under a recapitalization agreement, on March 12, 1999 we
were acquired by the equity sponsors and members of its
management team from Pacific Physician Services, Inc., a wholly
owned subsidiary of Caremark Rx, Inc. formerly known as
MedPartners, Inc. The recapitalization agreement contains
customary provisions for such agreements, including the
execution of a registration rights agreement and a shareholder
agreement.
Acquisition
On May 1, 2002, we acquired all of the operations of
Spectrum Health Resources, or SHR, a provider of physician and
other professional medical staffing to military treatment
facilities for a purchase price of approximately
$145.7 million. Our three equity sponsors control a
majority of our voting common stock. Those three equity sponsors
were also controlling equity investors in SHR prior to and at
the time of entering into the definitive purchase agreement.
Prior to negotiating the final purchase price and entering into
the definitive purchase agreement to acquire SHR, the Board of
Directors took the following steps:
1.     The Board of Directors appointed
    a Special Committee, consisting of three Directors who are not
    affiliated with the equity sponsors. The Special Committee was
    authorized to (i) consider, negotiate and approve the
    acquisition of SHR, (ii) retain such legal counsel and
    advisers and consultants as they deem appropriate,
    (iii) consider, negotiate and approve the terms of any
    financing related to the transaction, and (iv) expend any
    funds in furtherance of the duties granted to it. The final
    authority to approve the acquisition and financing rested with
    the full Board of Directors, but the Board of Directors could
    not approve any transaction not recommended by the Special
    Committee.
2.     Two of the three equity sponsors
    along with our management members assisted the Special Committee
    in the evaluations and negotiations of the transaction on our
    behalf. The largest common equity sponsor in SHR and our company
    represented SHR in its evaluation and negotiation of the
    transaction.
3.     The Special Committee obtained
    an opinion by the investment banking firm of SunTrust Robinson
    Humphrey, a division of SunTrust Capital Markets, Inc., that the
    purchase price paid for SHR was fair from a financial point of
    view to our equity holders as well as our bond holders.
In connection with the acquisition of SHR, subject to certain
limitations, the previous shareholders of SHR and related
entities have indemnified us up to a limit of $10.0 million
against any claims asserted against SHR during the three years
subsequent to the date of SHR's acquisition related to tax
matters whose origin was attributable to tax periods prior to
May 1, 2002.
Security Holders Agreements
In connection with the recapitalization, both Team Health and
our shareholder, Team Health Holdings and Pacific Physician
Services, and Team Health Holdings and all of its unit holders,
entered into two separate security holders agreements. The
security holders agreements:
(1) restrict the transfer of the equity interests of Team
    Health and Team Health Holdings, respectively; and
(2) grant tag-along rights on certain transfers of equity
    interests of Team Health and Team Health Holdings, respectively.
Some of the foregoing provisions of the security holders
agreements will terminate upon the consummation of an initial
public offering.
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Registration Rights Agreement
In connection with the recapitalization, both Team Health and
our shareholder, Team Health Holdings and Pacific Physician
Services, and Team Health Holdings and all of its unit holders,
entered into two separate registration rights agreements. Under
the registration rights agreements, some of the holders of
capital stock owned by Team Health Holdings (with respect to our
shares) and Cornerstone, Madison Dearborn and Beecken Petty
O'Keefe (with respect to units of Team Health Holdings),
respectively, have the right, subject to various conditions, to
require us or Team Health Holdings, as the case may be, to
register any or all of their common equity interests under the
Securities Act of 1933, at our or Team Health Holdings'
expense. In addition, all holders of registrable securities are
entitled to request the inclusion of any common equity interests
of Team Health or Team Health Holdings covered by the
registration rights agreements in any registration statement at
our or Team Health Holdings' expense, whenever we or the
Team Health Holdings propose to register any of our common
equity interests under the Securities Act of 1933. In connection
with all such registrations, we or Team Health Holdings have
agreed to indemnify all holders of registrable securities
against some liabilities, including liabilities under the
Securities Act of 1933.
Management Services Agreement
We have also entered into a management services agreement dated
March 12, 1999 with Cornerstone, Madison Dearborn and
Beecken Petty O'Keefe under which each of Cornerstone,
Madison Dearborn and Beecken Petty O'Keefe have agreed to
provide us with:
(1) general management services;
(2) assistance with the identification, negotiation and
    analysis of acquisitions and dispositions;
(3) assistance with the negotiation and analysis of
    financial alternatives; and
(4) other services agreed upon by us and each of
    Cornerstone, Madison Dearborn and Beecken Petty O'Keefe.
In exchange for such services, Cornerstone, Madison Dearborn and
Beecken Petty O'Keefe collectively receive an annual
advisory fee of $500,000, plus reasonable out-of-pocket expenses
(payable quarterly). The management services agreement has an
initial term of three years, subject to automatic one-year
extensions unless we or Cornerstone, Madison Dearborn or Beecken
Petty O'Keefe provides written notice of termination. The
management services agreement will automatically terminate upon
the consummation of the initial public offering.
Team Health Holdings Amended And Restated Limited Liability
Company Agreement
Cornerstone, Madison Dearborn, Beecken Petty O'Keefe and
some of the members of our management and board of directors
(collectively, the "Members") entered into an Amended
and Restated Limited Liability Company Agreement. The Limited
Liability Company Agreement governs the relative rights and
duties of the Members.
Membership Interests.
The ownership interests of the
members in Team Health Holdings consist of preferred units and
common units. The common units represent the common equity of
Team Health Holdings and the preferred units represent the
preferred equity of Team Health Holdings. Holders of the
preferred units are entitled to return of capital contributions
prior to any distributions made to holders of the common units.
In connection with our 2004 refinancing all preferred units were
redeemed and no preferred units are currently outstanding.
Distributions.
Subject to any restrictions contained in
any financing agreements to which Team Health Holdings or any of
its affiliates is a party, the board of managers of Team Health
Holdings may make
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distributions, whether in cash, property or securities of Team
Health Holdings at any time or from time to time in the
following order of priority:
First, to the holders of preferred units, if any, the aggregate
    unpaid amount accrued on such preferred units on a daily basis,
    at a rate of 10% per annum.
Second, to the holders of preferred units, if any, an amount
    determined by the aggregate Unreturned Capital (as defined and
    described in the Limited Liability Company Agreement).
Third, to the holders of common units, an amount equal to the
    amount of such distribution that has not been distributed
    pursuant to clauses First through Second above.
Team Health Holdings may distribute to each holder of units
within 75 days after the close of each fiscal year such
amounts as determined by the board of managers of Team Health
Holdings to be appropriate to enable each holder of units to pay
estimated income tax liabilities.
Other Related Party Transactions
We lease office space for our corporate headquarters from
Winston Road Properties, an entity that is owned 50% by Park Med
Properties. Two of our executive officers during 2004,
Dr. Massingale and Mr. Hatcher, each own 20% of Park
Med Properties. We paid $676,741 in 2004 to Winston Road
Properties in connection with the lease agreement. In addition,
Park Med Properties owns a building, which houses a medical
clinic that is operated by our consolidated affiliate. In 2004,
the consolidated affiliate paid $123,761 to Park Med Properties
in connection with the lease agreement.
We purchase automated call answering services from Perfect
Serve, Inc., which is 40% owned by one of our shareholders,
Beecken Petty O'Keefe and Company. Purchases from Perfect
Serve were $267,848 in 2004 and $146,484 in the first six months
of 2005.
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DESCRIPTION OF CAPITAL STOCK
General
The following is a description of terms of our charter and
by-laws, the forms of which have been filed with the Securities
and Exchange Commission, or SEC, as exhibits to the registration
statement of which this prospectus is part and which will become
effective prior to the offering contemplated by this prospectus.
Authorized Capitalization
Our authorized capital stock consists of:
•
12,000,000 shares of common stock, par value $0.01 per
    share; and
•
200,000 shares of preferred stock, par value $0.01 per
    share.
After this offering there will
be                      shares
of our common stock and no shares of our preferred stock
outstanding. All shares of common stock to be outstanding upon
completion of this offering will be validly issued, fully paid
and nonassessable.
Common Stock
Dividends.
Holders of shares of our common stock will be
entitled to receive such dividends and other distributions in
cash, stock or property of ours as may be declared by our board
of directors from time to time out of our assets or funds
legally available for dividends or other distributions. See
"Dividend Policy."
Rights Upon Liquidation.
In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share equally in
our assets remaining after payment of all debts and other
liabilities, subject to the liquidation preference of any
outstanding preferred stock.
Voting Rights.
Shares of our common stock carry one vote
per share. Our bylaws provide that the presence of holders of a
majority of the outstanding shares entitled to vote at a
shareholders meeting shall constitute a quorum. When a quorum is
present, the affirmative vote of the holders of a majority of
shares present in person or by proxy is required to take action,
unless otherwise specified by law or our charter, and except for
the election of directors, which is determined by a plurality
vote. Holders of shares of our common stock have no cumulative
voting rights.
Other Rights.
Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
Preferred Stock
Our board of directors has the authority to issue shares of
preferred stock from time to time on terms that it may
determine, to divide shares of preferred stock into one or more
series and to fix the designations, voting powers, preferences
and relative participating, optional or other special rights of
each series, and the qualifications, limitations or restrictions
of each series, to the fullest extent permitted by the Tennessee
Business Corporation Act, or TBCA. The issuance of shares of
preferred stock could have the effect of decreasing the market
price of our shares of common stock, impeding or delaying a
possible takeover and adversely affecting the voting and other
rights of the holders of shares of our common stock.
Certain Takeover Considerations
Subject to the application of the Tennessee Business Combination
Act and the Tennessee Control Share Acquisition Act, the
affirmative vote of the holders of a majority of our issued and
outstanding capital stock is generally required with respect to
a merger, exchange offer or the sale of all or substantially all
of our assets.
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Various antitakeover protections for Tennessee corporations are
set forth in the TBCA, the Business Combination Act, the Control
Share Acquisition Act, the Greenmail Act and the Investor
Protection Act. Because our common stock is registered with the
SEC under the Securities Exchange Act of 1934, the Business
Combination Act automatically applies to us unless our
shareholders adopt a charter or bylaw amendment which expressly
excludes us from the anti-takeover provisions of the Business
Combination Act two years prior to a proposed takeover. Our
Board of Directors has no present intention of recommending such
charter or bylaw amendment.
The Business Combination Act imposes a five-year standstill on
transactions such as mergers, share exchanges, sales of
significant assets, liquidations and other interested party
transactions between Tennessee corporations and "interested
shareholders" and their associates or affiliates, unless
the business combination or the transaction that resulted in the
shareholders becoming an interested shareholder is approved by
the Board of Directors before the shareholder acquires 10% or
more of the beneficial ownership of any class of the
corporation's voting securities. After that five-year
standstill, such transactions maybe authorized only if a
two-thirds vote of the shareholders other than the interested
shareholder is obtained or the transaction satisfies certain
fair price standards.
The Business Combination Act also provides exculpatory
protection for the Board of Directors in refusing to waive the
protections afforded us under the Business Combination Act
and/or Control Share Act, or for resisting mergers, exchanges,
tender offers and similar transactions based on criteria other
than price. A Tennessee corporation's charter may
specifically authorize the members of its board of directors, in
the exercise of their judgment, to give due consideration to
factors other than price and to consider whether a merger,
exchange, tender offer or significant disposition of assets
would adversely affect the corporation's employees,
customers, suppliers, the communities in which the corporation
operates or any other relevant factor in the exercise of their
fiduciary duty to the shareholders. Our Charter authorizes our
Board of Directors to take into consideration, in addition to
price, the following factors in connection with a merger, tender
offer or other proposed business combination:
(a) the business, financial condition and earnings
    prospects of the acquiring person;
(b) the competence, experience and integrity of the
    acquiring person;
(c) our prospects as an independent entity; and
(d) the social and economic impact of the proposed
    transaction on us and our employers, depositors, loan and other
    customers, creditors and the communities in which we operate.
The provisions of our Charter may have the effect of protecting
us from hostile takeover bids because the Board of Directors is
permitted by the Charter to take into account in good faith all
relevant factors in performing its duly authorized duties.
The Control Share Acquisition Act limits the voting rights of
shares owned by a person above certain percentage thresholds
(beginning at 20%) unless the noninterested shareholders of the
corporation approve the acquisition of additional shares by the
interested shareholder above the designated threshold. However,
the Control Share Acquisition Act applies only to corporations
whose charter or bylaws contain an express declaration that
control share acquisitions are to be governed by the Control
Share Acquisition Act. In addition, the charter or bylaws may
specifically provide for the redemption of the control shares
(shares in excess of the designated threshold) or appraisal
rights for dissenting shareholders in a control share
transaction. Neither our Charter nor our Bylaws currently
contain a provision which subjects us to the provisions of the
Control Share Acquisition Act, and our Board of Directors has no
present intention of adopting any such bylaw amendment. However,
our Board of Directors could adopt such a bylaw amendment at any
future time by majority vote based on facts and circumstances
then present.
The Greenmail Act applies to a Tennessee corporation that has a
class of voting stock registered or traded on a national
securities exchange or registered with the SEC pursuant to
Section 12(g) of the Securities Exchange Act of 1934. Under
the Greenmail Act, we may not purchase any of our shares at a
price above the market value of such shares from any person who
holds more than 3% of the class of securities to
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be purchased if such person has held such shares for less than
two years, unless the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by us or we make an offer, of at
least equal value per share, to all shareholders of such class.
The Investor Protection Act generally requires the registration,
or an exemption from registration, before a person can make a
tender offer for shares of a Tennessee corporation which, if
successful, would result in the offeror beneficially owning more
than 10% of any class of shares of the offeree company.
Registration requires the filing with the Tennessee Commissioner
of Commerce and Insurance of a registration statement, a copy of
which must be sent to the offeree company, and the public
disclosure of the material terms of the proposed offer. The
Investor Protection Act also prohibits fraudulent and deceptive
practices in connection with takeover offers, and provides
remedies for violations.
The Investor Protection Act does not apply to an offer involving
a vote by holders of equity securities of the offeree company,
pursuant to its charter, on a merger, consolidation or sale of
corporate assets in consideration of the issuance of securities
of another corporation, or on a sale of its securities in
exchange for cash or securities of another corporation. Also
excluded from the Investor Protection Act are tender offers that
are open on substantially equal terms to all shareholders, are
recommended by the board of directors of the offeree company and
include full disclosure of all terms.
The provisions described above, to the extent applicable, will
have the general effect of discouraging, or rendering more
difficult, unfriendly takeover or acquisition attempts.
Consequently, such provisions would be beneficial to current
management in an unfriendly takeover attempt but could have an
adverse effect on shareholders who might wish to participate in
such a transaction. However, we believe that such provisions are
advantageous to our shareholders in that they will permit
management and the shareholders to carefully consider and
understand a proposed acquisition, lead to higher offering
prices, and require a higher level of shareholder participation
in the decision if the transaction is not approved by our Board
of Directors.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock
is                             .
Listing
We intend to apply for listing on the New York Stock Exchange
under the symbol "THH".
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SHARES ELIGIBLE FOR FUTURE SALE
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities. Upon completion
of this
offering,            shares
of our common stock will be outstanding. The shares of common
stock sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of
1933. The
remaining            shares
of common stock outstanding, including the shares owned by our
existing equity investors, will be restricted securities within
the meaning of Rule 144 under the Securities Act of 1933
but will be eligible for resale subject to applicable volume,
manner of sale, holding period and other requirements of
Rule 144. Upon completion of this offering, our existing
equity investors will
own            shares
of common stock representing an
aggregate           %
ownership interest in us after the offering
(or            shares
of common stock representing
a           %
aggregate ownership interest in us, assuming the underwriters
exercise their over-allotment option in full).
We may issue shares of common stock from time to time as
consideration for future acquisitions, investments or other
corporate purposes. In the event that any such acquisition,
investment or other transaction is significant, the number of
shares of common stock that we may issue may in turn be
significant. In addition, we may also grant registration rights
covering those shares of common stock issued in connection with
any such acquisitions and investments.
Stock Options
Upon completion of this offering, we intend to file a
registration statement under the Securities Act of 1933 to
register the shares of common stock to be issued under the Team
Health Inc. Stock Option Plan and the Team Health, Inc. 2005
Long-Term Incentive Plan and, as a result, all shares of common
stock acquired upon exercise of stock options will also be
freely tradable under the Securities Act of 1933 unless such
common stock is held by our affiliates.
Lock-Up Arrangements
We, certain of our existing shareholders, our executive officers
and our directors have agreed, with specified exceptions, not to
sell or transfer any of our common stock for 180 days after
the date of this prospectus without first obtaining the written
consent of each of Lehman Brothers Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated on behalf of the
underwriters. Specifically, we and these other individuals have
agreed not to directly or indirectly:
•
offer, pledge, sell, contract to sell, sell any option or
    contract to purchase, purchase any option or contract to sell,
    grant any option, right or warrant to purchase, or otherwise
    transfer or dispose of, directly or indirectly, any shares of
    our common stock, or any securities convertible into or
    exercisable or exchangeable for any shares of our common stock
    or any right to acquire shares of our common stock; or
•
enter into any swap or other arrangement that transfers to
    another, in whole or in part, any of the economic consequences
    of ownership of the common stock, whether any such transaction
    described above is to be settled by delivery of common stock or
    such other securities, in cash or otherwise.
Notwithstanding the foregoing, if the 180th day after the
date of this prospectus occurs within 17 days following an
earnings release by us or the occurrence of material news or a
material event related to us, or if we intend to issue an
earnings release within 16 days following the
180th day, the 180-day period will be extended to the
18th day following such earnings release or the occurrence
of the material news or material event unless such extension is
waived by each of Lehman Brothers Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated on behalf of the
underwriters.
Rule 144
In general, under Rule 144, as currently in effect,
beginning 90 days after the date of this prospectus, any
person, including an affiliate, who has beneficially owned
shares of our common stock for a period of at
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least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of:
•
1% of the then-outstanding shares of common stock; and
•
the average weekly trading volume in the common stock on the New
    York Stock Exchange during the four calendar weeks preceding the
    date on which the notice of the sale is filed with the
    Securities and Exchange Commission.
Sales under Rule 144 are also subject to provisions
relating to notice, manner of sale, volume limitations and the
availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been
one of our affiliates at any time during the 90 days
preceding a sale, and who has beneficially owned the shares for
at least two years, including the holding period of any prior
owner other than an "affiliate," is entitled to sell
the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of
Rule 144.
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MATERIAL U.S. FEDERAL TAX CONSEQUENCES
FOR NON-U.S. HOLDERS OF OUR COMMON STOCK
The following is a general discussion of material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock by a beneficial
owner thereof that is a non-U.S. holder. A
non-U.S. holder is a person or entity that, for
U.S. federal income tax purposes, is a non-resident alien
individual, a foreign corporation or a foreign estate or trust.
The test for whether an individual is a resident of the United
States for federal estate tax purposes differs from the test
used for federal income tax purposes. Some individuals,
therefore, may be non-U.S. holders for purposes of the
federal income tax discussion below, but not for purposes of the
federal estate tax discussion, and vice versa.
This discussion is based on the U.S. Internal Revenue Code
of 1986, as amended, judicial decisions and administrative
regulations and interpretations in effect as of the date of this
prospectus, all of which are subject to change, including
changes with retroactive effect. This discussion does not
address all aspects of U.S. federal income and estate
taxation that may be relevant to non-U.S. holders in light
of their particular circumstances (including, without
limitation, non-U.S. holders who are pass-through entities
or who hold their common stock through pass-through entities)
and does not address any tax consequences arising under the laws
of any state, local or non-U.S. jurisdiction. Prospective
holders are urged to consult their own tax advisors with respect
to the federal income and estate tax consequences of holding and
disposing of our common stock in light of their particular
situations and any consequences to them arising under the laws
of any state, local or non-U.S. jurisdiction.
Dividends
Subject to the discussion below, distributions, if any, made to
a Non-U.S. holder on our common stock out of our current or
accumulated earnings and profits generally will constitute
dividends for U.S. tax purposes and will be subject to
withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. To obtain a
reduced rate of withholding under a treaty, a
Non-U.S. holder generally will be required to provide us
with a properly-executed IRS Form W-8BEN certifying the
non-U.S. holder's entitlement to benefits under that
treaty. Treasury Regulations provide special rules to determine
whether, for purposes of determining the applicability of a tax
treaty, dividends paid to a non-U.S. holder that is an
entity should be treated as paid to the entity or to those
holding an interest in that entity. To the extent such
distributions exceed our current and accumulated earnings and
profits for U.S. tax purposes, they will constitute a
return of capital and will first reduce your basis in our common
stock, but not below zero, and then will be treated as gain from
the sale of stock.
There will be no withholding tax on dividends paid to a
non-U.S. holder that are effectively connected with the
non-U.S. holder's conduct of a trade or business
within the United States if a properly-executed IRS
Form W-8ECI, stating that the dividends are so connected,
is provided to us. Instead, the effectively connected dividends
will be subject to regular U.S. income tax, generally in
the same manner as if the non-U.S. holder were a
U.S. citizen or resident alien or a domestic corporation,
as the case may be, unless a specific treaty exemption applies.
A corporate non-U.S. holder receiving effectively connected
dividends may also be subject to an additional "branch
profits tax," which is imposed, under certain
circumstances, at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of the corporate
non-U.S. holder's effectively connected earnings and
profits, subject to certain adjustments.
If you are eligible for a reduced rate of withholding tax
pursuant to a tax treaty, you may obtain a refund of any excess
amounts currently withheld if you file an appropriate claim for
refund with the U.S. Internal Revenue Service.
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to
U.S. federal income tax with respect to gain realized on a
sale or other disposition of our common stock unless:
(i) the gain is effectively connected with a trade or
business of such holder in the United States and a specific
treaty exemption does not apply to eliminate the tax;
(ii) if a tax treaty would otherwise apply to eliminate the
tax, the gain is attributable to a permanent establishment of
the non-U.S. holder in the United States; (iii) in the
case of non-U.S. holders who are nonresident alien
individuals and hold our common stock as a capital asset, such
individuals are present in
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the United States for 183 or more days in the taxable year of
the disposition and certain other conditions are met;
(iv) the non-U.S. holder is subject to tax pursuant to
the provisions of the Code regarding the taxation of
U.S. expatriates; or (v) we are or have been a
"United States real property holding corporation"
within the meaning of Code Section 897(c)(2) at any time
within the shorter of the five-year period preceding such
disposition or such holder's holding period. We believe
that we are not, and do not anticipate becoming, a United States
real property holding corporation. Even if we are treated as a
United States real property holding corporation, gain realized
by a non-U.S. holder on a disposition of our common stock
will not be subject to U.S. federal income tax so long as:
(a) the non-U.S. holder owned directly or indirectly,
no more than five percent of our common stock at all times
within the shorter of (x) the five year period preceding
the disposition or (y) the holder's holding period;
and (b) our common stock is regularly traded on an
established securities market. There can be no assurance that
our common stock will or will continue to qualify as being
regularly traded on an established securities market.
Information Reporting Requirements and Backup Withholding
Generally, we must report annually to the U.S. Internal
Revenue Service the amount of dividends paid, the name and
address of the recipient, and the amount, if any, of tax
withheld. A similar report is sent to the holder. Pursuant to
tax treaties or certain other agreements, the U.S. Internal
Revenue Service may make its reports available to tax
authorities in the recipient's country of residence.
Backup withholding will generally not apply to payments of
dividends made by us or our paying agents to a
non-U.S. holder if the holder has provided its federal
taxpayer identification number, if any, or the required
certification that it is not a U.S. person (which is
generally provided by furnishing a properly-executed IRS
Form W-8BEN), unless the payer otherwise has knowledge or
reason to know that the payee is a U.S. person.
Under current U.S. federal income tax law, information
reporting and backup withholding will apply to the proceeds of a
disposition of our common stock effected by or through a
U.S. office of a broker unless the disposing holder
certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information
reporting and backup withholding will not apply to a payment of
disposition proceeds where the transaction is effected outside
the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting
requirements (but not backup withholding) will apply to a
payment of disposition proceeds where the transaction is
effected outside the United States under certain circumstances.
Prospective holders are urged to consult their own tax advisors
with respect to the circumstances under which
U.S. information reporting requirements may apply. Backup
withholding will apply to a payment of disposition proceeds if
the broker has actual knowledge that the holder is a
U.S. person.
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in
an overpayment of taxes, a refund may be obtained, provided that
the required information is furnished timely to the
U.S. Internal Revenue Service.
Federal Estate Tax
The estates of nonresident alien individuals are subject to
U.S. federal estate tax on property with a U.S. situs.
Because we are a U.S. corporation, our common stock will be
U.S. situs property and therefore will be included in the
taxable estate of a nonresident alien decedent. This
U.S. federal estate tax liability of the estate of a
nonresident alien may be affected by a tax treaty between the
United States and the decedent's country of residence.
THE PRECEDING DISCUSSION OF U.S. FEDERAL TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH
PROSPECTIVE HOLDER ARE URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES OF PURCHASING, HOLDING AND
DISPOSING OF OUR COMMON STOCK.
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UNDERWRITING
Lehman Brothers Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as joint
book-running managers, and, along with J.P. Morgan Securities
Inc., are acting as representatives of the underwriters. Under
the terms of an underwriting agreement, which will be filed as
an exhibit to the registration statement, each of the
underwriters named below has severally agreed to purchase from
us and the selling shareholders the respective number of common
stock shown opposite its name below:
Number of
Underwriters
Shares
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
J.P. Morgan Securities Inc.
Total
The underwriting agreement provides that the underwriters'
obligation to purchase shares of common stock depends on the
satisfaction of the conditions contained in the underwriting
agreement including:
•
the obligation to purchase all of the shares of common stock
    offered hereby, if any of the shares are purchased;
•
the representations and warranties made by us and the selling
    shareholders to the underwriters are true;
•
there is no material change in the financial markets; and
•
we deliver customary closing documents to the underwriters.
Commissions and Expenses
The following table summarizes the underwriting discounts and
commissions we and the selling shareholders will pay to the
underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase
additional shares. The underwriting fee is the difference
between the initial price to the public and the amount the
underwriters pay to us and the selling shareholders for the
shares.
Paid by the Selling
Paid by us
Shareholder
No Exercise
Full Exercise
No Exercise
Full Exercise
Per share
Total
The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of common stock
directly to the public at the public offering price on the cover
of this prospectus and to selected dealers, which may include
the underwriters, at such offering price less a selling
concession not in excess of
$          per
share. The underwriters may allow, and the selected dealers may
re-allow, a discount from the concession not in excess of
$          per
share to other dealers. After the offering, the representatives
may change the offering price and other selling terms.
The expenses of the offering that are payable by us and the
selling shareholders are estimated to be
$                    (exclusively
underwriting discounts and commissions). We have agreed to pay
expenses incurred by the selling shareholders in connection with
the offering, other than the underwriting discounts and
commission.
Option to Purchase Additional Shares
The selling shareholders have granted the underwriters an option
exercisable for 30 days after the date of the underwriting
agreement, to purchase, from time to time, in whole or in part,
up to an aggregate
of                      shares
at the public offering price less underwriting discounts and
commissions. This option may be exercised if the underwriters
sell more
than            shares
in connection with this offering. To the extent that
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this option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase its pro rata portion
of these additional shares based on the underwriter's
percentage underwriting commitment in the offering as indicated
in the table at the beginning of this Underwriting Section.
Lock-Up Agreements
We, all of our directors and executive officers, holders of more
than 5% of our outstanding stock and the selling shareholders
have agreed that, without the prior written consent of each of
Lehman Brothers Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, we and they will not
directly or indirectly, offer, pledge, announce the intention to
sell, sell, contract to sell, sell an option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or
dispose of any common stock or any securities that may be
converted into or exchanged for any common stock, enter into any
swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the common stock,
make any demand for or exercise any right or file or cause to be
filed a registration statement with respect to the registration
of any shares of common stock or securities convertible,
exercisable or exchangeable into common stock or any of our
other securities or publicly disclose the intention to do any of
the foregoing for a period of 180 days from the date of
this prospectus other than permitted transfers.
The 180-day restricted period described in the preceding
paragraph will be extended if:
•
during the last 17 days of the 180-day restricted period we
    issue an earnings release or announce material news or a
    material event; or
•
prior to the expiration of the 180-day restricted period, we
    announce that we will release earnings results during the 16-day
    period beginning on the last day of the 180-day period,
in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day period beginning on the issuance of the earnings release
or the announcement of the material news or material event.
Offering Price Determination
Prior to this offering, there has been no public market for our
common stock. The initial public offering price will be
negotiated between the representatives and us. In determining
the initial public offering price of our common stock, the
representatives will consider:
•
the history and prospects for the industry in which we compete;
•
our financial information;
•
the ability of our management and our business potential and
    earning prospects;
•
the prevailing securities markets at the time of this
    offering; and
•
the recent market prices of, and the demand for, publicly traded
    shares of generally comparable companies.
Indemnification
We and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933 and liabilities incurred in
connection with the directed share program referred to below,
and to contribute to payments that the underwriters may be
required to make for these liabilities.
Directed Share Program
At our request, the underwriters have reserved for sale at the
initial public offering price up
to                      shares
offered hereby for officers, directors, employees and certain
other persons associated with us. The number of shares available
for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered
hereby.
88
Table of Contents
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the common stock, in
accordance with Regulation M under the Securities Exchange
Act of 1934:
•
Stabilizing transactions permit bids to purchase the underlying
    security so long as the stabilizing bids do not exceed a
    specified maximum.
•
A short position involves a sale by the underwriters of shares
    in excess of the number of shares the underwriters are obligated
    to purchase in the offering, which creates the syndicate short
    position. This short position may be either a covered short
    position or a naked short position. In a covered short position,
    the number of shares involved in the sales made by the
    underwriters in excess of the number of shares they are
    obligated to purchase is not greater than the number of shares
    that they may purchase by exercising their option to purchase
    additional shares. In a naked short position, the number of
    shares involved is greater than the number of shares in their
    option to purchase additional shares. The underwriters may close
    out any short position by either exercising their option to
    purchase additional shares and/or purchasing shares in the open
    market. In determining the source of shares to close out the
    short position, the underwriters will consider, among other
    things, the price of shares available for purchase in the open
    market as compared to the price at which they may purchase
    shares through their option to purchase additional shares. A
    naked short position is more likely to be created if the
    underwriters are concerned that there could be downward pressure
    on the price of the shares in the open market after pricing that
    could adversely affect investors who purchase in the offering.
•
Syndicate covering transactions involve purchases of the common
    stock in the open market after the distribution has been
    completed in order to cover syndicate short positions.
•
Penalty bids permit the representatives to reclaim a selling
    concession from a syndicate member when the common stock
    originally sold by the syndicate member is purchased in a
    stabilizing or syndicate covering transaction to cover syndicate
    short positions.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result,
the price of the common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the common stock. In addition, neither we nor any of the
underwriters make representation that the representatives will
engage in these stabilizing transactions or that any
transaction, once commenced, will not be discontinued without
notice.
Electronic Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters and/or selling group members
participating in this offering, or by their affiliates. In those
cases, prospective investors may view offering terms online and,
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account
holders. Any such allocation for online distributions will be
made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic format, the information
on any underwriter's or selling group member's web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus
89
Table of Contents
forms a part, has not been approved and/or endorsed by us or any
underwriter or selling group member in its capacity as
underwriter or selling group member and should not be relied
upon by investors.
NYSE
We intend to apply to list our shares of common stock for
quotation on the NYSE under the symbol "THH."
Discretionary Sales
The underwriters have informed us that they do not intend to
confirm sales to discretionary accounts that exceed 5% of the
total number of shares offered by them.
Stamp Taxes
If you purchase shares of common stock offered in this
prospectus, you may be required to pay stamp taxes and other
charges under the laws and practices of the country of purchase,
in addition to the offering price listed on the cover page of
this prospectus.
Relationships
The underwriters may in the future perform investment banking
and advisory services for us from time to time for which they
may in the future receive customary fees and expenses. The
underwriters may, from time to time, engage in transactions with
or perform services for us in the ordinary course of their
business.
90
Table of Contents
LEGAL MATTERS
The validity of the shares offered by this prospectus will be
passed upon for us by Kirkland & Ellis LLP, New York,
New York. The validity of the shares offered by this prospectus
will be passed upon for the underwriters by Gibson,
Dunn & Crutcher LLP, New York, New York.
EXPERTS
The consolidated financial statements of Team Health, Inc. at
December 31, 2004 and 2003, and for each of the three years
in the period ended December 31, 2004, appearing in this
prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1 under the Securities Act of 1933, including the
exhibits with the registration statement, with respect to the
shares offered by this prospectus. This prospectus does not
contain all the information contained in the registration
statement. For further information with respect to us and shares
to be sold in this offering, we refer you to the registration
statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document to which
we make reference are not necessarily complete.
Additionally, we file annual, quarterly and current reports and
other information with the SEC under the Securities Exchange Act
of 1934. You may read and copy any document we file at the
SEC's Public Reference Room located at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330. Our SEC filings also are
available from the SEC's Internet site at
http://www.sec.gov, which contains reports, proxy and
information statements, and other information regarding issuers
that file electronically.
91
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Registered Public
    Accounting Firm
F-2
Consolidated Balance Sheets at
    December 31, 2004 and 2003
F-3
Consolidated Statements of Operations for
    the years ended December 31, 2004, 2003 and 2002
F-4
Consolidated statements of
    shareholders' equity (deficit) and comprehensive earnings
    for the years ended December 31, 2004, 2003 and 2002
F-5
Consolidated statements of cash flows for
    the years ended December 31, 2004, 2003 and 2002
F-6
Notes to Consolidated Financial
    Statements
F-7
Consolidated Balance Sheets —
    June 30, 2005 and December 31, 2004
F-29
Consolidated Statements of
    Operations — Six months ended June 30, 2005 and
    2004
F-30
Consolidated Statements of Cash
    Flows — Six months ended June 30, 2005 and
    2004
F-31
Notes to Consolidated Financial
    Statements
F-32
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Team Health, Inc.
We have audited the accompanying consolidated balance sheets of
Team Health, Inc. as of December 31, 2004 and 2003, and the
related consolidated statements of operations, changes in
shareholders' equity (deficit) and comprehensive earnings
and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial
statement schedule listed in Item 16 (Item 15(a) of
the Form 10K. These financial statements and schedule are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Team Health, Inc. at December 31,
2004 and 2003, and the consolidated results of operations and
cash flows for each of the three years in the period ended
December 31, 2004, in conformity with US generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Note 2 to the financial statements, in 2002
the Company changed its method of accounting for goodwill.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
February 7, 2005
F-2
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2004
2003
(In thousands, except per
share data)
ASSETS
Current assets:
Cash and cash equivalents
$
17,931
$
100,964
Short term investments
64,651
—
Accounts receivable, less allowance for uncollectibles of
    $126,351 and $120,653 in 2004 and 2003, respectively
160,852
167,957
Prepaid expenses and other current assets
4,860
4,243
Receivables under insured programs
51,307
62,527
Total current assets
299,601
335,691
Property and equipment, net
17,625
19,967
Other intangibles, net
11,624
16,990
Goodwill
95,197
167,665
Deferred income taxes
96,708
96,881
Receivables under insured programs
52,804
60,697
Other
36,832
33,158
$
610,391
$
731,049
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
    SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
$
12,004
$
15,169
Accrued compensation and physician payable
75,160
76,557
Other accrued liabilities
72,988
82,876
Income taxes payable
4,670
9,948
Current maturities of long-term debt
15,000
43,528
Deferred income taxes
20,407
20,884
Total current liabilities
200,229
248,962
Long-term debt, less current maturities
413,125
255,887
Other non-current liabilities
195,917
182,557
Mandatory redeemable preferred stock
—
158,846
Common stock, $0.01 par value 12,000 shares
    authorized, 9,729 and 10,070 shares issued in 2004 and 2003
97
101
Additional paid in capital
919
703
Retained earnings (deficit)
(198,891
)
(113,813
)
Less treasury shares at cost
(787
)
(1,045
)
Accumulated other comprehensive earnings (loss)
(218
)
(1,149
)
$
610,391
$
731,049
See accompanying notes to the consolidated financial statements.
F-3
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2004
2003
2002
(In thousands)
Net revenues
$
1,572,174
$
1,479,013
$
1,230,703
Provision for uncollectibles
563,483
479,267
396,605
Net revenues less provision for uncollectibles
1,008,691
999,746
834,098
Cost of services rendered
Professional service expenses
754,222
746,409
635,573
Professional liability costs
59,839
115,970
36,992
Gross profit
194,630
137,367
161,533
General and administrative expenses
100,473
95,554
81,744
Management fee and other expenses
1,387
505
527
Impairment of intangibles
73,177
168
2,322
Depreciation and amortization
13,689
22,018
20,015
Interest expense, net
28,949
23,343
23,906
Refinancing costs
14,731
—
3,389
Earnings (loss) before income taxes and cumulative effect of
    change in accounting principle
(37,776
)
(4,221
)
29,630
Provision (benefit) for income taxes
11,436
(1,410
)
13,198
Earnings (loss) before cumulative effect of change in accounting
    principle
(49,212
)
(2,811
)
16,432
Cumulative effect of change in accounting principle, net of
    income tax benefit of $209
—
—
(294
)
Net earnings (loss)
(49,212
)
(2,811
)
16,138
Dividends on preferred stock
3,602
14,440
13,129
Net earnings (loss) attributable to common shareholders
$
(52,814
)
$
(17,251
)
$
3,009
See accompanying notes to the consolidated financial statements.
F-4
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DEFICIT)
AND COMPREHENSIVE EARNINGS
Accumulated
Common Stock
Treasury Stock
Additional
Other
Paid in
Retained
Comprehensive
Shares
Amount
Shares
Amount
Capital
Deficit
Earnings (Loss)
Total
(In thousands)
Balance at December 31, 2001
10,000
$
100
—
$
—
$
—
$
(99,571
)
$
(219
)
$
(99,690
)
Net earnings
—
—
—
—
—
16,138
—
16,138
Other comprehensive loss, net of tax:
Net change in fair value of swaps, net of tax of $844
—
—
—
—
—
—
(1,396
)
(1,396
)
Total comprehensive earnings
14,742
Issuance of stock
68
1
644
—
—
645
Dividends on preferred stock
—
—
—
—
—
(13,129
)
—
(13,129
)
Balance at December 31, 2002
10,068
101
—
—
644
(96,562
)
(1,615
)
(97,432
)
Net loss
—
—
—
(2,811
)
—
(2,811
)
Other comprehensive loss, net of tax:
Net change in fair value of swaps, net of tax of $286
—
—
—
—
—
—
466
466
Total comprehensive earnings
(2,345
)
Stock option activity
2
—
—
—
59
—
—
59
Treasury stock purchased
—
—
(150
)
(1,045
)
—
—
—
(1,045
)
Dividends on preferred stock
—
—
—
—
—
(14,440
)
—
(14,440
)
Balance at December 31, 2003
10,070
101
(150
)
(1,045
)
703
(113,813
)
(1,149
)
(115,203
)
Net loss
—
—
—
(49,212
)
—
(49,212
)
Other comprehensive income, net of tax:
Net change in fair market value of investments net of tax of $136
—
—
—
—
—
—
(214
)
(214
)
Net change in fair value of swaps, net of tax of $708
—
—
—
—
—
—
1,145
1,145
Total comprehensive earnings
(48,281
)
Stock option activity
21
—
—
—
237
—
—
237
Treasury stock reissued
—
—
7
100
—
—
—
100
Treasury shares cancelled
(362
)
(4
)
362
4,704
(21
)
(4,679
)
—
—
Treasury stock purchased
—
—
(271
)
(4,546
)
—
—
—
(4,546
)
Dividends on common stock
—
—
—
—
—
(27,585
)
(27,585
)
Dividends on preferred stock
—
—
—
—
—
(3,602
)
—
(3,602
)
Balance at December 31, 2004
9,729
$
97
(52
)
$
(787
)
$
919
$
(198,891
)
$
(218
)
$
(198,880
)
See accompanying notes to the consolidated financial statements.
F-5
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2004
2003
2002
(In thousands)
OPERATING ACTIVITIES
Net earnings (loss)
$
(49,212
)
$
(2,811
)
$
16,138
Adjustments to reconcile net earnings (loss):
Depreciation and amortization
13,689
22,018
20,015
Amortization of deferred financing costs
1,061
1,446
1,583
Write-off of deferred financing costs
6,225
—
3,389
Provision for uncollectibles
563,483
479,267
396,605
Impairment of intangibles
73,177
168
2,322
Deferred income taxes
(771
)
(13,967
)
6,941
Loss on sale of equipment
887
5
59
Cumulative effect of change in accounting principle
—
—
294
Equity in joint venture income
(664
)
(235
)
(346
)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(556,214
)
(490,392
)
(407,319
)
Prepaids and other assets
(1,732
)
5,842
(4,847
)
Income tax receivables
(5,277
)
10,761
7,797
Receivables under insured programs
19,113
39,918
(24,388
)
Accounts payable
(3,575
)
1,287
(3,785
)
Accrued compensation and physician payable
(7,536
)
11,907
4,806
Other accrued liabilities
1,137
(643
)
2,797
Professional liability reserves
10,794
37,170
30,419
Net cash provided by operating activities
64,585
101,741
52,480
INVESTING ACTIVITIES
Purchases of property and equipment
(6,713
)
(8,972
)
(9,796
)
Sale of property and equipment
77
1
31
Cash paid for acquisitions, net
(3,245
)
(2,472
)
(165,722
)
Net purchases of short-term investments
(64,877
)
—
—
Net purchases of investments by insurance subsidiary
(10,948
)
(13,642
)
—
Other investing activities
9,911
(1,194
)
725
Net cash used in investing activities
(75,795
)
(26,279
)
(174,762
)
FINANCING ACTIVITIES
Payments on notes payable
(301,290
)
(21,085
)
(121,800
)
Proceeds from notes payable
430,000
—
225,000
Payments of deferred financing costs
(7,892
)
(278
)
(5,226
)
Proceeds from sales of common stock
62
2
644
Proceeds from sales of preferred stock
—
—
1,270
Purchase of treasury stock
(2,770
)
(926
)
—
Proceeds from sale of treasury stock
100
—
—
Dividends paid on common stock
(27,585
)
—
—
Redemptions of preferred stock
(162,448
)
—
—
Net cash provided by (used in) financing activities
(71,823
)
(22,287
)
99,888
Increase (decrease) in cash and cash equivalents
(83,033
)
53,175
(22,394
)
Cash and cash equivalents, beginning of year
100,964
47,789
70,183
Cash and cash equivalents, end of year
$
17,931
$
100,964
$
47,789
Supplemental cash flow information:
Interest paid
$
30,693
$
23,365
$
22,404
Taxes paid
$
18,574
$
2,557
$
7,864
See accompanying notes to the consolidated financial statements.
F-6
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004
1.
Organization and Basis of Presentation
Team Health, Inc. (the "Company") believes it is among
the largest national providers of outsourced physician and other
healthcare related staffing and administrative services to
hospitals and other healthcare facility providers in the United
States. The Company's regional operating models include
comprehensive programs for emergency medicine, radiology,
anesthesiology, inpatient care, pediatrics and other healthcare
services, principally within hospital departments and other
healthcare treatment facilities. The Company provides a full
range of physician and other healthcare facility related
staffing and administrative services, including the:
(i) staffing and recruiting of and credentials coordination
for clinical and non-clinical medical professionals;
(ii) provision of administrative support services, such as
payroll, insurance coverage and continuing education services;
and (iii) billing and collection of fees for services
provided by the medical professionals.
The Company has two principal shareholders. Team Health
Holdings, LLC ("Holdings"), which is owned by certain
equity sponsors and certain members of the Company's senior
management, owns 92.3% of the Company's $0.01 par
value common stock. Caremark Rx, Inc. owns 7.6% of the remaining
outstanding common stock.
2.
Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries and have been
prepared in accordance with accounting principles generally
accepted in the United States. All intercompany and
inter-affiliate accounts and transactions have been eliminated.
The Company consolidates its subsidiaries in accordance with the
nominee shareholder model of Emerging Issues Task Force
(EITF) No. 97-2
"Application of FASB
No. 94 and APB Opinion No. 16 to Physician Practice
Entities and Certain Other Entities with Contractual Management
Arrangements"
. The Company's arrangements with
associated professional corporations ("PC") are
captive in nature as a majority of the outstanding voting equity
instruments of the different PCs are owned by a nominee
shareholder appointed at the sole discretion of the Company. The
Company has a contractual right to transfer the ownership of the
PC at any time to any person it designates as the nominee
shareholder. This transfer can occur without cause and any cost
incurred as a result of the transfer is minimal. There would be
no significant impact on the PC or the Company as a result of
the transfer of ownership. The Company provides staffing
services to its client hospitals through a management services
agreement between a subsidiary of Team Health, Inc. and the PCs.
Cash and Cash Equivalents
Cash consists primarily of funds on deposit in commercial banks.
Cash equivalents are highly liquid investments with maturities
of three months or less when acquired.
Marketable Securities
In accordance with SFAS No. 115
"Accounting
for Certain Investments in Debt and Equity Securities,"
management determines the appropriate classification of the
Company's investments at the time of purchase and
reevaluates such determination at each balance sheet date. As of
December 31, 2004 and 2003, the Company has classified all
marketable debt securities as available-for-sale.
Available-for-sale securities are carried at fair value, with
the unrealized gains and losses, net of tax, reported in other
comprehensive earnings. Realized gains and losses and declines
in value judged to be other-than-temporary on available for sale
securities are recognized in earnings.
F-7
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Accounts Receivable
Accounts receivable are primarily due from hospitals and
clinics, third-party payers, such as insurance companies,
government-sponsored healthcare programs, including Medicare and
Medicaid, and self-insured employers and patients. Accounts
receivable are stated net of reserves for amounts estimated by
management to not be collectible. Concentration of credit risk
relating to accounts receivable is somewhat limited by the
diversity and number of hospitals, patients, payers and by the
geographic dispersion of the Company's operations. In
addition, a portion of the Company's military staffing
business is conducted on a sub-contract basis with a third-party
direct contractor to the military. The amount owed by such
direct contractor represents approximately 7.5% of the
Company's consolidated accounts receivable as of
December 31, 2004.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over estimated useful
lives, which generally range from 3 to 10 years for
furniture and equipment, from 3 to 5 years for software and
from 10 to 40 years for buildings and leasehold
improvements. Property under capital lease is amortized using
the straight-line method over the life of the respective lease
and such amortization is included in depreciation expense.
Intangible Assets
The Company's intangible assets include goodwill and other
intangibles that consist primarily of the fair value of service
contracts acquired. Goodwill represents the excess of purchase
price over the fair value of net assets acquired.
Effective January 1, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards
(SFAS) No. 142,
Goodwill and Other Intangible
Assets
. Under SFAS No. 142, goodwill and
intangible assets deemed to have indefinite lives are not
amortized. The cost of service contracts and other intangibles
acquired is amortized using the straight-line method over their
estimated lives which was seven years in 2004.
Goodwill is evaluated for possible impairment on an annual basis
or more frequently if events and circumstances occur that may
indicate the potential for impairment. Goodwill assigned to a
reporting unit is evaluated for potential impairment following a
two-step procedure. The fair value of the reporting unit is
initially determined and compared to its carrying value. If the
carrying value exceeds the fair value of the applicable
reporting unit, the implied fair value of the goodwill of the
reporting unit is then determined. If it is determined that the
implied fair value of the goodwill of the reporting unit is less
than the carrying value of goodwill, an impairment loss is
recorded equal to such difference.
The carrying value of other intangibles is evaluated when
indicators are present to determine whether such intangibles may
be impaired with respect to their recorded values. If this
review indicates that certain intangibles will not be
recoverable, as determined based on the undiscounted cash flows
derived from the assets acquired over the remaining estimated
asset life, the carrying value of the intangibles is reduced by
the estimated shortfall of discounted cash flows.
F-8
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Deferred Financing Costs
Deferred financing costs, which are included in other noncurrent
assets and are amortized over the term of the related debt using
the interest method, consist of the following as of
December 31 (in thousands):
2004
2003
Deferred financing costs
$
7,892
$
11,333
Less accumulated amortization
(812
)
(4,859
)
$
7,080
$
6,474
Risk Management
Although the Company does not principally engage in the practice
of medicine or provide medical services, it does require the
physicians with whom it contracts to obtain professional
liability insurance coverage and makes this insurance available
to these physicians. The Company typically provides claims-made
coverage on a per incident and annual aggregate limit per
physician to affiliated physicians and other healthcare
practitioners. In addition, the Company has claims-made coverage
on a per incident and annual aggregate limit for all corporate
entities.
Effective March 12, 2003, the Company began providing for
its professional liability losses principally under a program of
self-insurance, including the use of a wholly owned captive
insurance company. The Company's estimated losses under the
self-insurance program are determined using periodic actuarial
estimates of losses and related expenses, adjusted on an interim
basis for actual physician hours worked and loss development
trends. Any differences between amounts previously recorded and
the results of updated actuarial studies of prior periods are
recorded in the period when such differences are known.
Professional liability insurance expense consists of premium
cost, an accrual to establish reserves for future payments under
the self-insured retention component and an accrual to establish
a reserve for future claims incurred but not reported.
Derivatives
The Company utilizes derivative financial instruments to reduce
interest rate risks. The Company does not hold or issue
derivative financial instruments for trading purposes. The
Company recognizes all derivatives as either assets or
liabilities in the statement of financial condition and measures
those instruments at fair value. Changes in the fair value of
these instruments are reported in earnings or other
comprehensive income depending on the use of the derivative and
whether it qualifies for hedge accounting. The accounting for
gains and losses associated with changes in the fair value of
the derivative and the effect on the consolidated financial
statements depends on its hedge designation and whether the
hedge is highly effective in achieving offsetting changes in the
fair value of cash flows of the asset or liability hedged.
During 2004 the fair value of interest rate swaps, net of tax,
increased approximately $1.1 million. In 2003, the fair
value, net of tax increased approximately $0.5 million. In
2002, the fair value, net of tax, decreased approximately
$1.4 million. In all years the change in fair value was
recognized through other comprehensive earnings.
Revenue Recognition
Net revenues consist of fee-for-service revenue, contract
revenue and other revenue. Net revenues are recorded in the
period services are rendered.
Net revenues are principally derived from the provision of
healthcare staffing services to patients within healthcare
facilities. The form of billing and related risk of collection
for such services may vary by customer. The following is a
summary of the principal forms of the Company's billing
arrangements and how
F-9
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
net revenue is recognized for each. A significant portion (74%
of our net revenues in 2004) resulted from fee-for-service
patient visits. Fee-for-service revenue represents revenue
earned under contracts in which the Company bills and collects
the professional component of charges for medical services
rendered by the Company's contracted and employed
physicians. Under the fee-for-service arrangements, the Company
bills patients for services provided and receives payment from
patients or their third-party payers. Fee-for-service revenue is
reported net of contractual allowances and policy discounts. All
services provided are expected to result in cash flows and are
therefore reflected as net revenues in the financial statements.
Fee-for-service revenue is recognized in the period that the
services are rendered to specific patients and reduced
immediately for the estimated impact of contractual allowances
in the case of those patients having third-party payer coverage.
The recognition of net revenues (gross charges less contractual
allowances) from such visits is dependent on such factors as
proper completion of medical charts following a patient visit,
the forwarding of such charts to one of our billing centers for
medical coding and entering into our billing systems and the
verification of each patient's submission or representation
at the time services are rendered as to the payer(s) responsible
for payment of such services. Net revenues are recorded based on
the information known at the time of entering of such
information into our billing systems as well as an estimate of
the net revenues associated with medical charts for a given
service period that have not been processed yet into our billing
systems. The above factors and estimates are subject to change.
For example, patient payer information may change following an
initial attempt to bill for services due to a change in payer
status. Such changes in payer status have an impact on recorded
net revenues due to differing payers being subject to different
contractual allowance amounts. Such changes in net revenues are
recognized in the period that such changes in payer become
known. Similarly, the actual volume of medical charts not
processed into our billing systems may be different from the
amounts estimated. Such differences in net revenues are adjusted
in the following month based on actual chart volumes processed.
Contract revenue represents revenue generated under contracts in
which the Company provides physician and other healthcare
staffing and administrative services in return for a
contractually negotiated fee. Contract revenue consists
primarily of billings based on hours of healthcare staffing
provided at agreed to hourly rates. Revenue in such cases is
recognized as the hours are worked by the Company's staff.
Additionally, contract revenue also includes supplemental
revenue from hospitals where the Company may have a
fee-for-service contract arrangement. Contract revenue for the
supplemental billing in such cases is recognized based on the
terms of each individual contract. Such contract terms generally
either provide for a fixed monthly dollar amount or a variable
amount based upon measurable monthly activity, such as hours
staffed, patient visits or collections per visit compared to a
minimum activity threshold. Such supplemental revenues based on
variable arrangements are usually contractually fixed on a
monthly, quarterly or annual calculation basis considering the
variable factors negotiated in each such arrangement. Such
supplemental revenues are recognized as revenue in the period
when such amounts are determined to be fixed and therefore
contractually obligated as payable by the customer under the
terms of the respective agreement.
Other revenue consists primarily of revenue from management and
billing services provided to outside parties. Revenue is
recognized for such services pursuant to the terms of the
contracts with customers. Generally, such contracts consist of
fixed monthly amounts with revenue recognized in the month
services are rendered or as hourly consulting fees recognized as
revenue as hours are worked in accordance with such
arrangements. Additionally, the Company derives a small
percentage of revenue from providing administrative and billing
services that are contingent upon the collection of third-party
physician billings, either by us on their behalf or other
third-party billing companies. Such revenues are not considered
earned and therefore not recognized as revenue until actual cash
collections are achieved in accordance with the contractual
arrangements for such services.
Net revenues are reduced for management's estimates of
amounts that will not be collected. The resulting net revenues
less provision for uncollectibles reflects net cash collections
for services rendered in the period plus management's
estimate of the remaining collections to be realized for
services rendered in the
F-10
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
period. Such estimates of amounts to be collected are subject to
adjustment as actual experience is realized. If subsequent
collections experience indicates that an adjustment to
previously recorded collection estimates is necessary, such
change of estimate adjustment is recorded in the current period
in which such assessment is made.
Management in estimating the amounts to be collected resulting
from its over six million annual fee-for-service patient visits
and procedures considers such factors as prior contract
collection experience, current period changes in payer mix and
patient acuity indicators, reimbursement rate trends in
governmental and private sector insurance programs, resolution
of credit balances, the estimated impact of billing system
effectiveness improvement initiatives and trends in collections
from self-pay patients. The complexity of the estimation process
associated with the Company's fee-for-service volumes and
diverse payer mix, along with the difficulty of assessing such
factors as changes in the economy impacting the number of
healthcare insured versus uninsured patients and other
socio-economic trends that can have an impact on collection
rates, could result in subsequent adjustments to previously
reported revenues.
The Company derives a significant portion of its net revenues
less provision for uncollectibles from government sponsored
healthcare programs. Net revenues less provision for
uncollectibles derived from the Medicare and Medicaid programs
was approximately 23%, 19% and 20% of total net revenues less
provision for uncollectibles in years 2004, 2003 and 2002,
respectively. In addition, net revenues less provision for
uncollectibles derived from the TRICARE Program, which is the
U.S. military's dependent healthcare program, was
approximately 21%, 23% and 15% in 2004, 2003 and 2002,
respectively.
Segment Reporting
The Company provides its services through five operating
segments which are aggregated into two reportable segments,
Healthcare Services and Management Services. The Healthcare
Services segment, which is an aggregation of healthcare
staffing, clinics, and occupation health, provides comprehensive
healthcare service programs to users and providers of healthcare
services on a fee-for-service as well as a cost plus basis. The
Management Services segment, which consists of medical group
management services and external billing and collection
services, provides a range of management and billing services on
a fee basis. These services include strategic management,
management information systems, third-party payer contracting,
financial and accounting support, benefits administration and
risk management, scheduling support, operations management and
quality improvement services.
Implementation of New Accounting Standards
Effective January 1, 2002, the Company adopted the
provisions of SFAS No. 142,
Goodwill and Other
Intangible Assets
. Under SFAS No. 142, goodwill
and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to impairment tests on an
annual basis, or more frequently if certain indicators arise.
Other intangible assets continue to be amortized over their
useful lives. The Company completed its required initial
impairment testing of goodwill during 2002. As a result of this
review, the Company concluded that a portion of its recorded
goodwill was impaired. Accordingly, an impairment loss of
$0.5 million ($0.3 million net of taxes) was recorded
in 2002 as the cumulative effect of a change in accounting
principle.
On December 31, 2002, the FASB issued
SFAS No. 148,
Accounting for Stock-Based
Compensation — Transition and Disclosure
.
SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation
, to provide
alternative methods of transition to the fair value method of
accounting for stock-based employee compensation under
SFAS No. 123. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion
No. 28,
Interim Financial Reporting
, to require
disclosure in the summary of significant accounting policies of
the effects of an entity's accounting policy with respect
to stock-based employee compensation on reported earnings in
annual and interim financial statements. While the Statement
does not
F-11
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
amend SFAS No. 123 to require companies to account for
employee stock options using the fair value method, the
disclosure provisions of SFAS No. 148 are applicable
to all companies with stock-based employee compensation,
regardless of whether the accounting for that compensation is
using the fair value method of SFAS No. 123 or the
intrinsic value method of Opinion 25. As more fully discussed in
Note 15, the Company has adopted the disclosure
requirements of SFAS No. 148 and the fair value
recognition provisions of SFAS 123,
Accounting for
Stock-Based Compensation
, prospectively for all new awards
granted to employees after January 1, 2003.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
.
SFAS No. 150 requires that certain financial
instruments, which under previous guidance were accounted for as
equity-type instruments, must now be accounted for as
liabilities. The financial instruments affected include
mandatory redeemable stock, certain financial instruments that
require or may require the issuer to buy back some of its shares
in exchange for cash or other assets and certain obligations
that can be settled with shares of stock. The provisions of
SFAS No. 150 are applicable to the Company's
financial statements beginning in 2005. The Company has
determined that the adoption of SFAS No. 150 will not
have a material effect on the results of its operations or
financial condition.
In January 2003, the FASB issued Interpretation No. 46
(FIN 46),
Consolidation of Variable Interest
Entities
. FIN 46 provides guidance on how to identify a
variable interest entity (VIE) and determine when the
assets, liabilities, non-controlling interests, and results of
operations of a VIE are to be included in an entity's
consolidated financial statements. A VIE exists when either the
total equity investment at risk is not sufficient to permit the
entity to finance its activities by itself, or the equity
investors lack one of three characteristics associated with
owning a controlling financial interest. Those characteristics
include the direct or indirect ability to make decisions about
an entity's activities through voting rights or similar
rights, the obligation to absorb the expected losses of an
entity if they occur, and the right to receive the expected
residual returns of the entity if they occur.
FIN 46 was effective immediately for new entities created
or acquired after February 1, 2003. The Company has no
interest in any entities created nor did it acquire any entities
after February 1, 2003. In December 2003, the FASB
published a revision to FIN 46 ("FIN 46R")
to clarify some of the provisions of the interpretation and
defer the effective date of implementation for certain entities.
Under the guidance of FIN 46R, entities that do not have
interests in structures that are commonly referred to as special
purpose entities are required to apply the provisions of the
interpretation in financial statements for periods ending after
March 14, 2004. Management believes that FIN 46R does
not have a material impact to the Company.
On December 16, 2004, the FASB issued
SFAS No. 123 (revised 2004),
Share-Based
Payment
, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees
, and amends
SFAS No. 95,
Statement of Cash Flows
.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all shared-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
Under the definition provided in SFAS No. 123(R) the
Company is considered a nonpublic entity therefore the
provisions of SFAS No. 123(R) are effective for the
Company beginning January 1, 2006. Early adoption is
permitted in periods in which financial statements have not been
issued. The Company expects to adopt SFAS No. 123(R)
beginning January 1, 2006.
As previously discussed the Company adopted the fair-value-based
method of accounting for share-based payments effective
January 1, 2003 using the prospective method described in
SFAS No. 148,
Accounting for Stock-Based
Compensation — Transition and Disclosure
.
Currently, the Company uses the minimum value method to estimate
the value of stock options granted to employees. In accordance
with the transition
F-12
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
provisions of SFAS No. 123(R) the Company will
continue to account for nonvested awards outstanding at the date
of adoption of SFAS No. 123(R) in the same manner as
they had been accounted for prior to adoption for financial
statement recognition purposes. For those options that are
granted after the adoption of SFAS No. 123(R) the
Company will no longer be permitted to use the minimum-value
method and instead will be required to use an acceptable
option-pricing model. The Company has not yet determined which
specific option-pricing model it will use.
SFAS No. 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), there were no amounts of operating cash flows
recognized in prior periods for such excess tax deductions in
2004, 2003 or 2002.
Use of Estimates
The preparation of financial statements in conformity with
United States 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.
3.
Acquisitions
During 2004, the Company made payments of approximately
$0.7 million with respect to contingent payments
established as a result of certain previous acquisitions. These
amounts represent payments of purchase price and have been
recorded as goodwill. Such amounts are not deductible for tax
purposes.
Effective December 31, 2003, the Company acquired all of
the outstanding stock of a corporation that provides hospital
physician staffing services under two contracts at locations in
Ohio. The purchase price for the acquired corporation was
$1.6 million, including $0.1 million which was paid in
cash on December 31, 2003 and the remaining
$1.5 million paid in January 2004. As of December 31,
2004, the Company may have to make up to an additional
$0.9 million in future payments if targeted future earnings
are achieved.
Effective September 1, 2002, the Company acquired all of
the outstanding stock of three corporations held by a single
shareholder. The acquired corporations provide hospital
emergency department and hospital physician staffing services
under five contracts for locations in West Virginia and
Virginia. The purchase price for the acquired corporations was
$8.6 million of which $5.2 million was paid in cash at
September 1, 2002 with the remainder of the purchase price
due in four annual installments of $0.9 million,
$0.9 million, $1.1 million and $0.5 million
commencing on October 31, 2003. In addition, the Company as
of December 31, 2004, may have to pay up to
$2.0 million in future contingent payments.
On May 1, 2002, the Company acquired all of the operations
of Spectrum Health Resources ("SHR"). SHR is a leading
provider of permanent healthcare staffing services to military
treatment facilities. The acquisition of SHR, which provides
services similar to the existing staffing operations of the
Company, significantly expanded the Company's base of
business by providing an entry into a portion of the healthcare
staffing market not previously served by the Company The Company
acquired the operations of SHR through the purchase of all of
the outstanding stock of the parent company of SHR and the
refinancing of the parent company's outstanding debt. The
total purchase price for SHR was paid in cash and totaled
approximately $145.7 million.
The Company's three equity sponsors control a majority of
the Company's voting common stock. Those three equity
sponsors were also controlling equity investors in SHR prior to
and at the time of entering into
F-13
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
the definitive purchase agreement. Prior to negotiating the
final purchase price and entering into the definitive purchase
agreement to acquire SHR, the Board of Directors took the
following steps:
1.     The Board of Directors appointed
    a Special Committee, consisting of three Directors who are not
    affiliated with the equity sponsors. The Special Committee was
    authorized to (i) consider, negotiate and approve the
    acquisition of SHR, (ii) retain such legal counsel and
    advisers and consultants as they deem appropriate,
    (iii) consider, negotiate and approve the terms of any
    financing related to the transaction, and (iv) expend any
    funds in furtherance of the duties granted to it. The final
    authority to approve the acquisition and financing rested with
    the full Board of Directors, but the Board of Directors could
    not approve any transaction not recommended by the Special
    Committee.
2.     Two of the three equity sponsors
    along with the Company's management members assisted the
    Special Committee in the evaluations and negotiations of the
    transaction on behalf of the Company. The largest common equity
    sponsor in SHR and the Company represented SHR in its evaluation
    and negotiation of the transaction.
3.     The Special Committee obtained
    an opinion from the investment-banking firm of SunTrust Robinson
    Humphrey, a division of SunTrust Capital Markets, Inc., that the
    purchase price paid for SHR was fair from a financial point of
    view to the equity holders of the Company as well as its bond
    holders.
Effective January 1, 2002, the Company completed the
acquisition of certain of the assets and related business
operations of two businesses. The operations acquired include
those of L&S Medical Management, Inc. ("L&S")
and a pediatric services business. L&S provides billing and
other management services on a management fee basis to
anesthesiology practices, principally in the Southeastern
portion of the United States. The pediatric services operation
provides evenings and weekend pediatric urgent care and
non-trauma emergency practice services at several locations in
Florida. The pediatric services provided are billed by the
Company on a fee-for-service basis.
The assets and operations of L&S were acquired for
$6.4 million in cash and the Company as of
December 31, 2004, may have to make up to $2.5 million
in future contingent payments relating to this acquisition. The
assets and operations of the three pediatric services locations
were acquired for $4.7 million in cash. The Company as of
December 31, 2004, may have to make up to $3.4 million
in future contingent payments for the existing business
operations if targeted future earnings levels are achieved.
The following schedule summarizes investing activities related
to acquisitions and contingent payments included in the
consolidated statements of cash flows for 2004, 2003 and 2002,
respectively, (in thousands):
2004
2003
2002
Fair value of net operating assets acquired (liabilities assumed)
$
2,536
$
(3,116
)
$
3,676
Fair value of contracts acquired
—
2,110
21,510
Goodwill
709
3,478
140,536
Cash paid for acquisitions, net
$
3,245
$
2,472
$
165,722
The acquisitions noted above were accounted for using the
purchase method of accounting. The operating results of the
acquired businesses have been included in the accompanying
consolidated statements of operations from their respective
dates of acquisition.
4.
Goodwill Impairment Loss
During 2004, the Company derived approximately
$207.5 million of revenue for services rendered to military
personnel and their dependents as either a subcontractor under
the TRICARE program administered by the Department of Defense or
by direct contracting with military treatment facilities. The
Company had historically provided its services principally
through subcontract arrangements with managed care
F-14
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
organizations that contracted directly with the TRICARE program.
In 2004, the military subjected all of its outsourced healthcare
staffing to a re-bidding process with successful bidders
contracting directly with military treatment facilities.
During the second quarter of 2004, the Department of Defense
announced that it would seek proposals to obtain its outsourced
healthcare staffing positions in a manner different than
previously used to acquire such positions. The most significant
announcement was that the military was no longer going to obtain
such staffing through managed care organizations with whom the
Company had previously secured a preferred subcontractor status
position. Instead, the military announced that it was going to
secure such positions through a competitive bidding process
regardless of past incumbency in staffing such positions. The
introduction of a new form of competition posed an immediate
threat to the existing revenues and operating margins being
experienced by the Company. Furthermore, because responsibility
for such contracting within the military was turned over to
government procurement officers, the aspect of pricing versus
existing relationships and service levels was going to prevail
in terms of vendor selection by the military. In addition, the
various branches of the military established certain restrictive
criteria for purposes of eligibility to bid on certain of their
staffing requests for certain proposals, some of which precluded
our Company from bidding for new staffing contracts.
The Department of Defense and its various military branches
began on June 1, 2004, awarding contracts for the civilian
positions that it required going forward. The process of
awarding healthcare staffing contracts by the government varied
by branch of the military and by military base location within
the various branches of the military. The award process included
soliciting requests for proposals from organizations that
provide civilian healthcare staffing, including the use of
restrictive government or military approved vendor lists, some
of which did not include the Company. In other instances, the
military re-bid its business on a basis that is inclusive of
existing providers, such as the Company, without the use of
restricted vendor lists. Furthermore, the awarding of certain
bids was restricted to small business or minority qualified
businesses for which the Company was not eligible to even bid
for the contracts. The new military staffing contracts resulting
from the re-bidding process vary as to form and duration on an
individual staffing position basis. The duration of such
contracts typically ranges from one year with no renewal options
to renewal options on the part of the military with such option
periods ranging from one to five years. The above noted facts
and circumstances were concluded by management to be a
"triggering event" under the provisions of
SFAS No. 142,
"Goodwill and Other Tangible
Assets".
The following is a summary of the Company's military
staffing revenues that were subject to re-bidding under the new
TRICARE program contracting process (in thousands):
Annual revenue derived from contracts subject to re-bidding
$
210,700
Annual revenue value of bids won to date (including new business
    of $20.1 million)
$
138,200
Percentage of revenue retained or new business won to total of
    annual revenue re-bid
66
%
Management concluded that the Company's previous revenues
and operating margins were materially adversely affected as a
result of the re-bidding process. The Company prior to the
recognition of any impairment loss had $127.9 million of
goodwill related to its military staffing business The Company
recorded an impairment loss of $73.2 million relating to
its military business goodwill in 2004.
The goodwill impairment loss was determined following the
provisions of SFAS No. 142. Accordingly, the Company
initially estimated the fair market value of the military
staffing business. The fair market value of the business was
determined using a multiple of projected cash flows based on
known contracts won as well as management's estimate of its
expectations of winning bids for remaining business contracts to
be awarded by the military. The average cash flow multiple was
derived from averaging the cash flow multiples for public
companies in the healthcare staffing market over a two-year
period. The carrying value of the business exceeded its
estimated fair market value. The fair market value was allocated
to the underlying net
F-15
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
assets of the business following generally accepted accounting
principles for allocating purchase prices. This included an
allocation of value to the components of working capital;
contract intangibles (based on a discounting of future cash
flows estimated to be derived from such contracts) with the
remainder of such fair value assigned to goodwill. The
aforementioned allocation process included estimates for
additional business contracts to be awarded by the military
projected to be won by the Company based on the Company's
experience in winning new contracts not previously held by the
Company and in recognition of the Company's experience and
capabilities in providing such ongoing staffing services to the
military.
5.
Other Intangible Assets
The following is a summary of other intangible assets and
related amortization as of December 31, 2004 and 2003 for
intangibles that are subject to amortization (in thousands):
Gross
Carrying
Accumulated
Amount
Amortization
As of December 31, 2004:
Contracts
$
31,956
$
20,560
Other
448
220
Total
$
32,404
$
20,780
As of December 31, 2003:
Contracts
$
35,614
$
18,898
Other
448
174
Total
$
36,062
$
19,072
Total amortization expense for other intangibles was
$5.4 million, $10.6 million and $4.8 million for
the years 2004, 2003 and 2002, respectively.
The estimated annual amortization expense for intangibles for
the next five years is as follows (in thousands):
2005
$
4,147
2006
2,582
2007
2,151
2008
1,798
2009
688
During 2004, the Company recorded an additional
$0.7 million of goodwill and in 2003 recorded an additional
$3.5 million of goodwill and $2.1 million of contract
intangibles as a result of its acquisitions during the periods
and contingent acquisition payments made for previous
acquisitions. Contract intangibles are amortized over their
estimated lives which are approximately seven years.
During 2003 and 2002, the Company recorded as an impairment loss
$0.2 million and $2.3 million, respectively, to reduce
its contract intangibles to their estimated fair value. The
impairment losses recorded in 2003 and 2002 are the result of
either reduced contract profitability and thus expected future
cash flows, or a termination of contracts for which an
intangible asset had previously been recorded.
F-16
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
6.
Property and Equipment
Property and equipment consists of the following at
December 31 (in thousands):
2004
2003
Buildings and leasehold improvements
$
5,256
$
4,885
Furniture and equipment
27,584
30,280
Software
8,070
8,824
40,910
43,989
Less accumulated depreciation
(23,285
)
(24,022
)
$
17,625
$
19,967
Depreciation expense in 2004, 2003 and 2002 was approximately
$8.3 million, $9.0 million and $9.4 million,
respectively.
7.
Receivables Under Insured Programs
Receivables under insured programs represent the portion of the
Company's reserves for professional liability losses
estimated to be reimbursable under commercial insurance company
policies. The entities providing professional liability coverage
to the Company are creditworthy commercial insurance companies
and the Company believes these companies will be able to fully
satisfy their obligations under the insurance contracts.
8.
Other Assets
Other assets consist of the following as of December 31 (in
thousands):
2004
2003
Investments
$
24,356
$
14,641
Deferred financing costs
7,080
6,474
Other
5,396
12,043
$
36,832
$
33,158
Investments represent funds held within the Company's
captive insurance company to meet expected professional
liability insurance loss obligations.
9.
Investments
Short term investments have a maturity of less than a year and
consist primarily of commercial paper, treasury notes, and euro
deposits. Long term investments represent securities held by the
captive insurance subsidiary and consist primarily of money
market funds, treasury notes, and certificates of deposits. At
December 31 the amortized cost basis and aggregate fair
value of the Company's available-for-sale securities by
contractual maturities were as follows (in thousands):
2004
2003
Amortized
Aggregate
Amortized
Aggregate
Cost Basis
Fair Value
Cost Basis
Fair Value
Due in less than one year
$
71,142
$
70,903
$
14,641
$
14,641
Due after one year through five years
18,215
18,104
—
—
$
89,357
$
89,007
$
14,641
$
14,641
F-17
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
As of December 31, 2004, there were $3,000 of gross
unrealized gains and $353,000 of gross unrealized losses on
investments. There were no gross unrealized gains or unrealized
losses on investments as of December 31, 2003. There were
no realized gains or losses on investments for the years ended
December 31, 2004 and 2003.
10.
Other Accrued Liabilities
The Company's other accrued liabilities at December 31
consist of the following (in thousands):
2004
2003
Professional liability loss reserves
$
55,214
$
66,136
Other
17,774
16,740
$
72,988
$
82,876
11.
Long-Term Debt
Long-term debt as of December 31 consists of the following
(in thousands):
2004
2003
Term Loan Facilities
$
248,125
$
199,415
9% Senior Subordinated Notes
180,000
—
12% Senior Subordinated Notes
—
100,000
428,125
299,415
Less current portion
(15,000
)
(43,528
)
$
413,125
$
255,887
The Term Loan Facilities consist of the following (in
thousands):
Senior Secured Term Loan A
$
—
$
56,478
Senior Secured Term Loan B
248,125
142,937
$
248,125
$
199,415
The interest rates for any senior revolving credit facility
borrowings (none outstanding in 2004) are based on a grid which
is based on the consolidated ratio of total funded debt to
earnings before interest, taxes, depreciation and amortization,
all as defined in the credit agreement. The interest rate on any
current Term Loan B amount outstanding is equal to the euro
dollar rate plus 3.25% or the agent bank's base rate plus
2.25%. In the event of a default by the Company under its bank
loan covenants, such interest rates would increase by 2% over
the current rates then in effect. Upon expiration of the current
interest rate period, the Company would have to pay the agent
bank's base rates plus 2% plus the maximum applicable
margin. Under the bank's base rate borrowing base, the
maximum applicable margin for any senior revolving credit
facility borrowing amounts is 2.75% and for Term Loan B
amounts is 3.25%.
The interest rate at December 31, 2004 was 5.81% for
amounts outstanding under Term Loan B. In addition, the
Company pays a commitment fee for the revolving credit facility
which was equal to 0.5% of the commitment at December 31,
2004. No funds have been borrowed under the revolving credit
facility as of December 31, 2004, but the Company had
$3.8 million of standby letters of credit outstanding
against the revolving credit facility commitment. The Company
has a forward interest rate swap agreement that became effective
April 29, 2004, to effectively convert $35.0 million
of floating-rate borrowings to 3.2% fixed-rate borrowings
through March 31, 2007. These agreements expose the Company
to credit losses in the event of non-performance by the
counterparties to its financial instruments. The counterparties
are creditworthy
F-18
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
financial institutions and the Company anticipates that the
counterparties will be able to fully satisfy their obligations
under the contracts.
The Company issued on March 23, 2004, 9% Senior
Subordinated Notes ("Notes") in the amount of
$180.0 million due April 1, 2012. The Notes are
subordinated in right of payment to all senior debt of the
Company and are senior in right of payment to all existing and
future subordinated indebtedness of the Company. Interest on the
Notes accrues at the rate of 9% per annum, payable
semi-annually in arrears on April 1 and October 1 of
each year. Beginning on April 1, 2008, the Company may
redeem some or all of the Notes at any time at various
redemption prices.
The Notes are guaranteed jointly and severally on a full and
unconditional basis by all of the Company's majority-owned
operating subsidiaries ("Subsidiary Guarantors") as
required by the Indenture Agreement. The Company is a holding
company with no assets or operations apart from the ownership of
its operating subsidiaries.
Both the 9% Notes and the current term loan facility
contain both affirmative and negative covenants, including
limitations on the Company's ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets
of another business, pay dividends, and require the Company to
meet or exceed certain coverage, leverage and indebtedness
ratios. The terms of both the current term loan facility and the
Notes restrict the amount of dividends payable by the Company.
As of December 31, 2004, no dividends are available for
payment under the most restrictive terms of the Company's
debt agreements.
The senior credit agreement includes a provision for the
prepayment of a portion of the outstanding term loan amounts at
any year-end if the Company generates "excess cash
flow," as defined in the agreement. The Company has
estimated that it will be required to make an excess cash flow
payment of approximately $15.0 million for fiscal 2004 by
April 30, 2005. The estimated excess cash flow payment has
been included within current maturities of long-term debt in the
accompanying balance sheet at December 31, 2004.
Effective March 23, 2004, the Company completed a tender
offer for its then outstanding 12% Senior Subordinated
Notes in the amount of $100.0 million, plus a call premium
of $8.2 million and entered into its current senior credit
facilities with a group of banks. As a result of entering into
the new senior credit facilities and the redemption of its
12% Senior Subordinated Notes, the Company recognized in
2004 refinancing costs of approximately $14.7 million
($9.0 million net of related income tax benefit of
$5.7 million), principally relating to the write-off of
approximately $6.2 million of capitalized financing costs
on its previously outstanding long-term debt and the incurrence
of the call premium to redeem the 12% Senior Subordinated
Notes. In addition, as a result of repayment of underlying
borrowings during 2004, the Company recorded as additional
interest expense approximately $1.7 million in 2004 related
to an interest rate swap agreement to reflect its value on a
mark-to-market basis. The interest rate swap agreement was
subsequently terminated in 2004.
Aggregate annual maturities of long-term debt as of
December 31, 2004 are as follows (in thousands):
2005
$
15,000
2006
2,373
2007
2,373
2008
2,373
2009
2,373
Thereafter
403,633
$
428,125
F-19
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
12.
Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following as of
December 31 (in thousands):
2004
2003
Professional liability loss reserves
$
187,514
$
165,798
Deferred compensation
6,615
12,626
Other
1,788
4,133
$
195,917
$
182,557
The Company's professional liability loss reserves at
December 31 consist of the following (in thousands):
2004
2003
Estimated losses under self-insured programs
$
138,617
$
108,710
Estimated losses under commercial insurance programs
104,111
123,224
242,728
231,934
Less — estimated amount payable within one year
55,214
66,136
$
187,514
$
165,798
The Company provides for its estimated professional liability
losses through a combination of commercial insurance company
coverage as well as reserves established to provide for future
payments under self-insured retention components and to
establish reserves for future claims incurred but not reported.
During the period March 12, 1999 through March 11,
2003, the primary source of the Company's coverage for such
risks was a professional liability insurance policy provided
through one insurance carrier. The policy with the
Company's primary insurance carrier for such coverage and
period provided coverage for potential liabilities on a
"claims-made" basis. The policy included the ability
for the Company to be able to exercise a "tail"
premium option. The tail premium option included an aggregate
limit of $130.0 million during the period March 12,
1999 to March 11, 2003. As a result of conditions in the
professional liability insurance market, the Company decided
that it would provide, beginning March 12, 2003, for such
risks previously covered by the Company's primary insurance
carrier through a captive insurance company. Since
March 12, 2003, loss estimates on a "claims-made"
basis are being provided for and funded within the captive
insurance company. Additionally, the Company is providing for an
actuarial estimate of losses for professional liability claims
incurred but not reported since March 12, 2003.
The option for the tail premium was exercised by the Company
effective March 11, 2003, and its cost of approximately
$30.6 million, was paid in April 2003. The Company had
previously recorded the cost of such option over the four-year
period ended March 11, 2003.
The Company's decision to forego commercial professional
liability insurance in favor of a self-insured program was, in
part, based on the results of an actuarial study. The actuarial
study was prepared to provide the Company with an actuarial
estimate of the current annual cost of its professional
liability claim losses and related expenses and also to estimate
the Company's potential exposure to prior period losses
under the $130.0 million aggregate policy limit. The
foregoing actuarial study included numerous underlying estimates
and assumptions, including assumptions as to future claim
losses, the severity and frequency of such projected losses,
loss development factors, and others. The results of the
actuarial study included a projection that the Company would
incur a loss resulting from claims for the covered periods
exceeding the $130.0 million aggregate insurance company
loss limit under the previous policy. Such loss estimate,
discounted at 4% over the projected future payment periods,
totaled $50.8 million and is reflected in the
Company's statement of operations for 2003.
F-20
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
The Company's provisions for losses subsequent to
March 11, 2003, that are not covered by commercial
insurance company coverage are subject to subsequent adjustment
should future actuarial projected results for such periods
indicate projected losses are greater or less than previously
projected. In addition, the results of future actuarial studies
may result in the loss estimate provision under the aggregate
policy limit to be further adjusted upward or downward as
actuarial results are realized over time.
13.
Redemption of 10% Cumulative Preferred Stock
During 2004, the Board of Directors of the Company authorized
the redemption of the Company's 10% Cumulative Preferred
Stock. On March 23, 2004, the Company redeemed its 10%
Cumulative Preferred Stock in the amount of approximately
$162.4 million, including accrued dividends.
14.
Shareholders' Equity
During 2004 and 2003, the Company recorded the cost of acquiring
271,020 and 70,828 shares, respectively, of its common
stock and common units of Holdings from members of its
management at a total cost of $4.5 million in 2004 and
$0.9 million in 2003. The consideration for the shares
acquired in 2004 consisted of cash of $2.7 million and a
note payable in the amount of $1.8 million payable in two
equal installments on January 1, 2005 and 2006.
During 2004, the Company sold 22,600 shares of its
$0.01 par value common stock to members of its management
for net proceeds of $0.1 million. During 2002, the Company
sold 67,513 shares of its $.01 par value common stock
to members of its management and Board of Directors for net
proceeds of $0.6 million.
In 2004, the Board of Directors authorized the Company to cancel
certain common shares that had been acquired from former members
of management and were accounted for as treasury shares. Certain
of the previously repurchased treasury shares represented common
units in Holdings and the remainder were common shares of the
Company. To facilitate the share cancellation, the Company and
Holdings exchanged a like number of common shares and units each
owned of the other. Following the exchange with Holdings, the
Company cancelled 362,321 common shares which reduced the
carrying value of treasury shares by $4.7 million. As of
December 31, 2004, the Company held 51,833 treasury shares
at a cost of $0.8 million.
The Company's Board of Directors declared a cash dividend
to shareholders of record as of March 18, 2004, in the
amount of approximately $27.6 million which was
subsequently paid on March 23, 2004. The Board of Directors
also authorized a compensatory payment to holders of stock
options in lieu of a cash dividend in the amount of
approximately $2.5 million of which $1.3 million was
paid and expensed on March 23, 2004, with the balance of
$1.1 million to be paid and expensed in future periods as
such stock options vest.
15.
Stock Options
The Company's 1999 Stock Option Plan (the "Plan")
allows the granting of stock options to employees, consultants
and directors of the Company. The Company has reserved
1,245,926 shares of common stock for issuance. The options
vest at the end of an eight-year period, but allow for the
possible acceleration of vesting if certain performance related
criteria are met.
Effective January 1, 2003, the Company adopted the fair
value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
, prospectively to
all new awards granted to employees after January 1, 2003.
Prior to January 1, 2003, the Company applied the
recognition and measurement provisions of APB Opinion
No. 25,
Accounting for Stock Issued to Employees
,
and related Interpretations in accounting for options awarded.
No stock-based employee compensation expense is reflected in net
earnings for 2002 as all options granted prior to
January 1, 2003 had an exercise price equal to the market
value of the underlying common stock on the date of grant.
Therefore, the expense related to stock-based employee
compensation
F-21
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
included in the determination of net earnings for 2002 is less
than that which would have been recognized if the fair value
method had been applied to all awards since adoption of the
plan. The following table illustrates the effect on net earnings
(loss) if the fair value method had been applied to all
outstanding and unvested awards in each period (in thousands):
Year Ended December 31,
2004
2003
2002
Net earnings (loss) attributable to common shareholders
$
(52,814
)
$
(17,251
)
$
3,009
Add: stock-based employee compensation expense included in net
    earnings (loss) attributable to common shareholders, net of
    related tax effects
43
19
5
Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects
(164
)
(151
)
(114
)
Pro forma net earnings (loss) attributable to common shareholders
$
(52,935
)
$
(17,383
)
$
2,900
Stock option activity during 2002, 2003 and 2004 was as follows
(options in thousands):
Number of
Weighted Average
Options
Price Range
Exercise Price
Outstanding at December 31, 2001
497
$
1.50- 4.50
$
2.39
Granted
359
4.50-12.00
10.34
Cancelled
(6
)
1.50- 4.50
2.00
Outstanding at December 31, 2002
850
1.50-12.00
5.75
Granted
49
13.50
13.50
Exercised
(2
)
1.50
1.50
Cancelled
(34
)
1.50- 4.50
2.00
Outstanding at December 31, 2003
863
1.50-13.50
6.34
Granted
25
15.18
15.18
Exercised
(23
)
1.50- 4.50
2.69
Cancelled
(38
)
1.50-12.00
2.74
Outstanding at December 31, 2004
827
$
1.50-15.18
$
6.85
The following table summarizes information about stock options
outstanding at December 31, 2004 (options in thousands):
Weighted Average
Options
Weighted Average
Options
Remaining
Outstanding
Exercise Price
Exercisable
Contractual Life
80
$
1.50
221
5.0
95
4.50
111
6.5
78
12.00
89
7.4
49
13.50
6
8.4
25
15.18
—
9.5
827
$
6.85
427
6.5
As of December 31, 2004, 2003 and 2002, there were 426,687,
148,343 and 161,532 shares that were vested and
exercisable, respectively.
F-22
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Approximately 46,000 of the 826,725 options outstanding at
December 31, 2004 were granted to affiliated independent
contractor physicians in previous years. The Company recorded
$6,396 of compensation expense in 2004, $18,061 in 2003 and
$9,000 in 2002, based on grant date assumptions of a fair value
of $0.68 per option, 6.0% risk-free interest rate and a ten
year expected option life relating to these options.
The following table represents the weighted average fair value
of options granted during 2004, 2003 and 2002:
Weighted
Average
Fair Value
2004
$
5.27
2003
$
4.45
2002
$
2.60
The fair value of stock options was estimated at the date of
grant using the minimal value option pricing model with the
following assumptions: expected dividend yield of 0% in 2004,
2003 and 2002; risk-free interest rate of 4.27%, 4.0% and 2.0%
in 2004, 2003 and 2002, respectively; and an expected life of
ten years in 2004, 2003 and 2002.
16.
Net Revenues
Net revenues in 2004, 2003 and 2002, respectively, consisted of
the following (in thousands):
2004
2003
2002
Fee for service revenue
$
1,168,099
$
1,040,996
$
907,596
Contract revenue
373,918
408,147
292,740
Other revenue
30,157
29,870
30,367
$
1,572,174
$
1,479,013
$
1,230,703
17.
Income Taxes
The provision for income tax expense (benefit) consists of the
following (in thousands):
Year Ended December 31,
2004
2003
2002
Current:
Federal
$
11,668
$
15,468
$
4,336
State
2,902
2,524
1,904
14,570
17,992
6,240
Deferred:
Federal
(2,346
)
(17,699
)
7,646
State
(788
)
(1,703
)
(688
)
(3,134
)
(19,402
)
6,958
$
11,436
$
(1,410
)
$
13,198
F-23
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
The reconciliation of income tax expense computed at the federal
statutory tax rate to income tax expense (benefit) is as follows:
Year Ended
December 31,
2004
2003
2002
Tax at statutory rate
(35.0
)%
(35.0
)%
35.0
%
State income tax (net of federal tax benefit)
2.3
(1.0
)
1.6
Change in valuation allowance
1.6
—
3.3
Costs not deductible for tax purposes
68.1
5.2
1.5
Resolution of tax issue
(5.1
)
—
—
Other
(1.8
)
(2.6
)
3.1
30.1
%
(33.4
)%
44.5
%
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The components of the
Company's deferred tax assets and liabilities are as
follows at December 31 (in thousands):
Year Ended
December 31,
2004
2003
Current deferred tax assets:
Accounts receivable
$
14,940
$
12,890
Accrued compensation and other
3,636
2,478
Professional liability reserves
2,301
865
Total current deferred tax assets
20,877
16,233
Current deferred tax liabilities:
Affiliate deferred revenue
(41,284
)
(37,117
)
Total current deferred tax liabilities
(41,284
)
(37,117
)
Net current deferred tax liabilities
$
(20,407
)
$
(20,884
)
Long term deferred tax assets:
Accrued compensation and other
$
796
$
2,100
Amortization and depreciation
49,161
56,669
Professional liability reserves
45,620
41,378
Net operating losses
4,006
2,623
Total long term deferred tax assets
99,583
102,770
Long term deferred tax liabilities:
Other reserves
—
(3,630
)
Valuation allowance
(2,875
)
(2,259
)
Net long-term deferred tax asset
$
96,708
$
96,881
F-24
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Year Ended
December 31,
2004
2003
Total deferred tax assets
$
120,460
$
119,003
Total deferred tax liabilities
(41,284
)
(40,747
)
Valuation allowance
(2,875
)
(2,259
)
Net deferred tax assets
$
76,301
$
75,997
The Company as of December 31, 2004, had operating loss
carryforwards in various states that begin to expire in 2010
through 2030.
18.
Retirement Plans
The Company's employees participated in various employee
benefit plans sponsored by the Company. The plans are primarily
defined contribution plans. The various entities acquired or
merged into the Company have various retirement plans that have
been terminated, frozen or amended with terms consistent with
the Company's plans. The Company's contributions to
the plans were approximately $3.0 million in 2004,
$3.3 million in 2003 and $3.6 million 2002.
The Company maintains a retirement savings plan for its
employees. The plan is a defined benefit contribution plan in
accordance with the provisions of Section 401(k) of the
Internal Revenue Code. The plan provides for a discretionary
match by the Company up to a maximum of 50% of the first 6% of
compensation contributed by employees. The Company's
provisions in 2004, 2003 and 2002 reflect the maximum
discretionary provisions provided for under the amended plan.
The Company also maintains non-qualified deferred compensation
plans for certain of its employees. Total deferred compensation
payable as of December 31, 2004 and 2003 was approximately
$7.3 million and $12.9 million, respectively. During
2004, the assets held within a rabbi trust that was maintained
for the benefit of certain members of the Company's senior
management were paid to its employee participants in connection
with a refinancing of the Company's capital structure. The
rabbi trust had held preferred units in Team Health Holdings,
LLC. The deferred compensation liability and related investment
held by the rabbi trust were carried as a long-term liability
and a long-term asset at December 31, 2003 in the amount of
$8.6 million.
19.
Commitments and Contingencies
Leases
The Company leases office space for terms of primarily one to
ten years with options to renew for additional periods. Future
minimum payments due on these noncancelable operating leases at
December 31, 2004 are as follows (in thousands):
2005
$
8,716
2006
7,783
2007
6,142
2008
4,373
2009
2,058
Thereafter
1,554
$
30,626
F-25
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Operating lease costs were approximately $8.4 million,
$8.0 million and $7.3 million for the years ended
December 31, 2004, 2003 and 2002, respectively.
Litigation
We are party to various pending legal actions arising in the
ordinary operation of our business such as contractual disputes,
employment disputes and general business actions as well as
professional liability actions. We believe that any payment of
damages resulting from these types of lawsuits would be covered
by insurance, exclusive of deductibles, would not be in excess
of related reserves, and such liabilities, if incurred, should
not have a significant negative effect on the results of
operations and financial condition of our Company.
Indemnity
In connection with the acquisition of a company that specializes
in providing medical staff providers to military treatment
facilities on May 1, 2002, subject to certain limitations,
the previous shareholders of such company and its related
entities have indemnified the Company up to a limit of
$10.0 million relating to any claims asserted against the
acquired company during the three years subsequent to the date
of its acquisition related to tax matters whose origin was
attributable to tax periods prior to May 1, 2002.
Healthcare Regulatory Matters
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. Compliance
with such laws and regulations can be subject to future
governmental review and interpretation as well as significant
regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company's
practices. It is the Company's current practice and future
intent to cooperate fully with such inquiries.
In addition to laws and regulations governing the Medicare and
Medicaid programs, there are a number of federal and state laws
and regulations governing such matters as the corporate practice
of medicine and fee splitting arrangements, anti-kickback
statutes, physician self-referral laws, false or fraudulent
claims filing and patient privacy requirements. The failure to
comply with any of such laws or regulations could have an
adverse impact on our operations and financial results. It is
management's belief that the Company is in substantial
compliance in all material respects with such laws and
regulations.
Contingent Acquisition Payments
As of December 31, 2004, the Company may have to pay up to
$8.8 million in future contingent payments as additional
consideration for acquisitions made prior to December 31,
2004. These payments will be made and recorded as additional
purchase price should the acquired operations achieve the
financial targets contracted in the respective agreements
related to their acquisition.
Office of Inspector General Information Request
On March 30, 2004, the Company received a subpoena from the
Department of HHS Office of Inspector General ("OIG"),
located in Concord, California, requesting certain information
for the period 1999 to present relating to its billing
practices. To date, the Company has produced and delivered to
the OIG certain requested information, and the OIG has stayed
further requests. The Company has learned in conversations with
representatives of the OIG and the United States Attorney for
the Northern District of California, the basis for the issuance
of the subpoena is a complaint filed in the United States
District Court for the Northern District of California
("Court") by an individual on behalf of the
government. The identity of the qui tam relator and portions of
the qui tam complaint remain sealed by the Court pending the
government's investigation. The portions of the complaint
not under seal allege that the Company engaged in certain
billing practices that resulted in the Company's receipt of
duplicate payments for the same medical service and that the
Company misled certain providers about the entities that were
performing their billing services.
F-26
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
Additionally, the portions of the complaint not under seal
allege that the Company terminated the employment of the
individual who filed the complaint in retaliation for that
individual's bringing of these allegations to the attention
of the Company. The Company denies these allegations and does
not believe that any of its current or prior billing practices
would form the basis for a violation of federal law.
The Company is fully cooperating with the OIG in its request
described herein and have been producing and delivering to the
OIG the requested documents. However, due to lack of more
specific information available to it at this time, it is unable
to ascertain the full scope of the government's inquiry or
the qui tam relator's complaint. Management cannot predict
the outcome of this investigation or suit or their respective
durations. If this investigation results in current or prior
billing practices being identified as violative of applicable
laws or regulations, results in penalties being imposed upon the
Company, or results in an adverse determination in the qui tam
relator's complaint against it, the impact could have a
material adverse effect on the Company's business and
financial condition.
20.
Related Party Transactions
The Company leases office space from several partnerships that
are partially or entirely owned by certain employees of the
Company. The leases were assumed by the Company as part of
merger or purchase transactions. Total related party lease costs
were approximately $1.0 million in 2004, 2003 and 2002. In
addition, the Company has a management services agreement with
three of our equity sponsors to provide certain management
services. Management services paid under this arrangement were
$0.5 million in 2004, 2003, and 2002.
21.
Segment Reporting
The Company has two reportable segments: Healthcare Services and
Management Services. Healthcare Services provides professional
healthcare staffing in various healthcare provider settings,
such as hospitals, clinics and military treatment facilities.
Management Services consists of medical group management
services and external billing and collection services.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies.
Segment amounts disclosed are prior to any elimination entries
made in consolidation, except in the case of net revenues, where
intercompany charges have been eliminated. Certain expenses are
not allocated to the segments. These unallocated expenses are
corporate expenses, net interest expense, depreciation and
amortization, refinancing costs and income taxes. The Company
evaluates segment performance based on profit and loss before
the aforementioned expenses. Assets not identifiable to an
individual segment are corporate assets, which are primarily
comprised of cash and cash equivalents, short term investments,
computer related fixed assets and intercompany receivables and
loans (which are eliminated in consolidation).
The following table presents financial information for each
reportable segment. Depreciation, amortization, impairment of
intangibles, management fee and other expenses separately
identified in the consolidated statements of operations are
included as a reduction to the respective segments'
operating earnings for each year below (in thousands):
2004
2003
2002
Net Revenues:
Healthcare Services
$
988,688
$
984,023
$
817,346
Management Services
20,003
15,723
16,752
$
1,008,691
$
999,746
$
834,098
F-27
Table of Contents
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
December 31, 2004
2004
2003
2002
Operating Earnings:
Healthcare Services
$
36,013
$
46,909
$
86,814
Management Services
3,494
4,542
3,059
General Corporate
(33,603
)
(32,329
)
(32,948
)
$
5,904
$
19,122
$
56,925
Capital Expenditures:
Healthcare Services
$
1,810
$
5,457
$
3,011
Management Services
1,012
715
1,927
General Corporate
3,891
2,800
4,858
$
6,713
$
8,972
$
9,796
Total Assets:
Healthcare Services
$
376,436
$
463,927
$
545,689
Management Services
19,576
21,645
2,998
General Corporate
214,379
245,477
125,553
$
610,391
$
731,049
$
674,240
22.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company
in estimating the fair value of the Company's financial
instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheets for cash and
    cash equivalents approximates its fair value.
Accounts receivable:
The carrying amount reported in the balance sheets for accounts
    receivable approximates its fair value.
Investments:
The fair market value of investments were determined based upon
    quoted market rates, where available, or discounted cash flows
    if no market value was available.
Long-term debt:
Fair values for debt were determined based on interest rates
    that are currently available to the Company for issuance of debt
    with similar terms and remaining maturities for debt issues that
    are not traded on quoted market prices. The fair value of the
    Company's total debt, which has a carrying value of
    $428.1 million, is approximately $424.1 million.
Interest rate swap:
The fair value of the Company's interest rate swap
    agreement was zero at December 31, 2004 based on quoted
    market prices for similar interest rate contracts.
F-28
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
December 31,
2005
2004
(Unaudited)
(In thousands, except
per share data)
ASSETS
Current assets:
Cash and cash equivalents
$
15,187
$
17,931
Short term investments
—
64,651
Accounts receivable, less allowance for uncollectibles of
    $138,098 and $126,351 in 2005 and 2004, respectively
167,837
160,852
Prepaid expenses and other current assets
16,460
4,860
Receivables under insured programs
57,286
51,307
Total current assets
256,770
299,601
Investments of insurance subsidiary
28,591
24,449
Receivables under insurance programs
41,260
52,804
Deferred income taxes
94,495
96,708
Property and equipment, net
16,001
17,625
Other intangibles, net
9,398
11,624
Goodwill
100,992
95,197
Other
12,889
12,383
$
560,396
$
610,391
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable
$
9,897
$
12,004
Accrued compensation and physician payable
74,662
75,160
Other accrued liabilities
76,818
72,988
Income taxes payable
2,502
4,670
Current maturities of long-term debt
2,307
15,000
Deferred income taxes
19,535
20,407
Total current liabilities
185,721
200,229
Long-term debt, less current maturities
345,668
413,125
Other non-current liabilities
196,544
195,917
Common stock, $0.01 par value 12,000 shares
    authorized, 9,816 shares issued at June 30, 2005 and
    9,729 shares issued at December 31, 2004
98
97
Additional paid in capital
1,510
919
Retained earnings (deficit)
(168,825
)
(198,891
)
Less treasury shares at cost
(445
)
(787
)
Accumulated other comprehensive earnings (loss)
125
(218
)
$
560,396
$
610,391
See accompanying notes to financial statements
F-29
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
2005
2004
(Unaudited)
(In thousands)
Net revenues
$
799,672
$
786,032
Provision for uncollectibles
291,364
268,628
Net revenues less provision for uncollectibles
508,308
517,404
Cost of services rendered
Professional service expenses
366,643
385,948
Professional liability costs
18,392
29,891
Gross profit
123,273
101,565
General and administrative expenses
50,765
48,819
Management fee and other expenses
2,162
613
Depreciation and amortization
6,166
6,944
Interest expense, net
13,913
14,326
Refinancing costs
—
14,731
Estimated impairment loss
1,560
65,819
Earnings (loss) before income taxes
48,707
(49,687
)
Provision for income taxes
18,641
6,266
Net earnings (loss)
30,066
(55,953
)
Dividends on preferred stock
—
3,602
Net earnings (loss) attributable to common shareholders
$
30,066
$
(59,555
)
See accompanying notes to financial statements.
F-30
Table of Contents
TEAM HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2005
2004
(Unaudited)
(In thousands)
Operating Activities
Net earnings (loss)
$
30,066
$
(55,953
)
Adjustments to reconcile net earnings (loss):
Depreciation and amortization
6,166
6,944
Amortization of deferred financing costs
352
549
Write-off of deferred financing costs
734
6,225
Estimated impairment loss
1,560
65,819
Provision for uncollectibles
291,364
268,628
Deferred income taxes
1,125
(6,385
)
Loss on sale of investment
201
—
Loss on sale of equipment
308
362
Equity in joint venture income
(953
)
(565
)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(298,345
)
(252,566
)
Prepaids and other assets
(11,446
)
(15,382
)
Income tax receivables
(2,168
)
(1,752
)
Receivables under insured programs
5,565
19,855
Accounts payable
(1,693
)
(2,422
)
Accrued compensation and physician payable
84
(12,681
)
Other accrued liabilities
(2,120
)
(1,640
)
Professional liability reserves
7,197
7,204
Net cash provided by operating activities
27,997
26,240
Investing Activities
Purchases of property and equipment
(4,635
)
(2,557
)
Sale of property and equipment
177
5
Cash paid for acquisitions, net
(5,795
)
(2,259
)
Net change of short-term investments
64,676
—
Net purchases of investments by insurance subsidiary
(4,199
)
(6,562
)
Other investing activities
(324
)
9,121
Net cash provided by (used in) investing activities
49,900
(2,252
)
Financing Activities
Payments on notes payable
(80,150
)
(300,040
)
Proceeds from notes payable
—
430,000
Payment of deferred financing costs
(271
)
(7,446
)
Proceeds from sales of common stock
279
47
Purchase of treasury stock
(984
)
(2,609
)
Proceeds from sale of treasury stock
485
100
Dividends paid on common stock
—
(27,585
)
Redemptions of preferred stock
—
(162,448
)
Net cash used in financing activities
(80,641
)
(69,981
)
Net decrease in cash
(2,744
)
(45,993
)
Cash and cash equivalents, beginning of period
17,931
100,964
Cash and cash equivalents, end of period
$
15,187
$
54,971
Interest paid
$
15,380
$
15,325
Taxes paid
$
19,904
$
14,755
See accompanying notes to financial statements
F-31
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
Basis of Presentation
The accompanying unaudited consolidated financial statements
include the accounts of Team Health, Inc. (the
"Company") and its wholly owned subsidiaries and have
been prepared in accordance with accounting principles generally
accepted in the United States for interim financial reporting
and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of
the information and notes required by accounting principles
generally accepted in the United States for complete financial
statements. Certain prior year amounts have been reclassified to
conform to the current year presentation.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of normal recurring items) necessary for a fair
presentation of results for the interim periods presented. The
results of operations for any interim period are not necessarily
indicative of results for the full year. The consolidated
balance sheet of the Company at December 31, 2004 has been
derived from the audited financial statements at that date, but
does not include all of the information and disclosures required
by accounting principles generally accepted in the United States
for complete financial statements. These financial statements
and footnote disclosures should be read in conjunction with the
December 31, 2004 audited consolidated financial statements
and the notes thereto included in the Company's
Form 10-K.
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated
financial statements and notes. Actual results could differ from
those estimates.
Note 2.
Implementation of New Accounting Standards
In June 2005, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting
Standard ("SFAS") No. 154,
Accounting Changes
and Error Corrections — a replacement of APB Opinion
No. 20 and FASB Statement No. 3
. This standard
replaces APB Opinion No. 20,
Accounting Changes
, and
FASB Statement No. 3,
Reporting Accounting Changes in
Interim Financial Statements
, and changes the requirements
for the accounting and reporting of a change in accounting
principle. SFAS No. 154 applies to all voluntary
changes in accounting principle and to changes required by an
accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions.
SFAS No. 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived,
nonfinancial assets be accounted for as a change in accounting
estimate effected by a change in accounting principle.
SFAS No. 154 requires that the change in accounting
principle be applied to the balances of assets and liabilities
as of the beginning of the earliest period for which
retrospective application is practicable and that a
corresponding adjustment be made to the opening balance of
retained earnings for that period rather than being reported in
an income statement. In the event of a change in accounting
principle, SFAS No. 154 will require a restatement of
previously issued financial statements to reflect the effect of
the change in accounting principle on prior periods presented.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of SFAS No. 154
is not expected to have a material effect on our consolidated
financial position, results of operations or cash flows.
On December 16, 2004, the FASB issued
SFAS No. 123 (revised 2004),
Share-Based
Payment
, which is a revision of SFAS No. 123,
Accounting for Stock-Based Compensation
.
SFAS No. 123(R) supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees
, and amends
SFAS No. 95,
Statement of Cash Flows
.
Generally, the approach in SFAS No. 123(R) is similar
to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values.
Pro forma disclosure is no longer an alternative.
F-32
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
The provisions of SFAS No. 123(R) are effective for
the Company beginning January 1, 2006. Early adoption is
permitted in periods in which financial statements have not been
issued. The Company expects to adopt SFAS No. 123(R)
beginning January 1, 2006.
The Company adopted the fair-value-based method of accounting
for share-based payments effective January 1, 2003 using
the prospective method described in SFAS No. 148,
Accounting for Stock-Based Compensation —
Transition and Disclosure
. Currently, the Company uses the
minimum value method to estimate the value of stock options
granted to employees. In accordance with the transition
provisions of SFAS No. 123(R) the Company will
continue to account for nonvested awards outstanding at the date
of adoption of SFAS No. 123(R) in the same manner as
they had been accounted for prior to adoption for financial
statement recognition purposes. For those options that are
granted after the adoption of SFAS No. 123(R), the
Company will no longer be permitted to use the minimum-value
method and instead will be required to use an acceptable
option-pricing model. The Company has not yet determined which
specific option-pricing model it will use.
SFAS No. 123(R) also requires the benefits of tax
deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than an operating cash
flow as required under current literature. This requirement will
reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they
depend on, among other things, when employees exercise stock
options), the amounts recognized in operating cash flows for
such excess tax deductions were $463,000 and $59,000 for the six
months ended June 30, 2005 and 2004, respectively.
Note 3.
Net Revenues
Net revenues for the six months ended June 30, 2005 and
2004, respectively, consisted of the following (in thousands):
Six Months Ended
June 30,
2005
2004
Fee for service revenue
$
615,203
$
565,161
Contract revenue
168,497
205,835
Other revenue
15,972
15,036
$
799,672
$
786,032
Note 4.
Asset Impairment Losses
In July 2005, the Board of Directors approved management's
recommendation to divest the Company's two diagnostic
imaging centers. The Board of Directors also approved
management's recommendation to cease providing radiology
staffing services at five underperforming hospital contracts
effective at various dates through December 31, 2005. The
Company is currently evaluating alternatives for disposing of
the imaging centers, including either sale or outright cessation
of operations. Both of the imaging center locations are leased
with lease expiration dates of January 31, 2006, and
March 31, 2008, respectively. The Company has estimated an
impairment loss with respect to equipment and other property
costs related to these locations in the amount of
$1.6 million and has recorded such loss in the three months
ended June 30, 2005. The Company is currently evaluating
the potential for additional costs relating to the imaging
centers for remaining estimated future lease payments, net of
estimated sub-lease income. Any such related lease costs will be
recorded in the period that operations cease (currently
anticipated to be in the three months ended
F-33
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
September 30, 2005). As of June 30, 2005, aggregate
future lease payments related to the imaging center locations,
not reduced for potential sub-lease proceeds, are approximately
$1.0 million.
The annual net revenues less provision for uncollectibles for
the two imaging centers and five hospital contracts noted above
are approximately $8.8 million in the six months ended
June 30, 2005.
As a result of the decisions reached with respect to a portion
of the Company's business related to radiology services,
the Company anticipates incurring severance and other
termination related costs to employees affected by such
decisions. The amount of such severance costs will be recorded
in periods subsequent to June 30, 2005. The Company has not
yet definitively determined the amount of such severance costs,
however, on a preliminary basis, such costs are estimated to be
approximately $1.0 million.
During the six months ended June 30, 2004, the Company
derived approximately $123.9 million of revenue for
services rendered to military personnel and their dependents as
either a subcontractor under the TRICARE program administered by
the Department of Defense or by direct contracting with military
treatment facilities. The Company had historically provided its
services principally through subcontract arrangements with
managed care organizations that contracted directly with the
TRICARE program. During the three months ended June 30,
2004, the Department of Defense announced that it would seek
proposals to obtain its outsourced healthcare staffing positions
in a manner different than previously used to acquire such
positions. On June 1, 2004, the Department of Defense and
its various military branches began awarding contracts for the
civilian positions that it required going forward. The process
of awarding healthcare staffing contracts by the government
varied by branch of the military and by military base location
within the various branches of the military. The award process
included soliciting requests for proposals from organizations
that provide civilian healthcare staffing, including the use of
restrictive government or military approved vendor lists, some
of which did not include the Company. In other instances, the
military re-bid its business on a basis that was inclusive of
existing providers, such as the Company, without the use of
restricted vendor lists. Furthermore, the awarding of certain
contacts was restricted to small businesses or minority
qualified businesses. The Company is not eligible to bid for
such contracts. The above noted facts and circumstances were
concluded by management to be a "triggering event"
under the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets"
.
Management concluded that the Company's previous revenues
and operating margins were materially adversely affected as a
result of the re-bidding process. The Company prior to the
recognition of any impairment loss had $127.9 million of
goodwill related to its military staffing business. The Company
recorded an estimated impairment loss in the three months ended
June 30, 2004, of $65.8 million relating to its
military business goodwill (subsequently increased by an
additional $7.4 million in the three months ended
September 30, 2004).
F-34
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Note 5.
Other Intangible Assets
The following is a summary of intangible assets and related
amortization as of June 30, 2005 and December 31, 2004
(in thousands):
Gross Carrying
Accumulated
Amount
Amortization
As of June 30, 2005:
Contracts
$
31,173
$
21,980
Other
448
243
Total
$
31,621
$
22,223
As of December 31, 2004:
Contracts
$
31,956
$
20,560
Other
448
220
Total
$
32,404
$
20,780
Aggregate amortization expense:
For the six months ended June 30, 2005
$
2,226
Estimated amortization expense:
For the year ended December 31, 2005
$
4,147
For the year ended December 31, 2006
2,582
For the year ended December 31, 2007
2,151
For the year ended December 31, 2008
1,798
For the year ended December 31, 2009
688
Note 6.
Long-Term Debt
Long-term debt as of June 30, 2005, consisted of the
following (in thousands):
Term Loan C
$
202,307
9% Senior Subordinated Notes
145,668
347,975
Less current portion
2,307
$
345,668
Effective April 6, 2005, the Company and its lenders agreed
to an amendment of the terms of its senior credit facility. As a
result of such amendment, the following occurred or was agreed
to:
•
the Company made a voluntary prepayment of its term debt in the
    amount of $30.0 million
•
the Company's existing term loan B was converted to a
    new term loan C in the amount of $203.1 million
•
the Company's senior credit facility lenders agreed to a
    reduction in the pricing for term loan borrowings to LIBOR plus
    275 basis points, a reduction of 50 basis points
F-35
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
•
a further reduction or increase of up to 50 basis points in
    the pricing for term loan borrowings from LIBOR plus
    275 basis points in the event that the credit ratings for
    the Company's borrowings are increased or decreased,
    respectively, and
•
the ability of the Company to repurchase at its option up to
    $35.0 million of its outstanding 9% Subordinated Bonds
    so long as the Company was in compliance with the terms and
    covenants of its senior credit facility agreement.
The Company's senior credit facilities at June 30,
2005 consisted of the following:
•
$80.0 million Senior Secured Revolving Credit Facility
•
$202.3 million Senior Secured Term Loan C
The interest rates for any senior revolving credit facility
borrowings are determined by reference to a grid that is based
on the consolidated ratio of total funded debt to earnings
before interest, taxes, depreciation and amortization, as
defined in the credit agreement. The interest rate on the Term
Loan C amount outstanding is equal to the euro dollar rate
plus 2.75% or the agent bank's base rate plus 2.25%. The
interest rate at June 30, 2005, was 6.24% for the Term
Loan C. The Company also pays a commitment fee for the
revolving credit facility which was equal to 0.5% of the
commitment at June 30, 2005. No funds have been borrowed
under the revolving credit facility as of June 30, 2005,
but the Company had $5.1 million of standby letters of
credit outstanding against the revolving credit facility
commitment.
The Company has an obligation under the terms of the senior
credit facility agreement to obtain and maintain interest rate
hedge agreements at amounts such that 50% of the Company's
funded debt, as defined, was at fixed rates of interest. Such
hedge agreements are required to be maintained for at least the
first three years of the senior credit facility agreement. On
April 29, 2004, the Company entered into an interest rate
swap agreement that effectively converts $35.0 million of
its variable rate term loans to a fixed rate of 3.2% through
March 31, 2007.
The Company originally issued on March 23, 2004,
9% Senior Subordinated Notes in the amount of
$180.0 million, due April 1, 2012. Subsequent to the
amendment of its senior credit facility on April 6, 2005,
the Company acquired and retired $34.3 million of par value
9% bonds at a purchase price of $35.0 million, including
purchase price premium of $0.7 million. As a result of such
early redemption of the 9% bonds, the Company recorded
$1.4 million of bond premium and accelerated deferred bond
financing costs as other expenses in the accompanying statement
of operations for the three months ended June 30, 2005.
The senior credit facility agreement and the 9% bond indenture
contain both affirmative and negative covenants, including
limitations on the Company's ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets
of another business, pay dividends, and require the Company to
meet or exceed certain coverage and leverage ratios. In
addition, the senior credit agreement includes a provision for
the prepayment of a portion of the outstanding term loan amounts
at any year-end if the Company generates "excess cash
flow" as defined in the agreement. During the six months
ended June 30, 2005, the Company paid $15.8 million of
its then outstanding Term B loan under the excess cash flow
provision.
Effective March 23, 2004, the Company completed a tender
offer for its then outstanding 12% Senior Subordinated
Notes in the amount of $100.0 million, plus a call premium
of $8.2 million and entered into its current senior credit
facilities with a group of banks. As a result of entering into
the new senior credit facilities and the redemption of its
12% Subordinated Notes, the Company recognized in the six
months ended June 30, 2004, refinancing costs of
approximately $14.7 million ($9.0 million, net of
related income tax benefit of $5.7 million) principally
relating to the write-off of capitalized financing costs on its
previously outstanding long-term debt and the incurrence of the
call premium to redeem the 12% Senior Subordinated
F-36
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Notes. In addition, as a result of repayment of underlying
borrowings in 2004, the Company recorded as additional interest
expense approximately $1.7 million in the six months ended
June 30, 2004, related to an interest rate swap agreement
to reflect its value on a mark-to-market basis. The interest
rate swap agreement was subsequently terminated.
Aggregate maturities of long-term debt as of June 30, 2005
are as follows (in thousands):
2005
$
2,307
2006
2,500
2007
2,500
2008
2,500
Thereafter
338,168
$
347,975
Note 7.
Professional Liability Insurance
The Company's professional liability loss reserves consist
of the following (in thousands):
June 30,
December 31,
2005
2004
Estimated losses under self-insured programs
$
151,379
$
138,617
Estimated losses under commercial insurance programs
98,546
104,111
249,925
242,728
Less — estimated payable within one year
Self-insured programs
3,926
3,907
Commercial insurance programs
57,286
51,307
61,212
55,214
$
188,713
$
187,514
The Company provides for its estimated professional liability
losses through a combination of self-insurance and commercial
insurance programs. During the period March 12, 1999
through March 11, 2003, the primary source of the
Company's coverage for such risks was a professional
liability insurance policy provided through one insurance
carrier. The commercial insurance carrier policy included an
insured loss limit of $130.0 million with losses in excess
of such limit remaining as a self-insured obligation of the
Company. Beginning March 12, 2003, such risks are
principally being provided for through self-insurance with a
portion of such risks ("claims-made" basis)
transferred to and funded into a captive insurance company. The
accounts of the captive insurance company are fully consolidated
with those of the other operations of the Company in the
accompanying financial statements.
The self-insurance components of our risk management program
include reserves for future claims incurred but not reported.
The Company's provisions for losses under its
self-insurance components are estimated using the results of
periodic actuarial studies performed by an independent actuarial
firm. Such actuarial studies include numerous underlying
estimates and assumptions, including assumptions as to future
claim losses, the severity and frequency of such projected
losses, loss development factors and others. The Company's
provisions for losses under its self-insured components are
subject to subsequent adjustment should future actuarial
projected results for such periods indicate projected losses are
greater or less than previously projected.
F-37
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
The Company's most recent actuarial valuation was completed
in April 2005. As a result of such actuarial valuation, the
Company realized a reduction in its provision for professional
liability losses of $7.6 million in the six months ended
June 30, 2005, related to its reserves for losses in prior
years. The Company had previously realized a $1.6 million
reduction in its professional liability loss liability in the
six months ended June 30, 2004, resulting from an actuarial
study completed in April 2004.
Note 8.
Redemption of 10% Cumulative Preferred Stock
During 2004, the Board of Directors of the Company authorized
the redemption of the Company's 10% Cumulative Preferred
Stock. On March 23, 2004, the Company redeemed its 10%
Cumulative Preferred Stock in the amount of approximately
$162.4 million, including accrued dividends.
Note 9.
Common Stock Dividend and Related Compensatory Bonus
    Payment
The Company's Board of Directors declared a cash dividend
to shareholders of record as of March 18, 2004, in the
amount of approximately $27.6 million which was
subsequently paid on March 23, 2004. The Board of Directors
also authorized a compensatory payment to holders of stock
options in lieu of a cash dividend in the amount of
approximately $2.4 million of which $1.3 million was
paid and expensed on March 23, 2004. The balance of such
compensatory payment is being expensed and paid as such stock
options subsequently vest.
Note 10.
Stock Options
Effective January 1, 2003, the Company adopted the fair
value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation
, prospectively to
all new awards granted to employees after January 1, 2003.
Prior to January 1, 2003 the Company applied the
recognition and measurement provisions of APB Opinion
No. 25,
Accounting for Stock Issued to Employees
,
and related Interpretations in accounting for options awarded.
Therefore, the expense related to stock-based employee
compensation included in the determination of net earnings
(loss) for the six months ended June 30, 2005 and 2004 is
less than that which would have been recognized if the fair
value method had been applied to all awards. The following table
illustrates the effect on net earnings (loss) if the fair value
method had been applied to all outstanding and unvested awards
in each period (in thousands):
Six Months Ended
June 30,
2005
2004
Net earnings (loss) attributable to common shareholders, as
    reported
$
30,066
$
(59,555
)
Add: Stock-based employee compensation expense included in
    reported net loss attributable to common shareholders, net of
    related tax effects
160
16
Deduct: Total stock-based employee compensation expense
    determined under the fair value method for all awards, net of
    related tax effects
(214
)
(80
)
Pro forma net earnings (loss) attributable to common shareholders
$
30,012
$
(59,619
)
Note 11.
Contingencies
Litigation
We are currently a party to various legal proceedings, including
as noted below. While we currently believe that the ultimate
outcome of such proceedings, individually and in the aggregate,
will not have a material adverse effect on our financial
position or overall trends in results of operations, litigation
is subject
F-38
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
to inherent uncertainties. If an unfavorable ruling were to
occur, there exists the possibility of a material adverse impact
on our net earnings in the period in which the ruling occurs.
The estimate of the potential impact from such legal proceedings
on our financial position or overall results of operations could
change in the future.
On July 19, 2005, a jury verdict in connection with a
professional liability lawsuit was rendered against certain
defendants that included our parent corporation and one of its
affiliates. The jury verdict was in the amount of
$15.0 million of which $2.0 million is covered under
an insurance policy in effect at the date of the incident. The
jury award is subject to the issuance of a final judgment by the
court. We do not believe the facts, circumstances or the law
presented in this case support the jury's award. We will
file motions for a new trial and remitteur with the trial court.
If these motions are not granted, we intend to pursue a request
for relief through the appellate process.
When the trial court renders its final judgment with respect to
the jury award and if such judgment results in an amount payable
to the plaintiff by us in excess of our insurance coverage
limits, such excess will be recorded in our statement of
operations in the period when such final judgment is rendered.
In such event, there will be a requirement that we post an
appeal bond with the court while an appeal of the court's
decision runs its course. At this time, a loss amount relating
to this matter, if any, is not estimatable.
Office of Inspector General Information Request
On March 30, 2004, the Company received a subpoena from the
Department of HHS Office of Inspector General ("OIG"),
located in Concord, California, requesting certain information
for the period 1999 to present relating to its billing
practices. To date, the Company has produced and delivered to
the OIG certain requested information. The Company has learned
that the basis for the issuance of the subpoena is a complaint
filed in the United States District Court for the Northern
District of California ("Court") by an individual on
behalf of the government. The identity of the qui tam relator
and portions of the qui tam complaint remain sealed by the Court
pending the government's investigation. The portions of the
complaint not under seal allege that the Company engaged in
certain billing practices that resulted in the Company's
receipt of duplicate payments for the same medical service and
that the Company misled certain providers about the entities
that were performing their billing services. Additionally, the
portions of the complaint not under seal allege that the Company
terminated the employment of the individual who filed the
complaint in retaliation for that individual's bringing of
these allegations to the attention of the Company. The Company
denies these allegations and does not believe that any of its
current or prior billing practices would form the basis for a
violation of federal law.
The Company is fully cooperating with the OIG in its request
described herein and have been producing and delivering to the
OIG the requested documents. However, due to lack of more
specific information available to it at this time, it is unable
to ascertain the full scope of the government's inquiry or
the qui tam relator's complaint. Since cooperating with the
OIG with respect to the original relator complaint, the Company
has complied with numerous OIG's requests for additional
information relative to the Company's billing polices and
practices for all payers and has made members of its management
available to them for purposes of their further understanding of
such billing polices and practices. Management cannot predict
the outcome of this investigation or suit or their respective
durations. If this investigation results in current or prior
billing practices being identified as violative of applicable
laws or regulations, results in penalties being imposed upon the
Company, or results in an adverse determination in the qui tam
relator's complaint against it, the impact could have a
material adverse effect on the Company's business and
financial condition.
F-39
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
Healthcare Regulatory Matters
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. Compliance
with such laws and regulations can be subject to future
governmental review and interpretation as well as significant
regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company's
practices. It is the Company's current practice and future
intent to cooperate fully with such inquiries.
In addition to laws and regulations governing the Medicare and
Medicaid programs, there are a number of federal and state laws
and regulations governing such matters as the corporate practice
of medicine and fee splitting arrangements, anti-kickback
statutes, physician self-referral laws, false or fraudulent
claims filing and patient privacy requirements. The failure to
comply with any of such laws or regulations could have an
adverse impact on our operations and financial results. It is
management's belief that the Company is in substantial
compliance in all material respects with such laws and
regulations.
Acquisition Payments
As of June 30, 2005, the Company may have to pay up to
$3.0 million in future contingent payments as additional
consideration for acquisitions made prior to June 30, 2005.
These payments will be made and recorded as additional purchase
price should the acquired operations achieve the financial
targets agreed to in the respective acquisition agreements.
During the six months ended June 30, 2005, the Company made
required payments of $5.8 million under contingent payment
provisions of agreements related to previous acquisitions.
Note 12. Comprehensive Earnings
The components of comprehensive earnings (loss), net of related
taxes, are as follows (in thousands):
Six Months Ended
June 30,
2005
2004
Net earnings (loss) attributable to common shareholders
$
30,066
$
(59,555
)
Net change in fair market value of investments
100
—
Net change in fair value of interest rate swaps
243
1,034
Comprehensive earnings (loss)
$
30,409
$
(58,521
)
Note 13.
Segment Reporting
The Company provides its services through five operating
segments which are aggregated into two reportable segments,
Healthcare Services and Management Services. The Healthcare
Services segment, which is an aggregation of healthcare
staffing, clinics, and occupational health, provides
comprehensive healthcare service programs to users and providers
of healthcare services on a fee-for-service as well as a cost
plus basis. The Management Services segment, which consists of
medical group management services and external billing and
collection services, provides a range of management and billing
services on a fee basis. These services include strategic
management, management information systems, third-party payer
contracting, financial and accounting support, benefits
administration and risk management, scheduling support,
operations management and quality improvement services.
Segment amounts disclosed are prior to any elimination entries
made in consolidation, except in the case of net revenues, where
intercompany charges have been eliminated. Certain expenses are
not allocated to the segments. These unallocated expenses are
corporate expenses, net interest expense, depreciation and
F-40
Table of Contents
TEAM HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(Unaudited)
amortization, refinancing costs and income taxes. The Company
evaluates segment performance based on profit and loss before
the aforementioned expenses.
The following table presents financial information for each
reportable segment. Depreciation, amortization, impairment of
intangibles, management fee and other expenses separately
identified in the consolidated statements of operations are
included as a reduction to the operating earnings of each
segment in each period below (in thousands):
Six Months Ended
June 30,
2005
2004
Net Revenues less provision for uncollectibles:
Healthcare Services
$
497,234
$
508,846
Management Services
11,074
8,558
$
508,308
$
517,404
Operating earnings:
Healthcare Services
$
78,267
$
(5,797
)
Management Services
1,875
1,149
General Corporate
(17,522
)
(15,982
)
$
62,620
$
(20,630
)
F-41
Table of Contents
Shares
PROSPECTUS
,
2005
Lehman Brothers
Merrill Lynch & Co.
JPMorgan
Until                       ,
2005 (25 days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This delivery requirement is in
addition to the obligations of dealers to deliver a prospectus
when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Table of Contents
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses
to be incurred in connection with the registration and
distribution of the securities being registered hereunder. All
such fees and expenses shall be borne by Team Health, Inc. (the
"Company").
Securities and Exchange Commission registration fee
$
20,304
NASD filing fee
17,750
NYSE listing fee
*
Printing and engraving expenses
*
Blue Sky fees and expenses
*
Accounting fees and expenses
*
Transfer agent and registrar fees and expenses
*
Legal fees and expenses
*
Miscellaneous fees and expenses
*
Total
$
38,054
*
To be provided by amendment.
Item 14.
Indemnification of Directors and Officers
Under Sections 48-18-501 through 48-18-509 of the Tennessee
Business Corporation Act, as amended (the "TCBA"), the
Company is entitled to indemnify its directors and officers
against reasonable expenses.
Article IX of the Company's Charter provides that the
Company may indemnify and advance expenses to persons who are or
were the directors or officers of the Company in accordance with
the TCBA.
Article X of the Company's Charter provides that no
person who is or was a director of the Company, nor his heirs,
executors or administrators, shall be personally liable to the
Company or its shareholders, and no such person may be sued by
the Company or its shareholders for monetary damages for breach
of fiduciary duty as a director; provided, however, that the
provision shall not eliminate or limit the liability of any such
party (i) for any breach of a director's duty of
loyalty to the Company or its shareholders; (ii) for acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) for
unlawful distributions under Section 48-18-304 of the TCBA.
Any repeal or modification of the provisions of Article X,
directly or by the adoption of an inconsistent provision of the
charter, shall not adversely affect any right or protection set
forth therein in favor of a particular individual at the time of
such repeal or modification.
Article VIII of the Company's Bylaws provides that any
person who at any time serves or has served as a director,
officer or corporate officer of the Company, or who serves or
has served, at the request of the Company, as a director,
officer, corporate officer, partner, trustee, employee or agent
of an affiliated corporation, partnership, joint venture, trust,
or other enterprise, or as a trustee or administrator under an
employee benefit plan, shall have a right to be indemnified by
the Company to the fullest extent permitted by law against
(a) reasonable expenses, including attorneys' fees,
incurred by him in connection with any threatened, pending or
completed civil, criminal, administrative, investigative, or
arbitrative action, suit or proceeding (and any appeal therein),
whether or not brought by or on behalf of the Company, seeking
to hold him liable by reason of the fact that he is or was
acting in such capacity, and (b) reasonable payments made
by him in satisfaction of any judgment, money decree, fine
(including an excise tax assessed with respect to any employee
benefit plan), penalty, or settlement for which he may have
become liable in any such action, suit or proceeding.
II-1
Table of Contents
Item 15.
Recent Sales of Unregistered Securities
In the past three years, we have issued unregistered securities
to a limited number of persons, as described below. We believe
that each transaction was exempt from the registration
requirements of the Securities Act of 1933 (the "Securities
Act") by virtue of Section 4(2) thereof or
Rule 701 pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such
Rule 701. The recipients of securities in such transactions
represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were
affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their
relationships with us, to information about us.
In March 2004 we sold unregistered debt securities (9% Senior
Subordinated Notes due April 1, 2012 in the amount of
$180.0 million) to J.P. Morgan Securities Inc., Banc of
America Securities LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated as the "initial purchasers"
pursuant to Section 4(2) of the Securities Act and to
non-U.S. persons outside the United States in reliance on
Regulation S under the Securities Act. The initial
purchasers subsequently resold the old notes to
(1) qualified institutional buyers pursuant to
Rule 144A under the Securities Act and (2) outside the
United States in accordance with Regulation S under the
Securities Act. Simultaneously with the initial sale of the
outstanding securities, we entered into a registration rights
agreement for an exchange offer. In the registration rights
agreement, we agreed, among other things, to use our reasonable
best efforts to (i) cause to be filed an exchange offer
registration statement with the Commission and (ii) to have
such registration statement remain effective until 180 days
after the closing of the exchange offer. We also agreed to use
commercially reasonable efforts to cause the exchange offer to
be consummated 60 days after the registration statement was
declared effective. We issued exchange notes that were
registered with the Securities and Exchange Commission on
Form S-4 shortly after the expiration of the exchange offer
in November 2004. We used the net proceeds from the sale of the
original notes together with funds from borrowings under our
credit facility to repay existing debt, redeem preferred stock,
pay dividends and pay premiums, fees and expenses.
We also have issued stock option grants under our 1999 Stock
Option Plan, a written compensatory benefit plan under which we
have issued options to employees and directors. The aggregate
sales price of the securities issued under the plan in reliance
on Rule 701 did not exceed 15% of our total assets in any
given year.
Option Grants in the Past Three Years.
All of our grants
of options in the past three years were for options to purchase
shares of our common stock and were made under our 1999 Stock
Option Plan.
Number of securities
Number of securities
underlying options remaining
Date of option grant
underlying options
outstanding at August 15, 2005(1)
March 19, 2003
36,000
36,000
December 1, 2003
13,000
13,000
June 1, 2004
19,625
19,625
November 1, 2004
5,000
5,000
March 11, 2005
668,500
668,500
Total
742,125
742,125
(1)
Refers to options that have not been canceled or exercised and
    remain outstanding.
Item 16.
Exhibits and Financial Statement Schedules
a.     Exhibits.
Number
Description
1
.1
Form of Underwriting Agreement.*
3
.1
Form of Restated Charter of Team Health, Inc.*
3
.2
Form of Restated By-laws of Team Health, Inc.*
4
.1
Specimen common stock certificate.*
II-2
Table of Contents
Number
Description
4
.2
Indenture dated as of March 12, 1999 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto and the United States Trust Company of New York.*
4
.3
Supplemental Indenture dated March 28, 2001.*
4
.4
Supplemental Indenture dated September 3, 2001.*
4
.5
Supplemental Indenture dated May 31, 2002.*
4
.6
Fourth Supplemental Indenture dated November 11, 2002.*
4
.7
Fifth Supplemental Indenture dated September 9, 2003.*
4
.8
Sixth Supplemental Indenture dated as of March 12, 2004.*
4
.9
Indenture dated as of March 23, 2004 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto, and the Bank of New York.*
4
.10
Form of Exchange Note (included in Exhibit 4.9).*
4
.11
Registration Rights Agreement dated as of March 12, 2004 by
    and among Team Health, Inc., the guarantors listed on the
    Schedule thereto, and J.P. Morgan Securities Inc., Banc of
    America Securities LLC and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated.*
5
.1
Opinion and consent of Kirkland & Ellis LLP.*
10
.1
Registration Rights Agreement dated as of March 12, 1999 by
    and among Team Health, Inc., the guarantors listed on the
    signature pages thereto and Donaldson, Lufkin &
    Jenrette Securities Corporation, NationsBanc Montgomery
    Securities LLC and Fleet Securities, Inc.*
10
.2
Purchase Agreement dated as of March 5, 1999 by and among
    Team Health, Inc. and the guarantors listed on the signature
    pages thereto and Donaldson, Lufkin & Jenrette
    Securities Corporation, NationsBanc Montgomery Securities LLC
    and Fleet Securities, Inc.*
10
.3
Equity Deferred Compensation Plan of Team Health, Inc. effective
    January 25, 1999.*
10
.4
Management Services Agreement dated as of March 12, 1999 by
    and among Team Health, Inc., Madison Dearborn Partners II,
    L.P., Beecken, Petty & Company, L.L.C. and Cornerstone
    Equity Investors LLC.*
10
.5
Registration Agreement dated as of March 12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physician Services, Inc. and certain other shareholders of Team
    Health, Inc. who are from the to time party thereto.*
10
.6
Registration Agreement dated as of March 12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule A thereto and certain other securityholders of
    Team Health, Inc. who are from time to time party thereto.*
10
.7
Trust Agreement dated as of January 25, 1999 by and
    among Team Health, Inc. and The Trust Company of Knoxville.*
10
.8
Credit Agreement dated as of March 12, 1999 by and among
    Team Health, Inc., the banks, financial institutions and other
    institutional lenders named herein, Fleet National Bank,
    NationsBank, N.A., NationsBanc Montgomery Securities LLC and
    Donaldson, Lufkin & Jenrette Securities Corporation.*
10
.9
Sheer Ahearn & Associates Plan Provision Nonqualified Excess
    Deferral Plan effective September 1, 1998.*
10
.10
Amendment and Restatement of Emergency Professional Services,
    Inc. Deferred Compensation Plan effective January 31, 1996.*
10
.11
Lease Agreement dated August 27, 1992 between Med: Assure
    Systems and Winston Road Properties for our corporate
    headquarters located at 1900 Winston Road, Knoxville, TN.*
10
.12
Lease Agreement dated August 27, 1999 between Americare
    Medical Services, Inc. and Winston Road Properties for space
    located at 1900 Winston Road, Knoxville, TN.*
10
.13
1999 Stock Option Plan of Team Health, Inc.*
10
.14
Form of Employment Agreement for Dr. Massingale and
    Messrs. Hatcher, Sherlin, Joyner and Jones.*
10
.15
Amendment No. 1 to Credit Agreement dated as of
    March 12, 1999.*
10
.16
Amendment No. 1 to Security Agreement dated as
    June 30, 2001.*
10
.17
Amendment No. 2 to Credit Agreement dated as of
    March 12, 1999.*
II-3
Table of Contents
Number
Description
10
.18
Credit Agreement dated May 1, 2002 among Team Health, Inc.,
    The Banks, Financial Institutions and Other Institutional
    Lenders Named Therein, Fleet National Bank, Bank of America,
    N.A., and Banc of America Securities, LLC.*
10
.19
Amendment No. 1 to Credit Agreement dated May 1, 2002.*
10
.20
Amendment No. 2 to Credit Agreement dated May 1, 2002.*
10
.21
Credit Agreement, dated as of March 23, 2004, by and among
    Team Health, Inc., Team Health Holdings, L.L.C., the Subsidiary
    Guarantors (as defined therein), the Lenders (as defined
    therein), and Bank of America, N.A.*
10
.22
Security and Pledge Agreement, dated as of March 23, 2004,
    by and among Team Health, Inc., the Subsidiary Guarantors (as
    defined therein) and Bank of America, N.A.*
10
.23
Holdings Pledge Agreement, dated as of March 23, 2004, by
    and among Team Health Holdings, L.L.C. and Bank of America, N.A.*
10
.24
Borrower Pledge Agreement (Cayman Islands Subsidiary), dated as
    of March 23, 2004, by and among Team Health, Inc. and Bank
    of America, N.A.*
10
.25
Team Health, Inc. Non-Qualified Supplemental Executive
    Retirement Plan dated as of January 1, 2004.*
10
.26
Stockholders Agreement dated as of March 12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physicians Services, Inc., and certain other shareholders of the
    Team Health, Inc. who are from time to time party hereto.*
10
.27
Securityholders Agreement dated as of March 12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule A thereto and certain other securityholders of
    Team Health Holdings, L.L.C. who are from time to time party
    thereto.*
10
.28
Team Health Inc. 2005 Long-Term Incentive Plan.*
10
.29
Employment agreement dated October 4, 2004 between Team
    Health, Inc. and Gregory S. Roth, President and Chief Operating
    Officer.*
11
.1
Statement re Computation of per Share Earnings.*
21
.1
Subsidiaries of the Registrant.*
23
.1
Consent of Ernst & Young LLP, Registered Public
    Accounting Firm.
23
.2
Consent of Kirkland & Ellis LLP (included in
    Exhibit 5.1).*
24
.1
Power of Attorney (included on signature page).
*
To be filed by amendment.
II-4
Table of Contents
(b) Financial Statement Schedule
The following financial statement schedule is included in this
Registration Statement:
Team Health, Inc.
Schedule II — Valuation and Qualifying
Accounts
For the Years Ended December 31,
(In thousands)
Balance at
Beginning
Costs and
Balance at
of Period
Expenses
Other
Deductions
End of Period
2004
$
120,653
$
563,483
$
—
$
557,785
$
126,351
2003
$
109,156
$
479,267
$
—
$
467,770
$
120,653
2002
$
101,175
$
396,605
$
—
$
388,624
$
109,156
All other schedules for which provision is made in the
applicable accounting regulations of the Commission are not
required under the related instructions, are inapplicable or not
material, or the information called for thereby is otherwise
included in the financial statements and therefore has been
omitted.
Item 17.
Undertakings
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the
Registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
    Securities Act of 1933, the information omitted from the form of
    prospectus filed as part of this Registration Statement in
    reliance upon Rule 430A and contained in a form of
    prospectus filed by the Registrant pursuant to
    Rule 424(b)(1) or (4) or 497(h) under the Act shall be
    deemed to be part of this Registration Statement as of the time
    it was declared effective.
(2) For the purpose of determining any liability under the
    Act, each post-effective amendment that contains a form of
    prospectus shall be deemed to be a new Registration Statement
    relating to the securities offered therein, and the offering of
    such securities at that time shall be deemed to be the initial
    bona fide offering thereof.
II-5
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Knoxville, State of Tennessee, on
August 16, 2005.
TEAM HEALTH, INC.
By:
/s/
Robert J. Abramowski
Name: Robert J. Abramowski
Title
Executive Vice President — Finance and Administration
II-6
Table of Contents
POWER OF ATTORNEY
Each of the undersigned officers and directors of Team Health,
Inc., a Tennessee corporation, hereby constitutes and appoints
Robert J. Abramowski and Robert C. Joyer, Esq. and each of them,
severally, as his or her attorney-in-fact and agent, with full
power of substitution and resubstitution, in his or her name and
on his or her behalf, to sign in any and all capacities this
Registration Statement and any and all amendments (including
post-effective amendments) and exhibits to this Registration
Statement, any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the
Securities Act of 1933, and any and all amendments (including
post-effective amendments) and exhibits thereto, and any and all
applications and other documents relating thereto, with the
Securities and Exchange Commission, with full power and
authority to perform and do any and all acts and things
whatsoever which any such attorney or substitute may deem
necessary or advisable to be performed or done in connection
with any or all of the above-described matters, as fully as each
of the undersigned could do if personally present and acting,
hereby ratifying and approving all acts of any such attorney or
substitute.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the
following persons in the capacities indicated on August 16,
2005.
Signature
Title
/s/
H. Lynn
    Massingale, M.D.
H.
    Lynn Massingale, M.D.
Director, President, Chief Executive Officer and
Assistant Secretary (principal executive officer)
/s/
Nicholas W. Alexos
Nicholas
    W. Alexos
Director
/s/
Dana J.
    O'Brien
Dana
    J. O'Brien
Director
/s/
Kenneth W.
    O'Keefe
Kenneth
    W. O'Keefe
Director
/s/
Timothy P. Sullivan
Timothy
    P. Sullivan
Director
/s/
Earl Holland
Earl
    Holland
Director
/s/
Glenn Davenport
Glenn
    Davenport
Director
/s/
David Jones
David
    Jones
Chief Financial Officer, Treasurer and
Assistant Secretary
/s/
Robert J.
    Abramowski
Robert
    J. Abramowski
Executive Vice President — Finance and
    Administration
(principal financial and accounting officer)
II-7
Table of Contents
EXHIBIT INDEX
Number
Description
1
.1
Form of Underwriting Agreement.*
3
.1
Form of Restated Charter of Team Health, Inc.*
3
.2
Form of By-laws of Team Health, Inc.*
4
.1
Specimen common stock certificate.*
4
.2
Indenture dated as of March 12, 1999 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto and the United States Trust Company of New York.*
4
.3
Supplemental Indenture dated March 28, 2001.*
4
.4
Supplemental Indenture dated September 3, 2001.*
4
.5
Supplemental Indenture dated May 31, 2002.*
4
.6
Fourth Supplemental Indenture dated November 11, 2002.*
4
.7
Fifth Supplemental Indenture dated September 9, 2003.*
4
.8
Sixth Supplemental Indenture dated as of March 12, 2004.*
4
.9
Indenture dated as of March 23, 2004 by and among Team
    Health, Inc., the Guarantors listed on the signature pages
    thereto, and the Bank of New York.*
4
.10
Form of Exchange Note (included in Exhibit 4.9).*
4
.11
Registration Rights Agreement dated as of March 12, 2004 by
    and among Team Health, Inc., the guarantors listed on the
    Schedule thereto, and J.P. Morgan Securities Inc., Banc of
    America Securities LLC and Merrill Lynch, Pierce,
    Fenner & Smith Incorporated.*
5
.1
Opinion and consent of Kirkland & Ellis LLP.*
10
.1
Registration Rights Agreement dated as of March 12, 1999 by
    and among Team Health, Inc., the guarantors listed on the
    signature pages thereto and Donaldson, Lufkin &
    Jenrette Securities Corporation, NationsBanc Montgomery
    Securities LLC and Fleet Securities, Inc.*
10
.2
Purchase Agreement dated as of March 5, 1999 by and among
    Team Health, Inc. and the guarantors listed on the signature
    pages thereto and Donaldson, Lufkin & Jenrette
    Securities Corporation, NationsBanc Montgomery Securities LLC
    and Fleet Securities, Inc.*
10
.3
Equity Deferred Compensation Plan of Team Health, Inc. effective
    January 25, 1999.*
10
.4
Management Services Agreement dated as of March 12, 1999 by
    and among Team Health, Inc., Madison Dearborn Partners II,
    L.P., Beecken, Petty & Company, L.L.C. and Cornerstone
    Equity Investors LLC.*
10
.5
Registration Agreement dated as of March 12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physician Services, Inc. and certain other shareholders of Team
    Health, Inc. who are from the to time party thereto.*
10
.6
Registration Agreement dated as of March 12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule A thereto and certain other securityholders of
    Team Health, Inc. who are from time to time party thereto.*
10
.7
Trust Agreement dated as of January 25, 1999 by and
    among Team Health, Inc. and The Trust Company of Knoxville.*
10
.8
Credit Agreement dated as of March 12, 1999 by and among
    Team Health, Inc., the banks, financial institutions and other
    institutional lenders named herein, Fleet National Bank,
    NationsBank, N.A., NationsBanc Montgomery Securities LLC and
    Donaldson, Lufkin & Jenrette Securities Corporation.*
10
.9
Sheer Ahearn & Associates Plan Provision Nonqualified Excess
    Deferral Plan effective September 1, 1998.*
10
.10
Amendment and Restatement of Emergency Professional Services,
    Inc. Deferred Compensation Plan effective January 31, 1996.*
10
.11
Lease Agreement dated August 27, 1992 between Med: Assure
    Systems and Winston Road Properties for our corporate
    headquarters located at 1900 Winston Road, Knoxville, TN.*
Table of Contents
Number
Description
10
.12
Lease Agreement dated August 27, 1999 between Americare
    Medical Services, Inc. and Winston Road Properties for space
    located at 1900 Winston Road, Knoxville, TN.*
10
.13
1999 Stock Option Plan of Team Health, Inc.*
10
.14
Form of Employment Agreement for Dr. Massingale and
    Messrs. Hatcher, Sherlin, Joyner and Jones.*
10
.15
Amendment No. 1 to Credit Agreement dated as of
    March 12, 1999.*
10
.16
Amendment No. 1 to Security Agreement dated as
    June 30, 2001.*
10
.17
Amendment No. 2 to Credit Agreement dated as of
    March 12, 1999.*
10
.18
Credit Agreement dated May 1, 2002 among Team Health, Inc.,
    The Banks, Financial Institutions and Other Institutional
    Lenders Named Therein, Fleet National Bank, Bank of America,
    N.A., and Banc of America Securities, LLC.*
10
.19
Amendment No. 1 to Credit Agreement dated May 1, 2002.*
10
.20
Amendment No. 2 to Credit Agreement dated May 1, 2002.*
10
.21
Credit Agreement, dated as of March 23, 2004, by and among
    Team Health, Inc., Team Health Holdings, L.L.C., the Subsidiary
    Guarantors (as defined therein), the Lenders (as defined
    therein), and Bank of America, N.A.*
10
.22
Security and Pledge Agreement, dated as of March 23, 2004,
    by and among Team Health, Inc., the Subsidiary Guarantors (as
    defined therein) and Bank of America, N.A.*
10
.23
Holdings Pledge Agreement, dated as of March 23, 2004, by
    and among Team Health Holdings, L.L.C. and Bank of America, N.A.*
10
.24
Borrower Pledge Agreement (Cayman Islands Subsidiary), dated as
    of March 23, 2004, by and among Team Health, Inc. and Bank
    of America, N.A.*
10
.25
Team Health, Inc. Non-Qualified Supplemental Executive
    Retirement Plan dated as of January 1, 2004.*
10
.26
Stockholders Agreement dated as of March 12, 1999 by and
    among Team Health, Inc., Team Health Holdings, L.L.C., Pacific
    Physicians Services, Inc., and certain other shareholders of the
    Team Health, Inc. who are from time to time party hereto.*
10
.27
Securityholders Agreement dated as of March 12, 1999 by and
    among Team Health Holdings, L.L.C., each of the persons listed
    on Schedule A thereto and certain other securityholders of
    Team Health Holdings, L.L.C. who are from time to time party
    thereto.*
10
.28
Team Health Inc. 2005 Long-Term Incentive Plan.*
10
.29
Employment agreement dated October 4, 2004 between Team
    Health, Inc. and Gregory S. Roth, President and Chief Operating
    Officer.*
11
.1
Statement re Computation of per Share Earnings.*
21
.1
Subsidiaries of the Registrant.*
23
.1
Consent of Ernst & Young LLP, Registered Public
    Accounting Firm.
23
.2
Consent of Kirkland & Ellis LLP (included in
    Exhibit 5.1).*
24
.1
Power of Attorney (included on signature page).
*
To be filed by amendment.