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Inphynet South Broward Inc, et al. · S-4 · On 5/25/04

Filed On 5/25/04, 6:40am ET   ·   Accession Number 950123-4-6763   ·   SEC Files 333-115824, -01, -02, -03, -04, -05, -06, -07, -08, -09, -10, -11, -12, -13, -14, -15, -16, -17, -18, -19, -20, -21, -22, -23, -24, -25, -26, -27, -28, -29, -30, -31, -32, -33, -34, -35, -36, -37, -38, -39, -40, -41, -42, -43, -44, -45, -46, -47, -48, -49, -50, -51, -52

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 5/25/04  Inphynet South Broward Inc        S-4                   42:2.6M                                   RR Donnelley/FA
          Team Health Inc
          Daniel & Yeager Inc
          Drs. Sheer Ahearn & Associates Inc
          Emergency Coverage Corp
          Mangold Karl G Inc
          Rosendorf Margulies Borushok & Shoenbaum Radiology Ass of Ho
          Southeastern Emergency Physicians of Memphis Inc
          Southeastern Emergency Physicians Inc
          Charles L Springfield Inc
          Team Health Financial Services Inc
          Team Radiology Inc
          Emergency Associates for Medicine Inc
          Team Health Southwest LP
          Team Health Billing Services LP
          MT Diablo Emergency Physicians Partnership
          After Hours Pediatric, Inc.
          American Clinical Resources, Inc.
          Correctional Healthcare Advantage, Inc.
          Cullman Emergency Physicians, Inc.
          Greenbrier Emergency Physicians, Inc.
          Healthcare Alliance, Inc.
          Kelly Medical Services Corp
          Medical Management Resources Inc.
          Medical Services, Inc.
          Physicians Integration Consulting Services, Inc.
          Spectrum Cruise Care, Inc.
          Spectrum Healthcare Resources, Inc.
          Spectrum Healthcare Services, Inc.
          Spectrum Primary Care, Inc.
          Team Anesthesia, Inc.
          Team Health Anesthesia Management Services, Inc.
          TH Contracting Midwest, LLC
          Access Nurse PM, Inc.
          Erie Shores Emergency Physicians, Inc.
          Spectrum Healthcare, Inc
          Spectrum Healthcare Resources of Delaware, Inc.
          Spectrum Primary Care of Delaware
          Clinic Management Services Inc
          Emergency Physician Associates Inc
          Med Assure Systems Inc
          Metroamerican Radiology Inc
          Emergency Professional Services Inc
          Northwest Emergency Physicians Inc
          Fischer Mangold Partnership
          Paragon Contracting Services Inc
          Herschel Fisher Inc
          Paragon Healthcare Ltd Partnership
          Imbs Inc
          Quantum Plus Inc
          Inphynet Contracting Services Inc
          Inphynet Hospital Services Inc
          Reich Seidelman & Janicki Co

Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4         Original Filing on Form S-4: Team Health Etal       HTML   1.96M 
 2: EX-1.1      Purchase Agreement                                    43    143K 
21: EX-3.100    Articles of Incorporation                              3     28K 
22: EX-3.114    Amended and Restated By-Laws                          13     70K 
 7: EX-3.12     Certificate of Amendment                               2     26K 
23: EX-3.123    Amended and Restated By-Laws                          13     70K 
24: EX-3.127    Amended and Restated by Laws                          13     70K 
25: EX-3.129    Charter                                                2     24K 
 8: EX-3.13     Amended and Restated By-Laws                          16     78K 
26: EX-3.130    Bylaws                                                 6     32K 
27: EX-3.133    Certificate of Amendment                               1     23K 
28: EX-3.145    Operating Agreement                                   20     80K 
 9: EX-3.28     Articles of Amendment                                  1     24K 
10: EX-3.32     Articles of Amendment                                  5     33K 
11: EX-3.49     Amended Code of Regulations                            9     48K 
 3: EX-3.5      By-Laws                                               14     65K 
12: EX-3.50     Charter                                                2     27K 
13: EX-3.51     Code of Regulations                                    8     45K 
 4: EX-3.6      Articles of Incorporation                              2     26K 
14: EX-3.63     Articles of Amendment                                  2     23K 
15: EX-3.64     Articles of Amendment                                  1     23K 
16: EX-3.65     Articles of Amendment                                  1     24K 
 5: EX-3.7      Bylaws                                                 6     32K 
17: EX-3.70     Articles of Amendment                                  2     23K 
18: EX-3.80     Articles of Incorporation                              3     26K 
19: EX-3.81     Articles of Amendment                                  1     24K 
20: EX-3.82     Bylaws                                                12     62K 
 6: EX-3.9      Articles of Amendment                                  1     23K 
29: EX-5.1      Opinion of Kirkland & Ellis Llo                        5     38K 
38: EX-5.10     Opinion of Bowles Rice McDavid Graff & Love Pllc       3     32K 
39: EX-5.11     Opinion of Law Offices of Eisenhower Carlson Pllc      4     36K 
30: EX-5.2      Opinion of Haskell Slaughter Young Et Al               2     30K 
31: EX-5.3      Opinion of Foley & Lardner                             4     35K 
32: EX-5.4      Opinion of Blackwell Sanders Peper Martin LLP          3     31K 
33: EX-5.5      Opinion of Sherman Silverstein Kohl Rose Podolsky      4     35K 
34: EX-5.6      Opinion of Parker Poe Adams & Bernstein LLP            5     37K 
35: EX-5.7      Opinion of Ulmer & Berne LLP                           4     33K 
36: EX-5.8      Opinion of London & Amburn Pc                          5     36K 
37: EX-5.9      Opinion of Durham Jones and Pinegar                    2     30K 
40: EX-12.1     Statement Re Computation of Ratio of Earnings          1     25K 
41: EX-23.1     Consent of Ernst & Young LLP                           1     23K 
42: EX-25.1     T-1                                                    7     38K 


S-4   —   Original Filing on Form S-4: Team Health Etal
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Forward-Looking Statements
"Industry and Market Data
"Prospectus Summary
"Risk Factors
"Use of Proceeds
"The Exchange Offer
"Capitalization
"Selected Historical Consolidated Financial Data
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Business
"Management
"Security Ownership and Certain Beneficial Owners
"Certain Relationships and Related Transactions
"Description of Senior Secured Credit Facilities
"Description of the Notes
"Certain United States Federal Income Tax Considerations
"Plan of Distribution
"Legal Matters
"Experts
"Available Information
"Index to Consolidated Audited Financial Statements
"Report of Independent auditors
"Consolidated balance sheets at December 31, 2002 and 2003
"Consolidated statements of operations for the years ended December 31, 2001, 2002 and 2003
"Consolidated statements of stockholders' equity (deficit) and comprehensive earnings for the years ended December 31, 2001, 2002 and 2003
"Consolidated statements of cash flows for the years ended December 31, 2001, 2002 and 2003
"Notes to consolidated financial statements
"Consolidated Balance Sheets -- March 31, 2004 and December 31, 2003 (unaudited)
"Consolidated Statements of Operations -- Three months ended March 31, 2004 and 2003 (unaudited)
"Consolidated Statements of Cash Flows -- Three months ended March 31, 2004 and 2003 (unaudited)
"Notes to Consolidated Financial Statements (unaudited)

This is an HTML Document rendered as filed.  [ Alternative Formats ]



  ORIGINAL FILING ON FORM S-4: TEAM HEALTH ETAL  

Table of Contents

As filed with the Securities and Exchange Commission on May 25, 2004

No. 333-                    


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


Team Health, Inc.

(Exact name of registrant as specified in its charter)
         
Tennessee   8099   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

Knoxville, Tennessee 37919
(800) 342-2898
(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
(Name, address, including zip code, and telephone number,
including area code, of agent for service)


Copies to:

Joshua N. Korff, Esq.
Kirkland & Ellis LLP
Citigroup Center
153 East 53rd Street
New York, New York 10022-4675
(212) 446-4800

     Approximate date of commencement of proposed sale of the securities to the public: The exchange will occur as soon as practicable after the effective date of this Registration Statement.

     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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(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

CALCULATION OF REGISTRATION FEE

         


Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee

9% Senior Subordinated Notes due 2012
  $180,000,000   $22,806

Guarantees(2)
  N/A   N/A


(1)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
(2)  No separate consideration will be received for the guarantees, and no separate fee is payable, pursuant to Rule 457(n) under the Securities Act of 1933, as amended.

     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 this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.





Table of Contents

ACCESS NURSE PM, INC.

(Exact name of registrant as specified in its charter)
         
Utah
  8099   62-1823158
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

AFTER HOURS PEDIATRIC, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   62-1872100
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

AMERICAN CLINICAL RESOURCES, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1926519
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

CHARLES L SPRINGFIELD, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   94-2713012
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

CLINIC MANAGEMENT SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1453392
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

CORRECTIONAL HEALTHCARE ADVANTAGE, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   81-0584939
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

CULLMAN EMERGENCY PHYSICIANS, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0410357
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

DANIEL & YEAGER, INC.

(Exact name of registrant as specified in its charter)
         
Alabama
  8099   63-1009913
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

DRS. SHEER, AHEARN & ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   59-1237521
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

EMERGENCY COVERAGE CORPORATION

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1130266
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

EMERGENCY PHYSICIAN ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)
         
New Jersey
  8099   22-2213199
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

EMERGENCY PROFESSIONAL SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Ohio
  8099   94-2460636
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

ERIE SHORES EMERGENCY PHYSICIANS, INC.

(Exact name of registrant as specified in its charter)
         
Ohio
  8099   34-1926330
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

FISCHER MANGOLD PARTNERSHIP

(Exact name of registrant as specified in its charter)
         
California
  8099   94-1731121
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

GREENBRIER EMERGENCY PHYSICIANS, INC.

(Exact name of registrant as specified in its charter)
         
West Virginia
  8099   20-0009571
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

HEALTH CARE ALLIANCE, INC.

(Exact name of registrant as specified in its charter)
         
West Virginia
  8099   55-0738421
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

HERSCHEL FISCHER, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   94-3262291
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

IMBS, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0622847
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

INPHYNET CONTRACTING SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0622862
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

INPHYNET HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0622855
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

INPHYNET SOUTH BROWARD, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0726225
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

KARL G. MANGOLD, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   91-1775707
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

KELLY MEDICAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)
         
West Virginia
  8099   55-0656334
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

MED: ASSURE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1304911
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

MEDICAL MANAGEMENT RESOURCES, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   62-1804331
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

MEDICAL SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
West Virginia
  8099   55-0711819
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

METROAMERICAN RADIOLOGY, INC.

(Exact name of registrant as specified in its charter)
         
North Carolina
  8099   56-1657199
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

MT. DIABLO EMERGENCY PHYSICIANS PARTNERSHIP

(Exact name of registrant as specified in its charter)
         
California
  8099   68-0049611
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

NORTHWEST EMERGENCY PHYSICIANS, INCORPORATED

(Exact name of registrant as specified in its charter)
         
Washington
  8099   91-1753075
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

PARAGON CONTRACTING SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0622859
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

PARAGON HEALTHCARE LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)
         
Florida
  8099   65-0426893
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

PHYSICIAN INTEGRATION CONSULTING SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   33-0575831
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

QUANTUM PLUS, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   94-3259635
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

REICH, SEIDELMAN, & JANICKI CO.

(Exact name of registrant as specified in its charter)
         
Ohio
  8099   34-1245634
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

ROSENDORF, MARGULIES, BORUSHOK & SHOENBAUM

RADIOLOGY ASSOCIATES OF HOLLYWOOD, INC.
(Exact name of registrant as specified in its charter)
         
Florida
  8099   59-1226776
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SOUTHEASTERN EMERGENCY PHYSICIANS OF MEMPHIS, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1453389
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SOUTHEASTERN EMERGENCY PHYSICIANS, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1266047
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM CRUISE CARE, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1751322
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM HEALTHCARE RESOURCES OF DELAWARE, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   23-2704721
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM HEALTHCARE RESOURCES, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1698884
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

SPECTRUM HEALTHCARE SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1688387
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1768209
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM PRIMARY CARE, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   43-1689641
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

SPECTRUM PRIMARY CARE OF DELAWARE, INC.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   20-1132234
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TEAM ANESTHESIA, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1801891
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TEAM HEALTH ANESTHESIA MANAGEMENT SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
California
  8099   33-0620937
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TEAM HEALTH BILLING SERVICES, L.P.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1786451
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TEAM HEALTH FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)
         
Tennessee
  8099   62-1727919
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

TEAM HEALTH SOUTHWEST, L.P.

(Exact name of registrant as specified in its charter)
         
Delaware
  8099   63-1201377
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TEAM RADIOLOGY, INC.

(Exact name of registrant as specified in its charter)
         
North Carolina
  8099   56-1844186
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

THE EMERGENCY ASSOCIATES FOR MEDICINE, INC.

(Exact name of registrant as specified in its charter)
         
Florida
  8099   59-2862461
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

TH CONTRACTING MIDWEST, LLC

(Exact name of registrant as specified in its charter)
         
Missouri
  8099   20-0077159
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)


Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 25, 2004

PROSPECTUS

$180,000,000

Team Health, Inc.

Exchange Offer for

9% Senior Subordinated Notes due 2012

         Offer for all outstanding 9% Senior Subordinated Notes due 2012 (which we refer to as the “old notes”) in aggregate principal amount at maturity of $180,000,000 in exchange for up to $180,000,000 aggregate principal amount at maturity of 9% Senior Subordinated Exchange Notes due 2012 (which we refer to as the “exchange notes”) have been registered under the Securities Act of 1933, as amended.

Material Terms of the Exchange Offer:

  •  Expires at 5:00 p.m., New York City time on                     , 2004, unless we extend this date.
 
  •  Not subject to any condition other than that the exchange offer not violate applicable law or any interpretation of the staff of the Securities and Exchange Commission.
 
  •  We will not receive any proceeds from the exchange offer.
 
  •  All outstanding notes that are validly tendered and not validly withdrawn will be exchanged.
 
  •  We can amend or terminate the exchange offer.
 
  •  The exchange of notes will not be a taxable exchange for U.S. federal income tax purposes.

Material Terms of the exchange notes:

  •  The terms of the exchange notes to be issued in the exchange offer are substantially identical to the currently outstanding notes, or old notes, except that the transfer restrictions and registration rights relating to the old notes will not apply to the exchange notes.
 
  •  There is no existing public market for the old notes or the exchange notes. Our old notes trade in the Private Offerings Resale and Trading through Automatic Linkages, or PORTALTM, market.

       For a discussion of certain factors that you should consider before participating in this exchange offer, see “Risk Factors” beginning on page 13 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2004



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 INDEX TO UNAUDITED FINANCIAL STATEMENTS
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 PURCHASE AGREEMENT
 BY-LAWS
 ARTICLES OF INCORPORATION
 BYLAWS
 ARTICLES OF AMENDMENT
 CERTIFICATE OF AMENDMENT
 AMENDED AND RESTATED BY-LAWS
 ARTICLES OF AMENDMENT
 ARTICLES OF AMENDMENT
 AMENDED CODE OF REGULATIONS
 CHARTER
 CODE OF REGULATIONS
 ARTICLES OF AMENDMENT
 ARTICLES OF AMENDMENT
 ARTICLES OF AMENDMENT
 ARTICLES OF AMENDMENT
 ARTICLES OF INCORPORATION
 ARTICLES OF AMENDMENT
 BYLAWS
 ARTICLES OF INCORPORATION
 AMENDED AND RESTATED BY-LAWS
 AMENDED AND RESTATED BY-LAWS
 AMENDED AND RESTATED BY LAWS
 CHARTER
 BYLAWS
 CERTIFICATE OF AMENDMENT
 OPERATING AGREEMENT
 OPINION OF KIRKLAND & ELLIS LLO
 OPINION OF HASKELL SLAUGHTER YOUNG ET AL
 OPINION OF FOLEY & LARDNER
 OPINION OF BLACKWELL SANDERS PEPER MARTIN LLP
 OPINION OF SHERMAN SILVERSTEIN KOHL ROSE PODOLSKY
 OPINION OF PARKER POE ADAMS & BERNSTEIN LLP
 OPINION OF ULMER & BERNE LLP
 OPINION OF LONDON & AMBURN PC
 OPINION OF DURHAM JONES AND PINEGAR
 OPINION OF BOWLES RICE MCDAVID GRAFF & LOVE PLLC
 OPINION OF LAW OFFICES OF EISENHOWER CARLSON PLLC
 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS
 CONSENT OF ERNST & YOUNG LLP
 T-1

      As used in this prospectus and unless the context indicated otherwise, “Notes” refers, collectively, to our “old notes,” and our “exchange notes.”

      YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR 9% SENIOR SUBORDINATED NOTES DUE 2012.

      EACH BROKER-DEALER THAT RECEIVES NEW SECURITIES FOR ITS OWN ACCOUNT PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN CONNECTION WITH ANY RESALE OF THESE NEW SECURITIES. BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN “UNDERWRITER” WITHIN THE MEANING OF THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW SECURITIES RECEIVED IN EXCHANGE FOR SECURITIES WHERE THOSE SECURITIES WERE ACQUIRED BY THIS BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES. WE HAVE AGREED THAT, STARTING ON THE EXPIRATION DATE AND ENDING ON THE CLOSE OF BUSINESS 180 DAYS AFTER THE EXPIRATION DATE, WE WILL MAKE THIS PROSPECTUS AVAILABLE TO ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE “PLAN OF DISTRIBUTION.”



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FORWARD-LOOKING STATEMENTS

      This prospectus contains forward-looking statements within the meaning of the federal securities laws. These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

      These forward looking statements are identified by the use of terms and phrases such as “anticipate”, “that is”, “could”, “estimate”, “intend”, “may”, “plan”, “predict”, “project”, “will” and similar terms and phrases, including references to assumptions. However, these words are not the exclusive means of identifying such statements. These statements are contained in many sections of this offering memorandum, including those entitled “Business” and “Management’s discussion and analysis of financial condition and results of operations”. Although we believe that our plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, we cannot assure you that we will achieve the plans, intentions or expectations. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this prospectus set forth elsewhere in this prospectus. All forward-looking statements attributable to us, or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this prospectus under the heading “Risk factors” section.



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 are 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.

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PROSPECTUS SUMMARY

      References to the words “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. The following summary highlights selected information from this prospectus and does not contain all of the information important to you. For a more complete understanding of this offering, we encourage you to read this prospectus in its entirety.

Our company

      We are among the largest national providers of outsourced physician staffing and administrative services to hospitals and other healthcare providers in the United States. Since our inception, we have focused primarily on providing outsourced services to hospital emergency departments, which account for the majority of our revenue. As a result of an acquisition on May 1, 2002, we also are the leading provider of medical staffing to military treatment facilities. In addition to providing physician staffing in various specialties within military treatment facilities, we also provide to such facilities a broad array of non-physician healthcare services, including specialty technical staffing, para-professionals and nurse staffing on a permanent basis. Our net revenue less provision for uncollectibles and net loss for 2003 were $999.7 million and $2.8 million, respectively.

      While national in scope, we operate through regional operating models. These 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, including military treatment facilities. We primarily provide permanent staffing that enables management of hospitals and other healthcare facilities to outsource their recruiting, hiring, payroll and benefits functions. We recruit and hire or subcontract with healthcare professionals who then provide professional services within the healthcare facilities we contract or subcontract with. Currently, we provide permanent staffing, management and administrative services to approximately 450 hospitals, imaging centers, surgery centers, clinics and military treatment facilities in 42 states.

      The range of physician and non-physician staffing and administrative services that we provide includes the following:

  •  recruiting, scheduling and credentials coordination for clinical and non-clinical medical professionals,
 
  •  administrative support services, such as payroll, insurance coverage, continuing education services and management training, and
 
  •  coding, billing and collection of fees for services provided by medical professionals.

      Our historical focus has primarily been on providing outsourced services to emergency departments, which accounted for approximately 63% of our net revenue less provision for uncollectibles in 2003. The emergency departments that we staff are generally located in larger hospitals with emergency departments whose patient volumes are more than 15,000 patient visits per year. In higher volume emergency departments, we believe our experience and expertise in such a complex environment enables our hospital clients to provide high quality and efficient physician and administrative services. In this type of environment, we can generate profitable margins, establish stable long-term relationships, obtain attractive payor mixes and recruit and retain high quality physicians and other providers and staff.

      We are the leading provider of permanent healthcare staffing services to military treatment facilities, which accounted for 23% of our net revenue less provision for uncollectibles in 2003. We significantly expanded our overall base of business in 2002 by acquiring the leading provider of permanent healthcare staffing services to military treatment facilities. This acquisition provided an entry into a portion of the healthcare staffing market not previously served by us. In the current military healthcare setting, permanent staffing agreements exist on a three-way basis to include a military hospital or clinic, a

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TRICARE (the U.S. military healthcare payor system) Regional Managed Care Support Contractor (“MCSC”), which functions as the paying entity, and us. We currently have contracts with all four MCSCs that serve the military market.

Industry overview

      According to the Centers for Medicare and Medicaid Services (“CMS”), national healthcare spending in 2002 increased 9.3%, compared to an increase of 8.5% in 2001. Healthcare spending grew 5.7% faster than the overall economy as measured by the growth of the gross domestic product (“GDP”). The healthcare share of the GDP increased from 14.1% in 2001 to 14.9% in 2002. Public spending continued its accelerated pace in 2002, accounting for approximately 46% of total healthcare payments with the Medicaid and Medicare programs funding 16% and 17% of aggregate spending, respectively. Private payors funded more than half of the national healthcare spending in 2002. Hospital services have historically represented the single largest component of this spending, accounting for approximately 30.4% of total healthcare spending in 2002. Hospital spending increased by 9.5% in 2002, marking the fourth consecutive year of accelerated growth. Spending for physician services reached $340 billion in 2002, an increase of 7.7% from 2001.

      In the increasingly complex healthcare regulatory, managed care and reimbursement environment, healthcare facilities are under significant pressure from the government and private payors to both improve the quality and reduce the cost of care. In response, such healthcare facilities have increasingly outsourced the staffing and management of multiple clinical areas to contract management companies with specialized skills and a standardized model to improve service, increase the overall quality of care and reduce administrative costs. In addition, we believe the healthcare industry is continuing to experience an increasing trend toward outpatient treatment rather than the traditional inpatient treatment. Healthcare reform efforts in recent years have placed an increasing emphasis on reducing the time patients spend in hospitals. As a result, we believe the severity of illnesses and injuries treated in an emergency department or other hospital setting is likely to continue to increase.

Competitive strengths

      Leading Market Position. We are among the largest national providers of outsourced emergency physician staffing and administrative services in the United States and the largest 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 relatively fixed costs 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.

      The TRICARE Program is scheduled to undergo significant changes beginning in June 2004. We believe our current abilities and strengths in providing outsourced permanent healthcare staffing to military treatment facilities will be significant factors in maintaining our existing staffing business and in successfully competing for new business under the TRICARE Program.

      Regional Operating Models Supported by a National Infrastructure. We service our agreements from 14 regional management sites organized under eight operating units, which allows us to deliver locally focused services with the resources and sophistication of a national provider. Our local presence creates closer relationships with healthcare facilities, resulting in responsive service and high physician retention rates. Our strong relationships in local markets enable us to effectively market our services to both local hospital and military treatment facility 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 efficiently manage the operations and billing and collections processes. We believe our regional operating models supported by our national infrastructure improve productivity and quality of care while reducing the cost of care.

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      Significant Investment in Information Systems and Procedures. Our proprietary information systems link our billing, collection, recruiting, scheduling, credentials coordination and payroll functions among our regional management sites, allowing our best practices and procedures to be delivered and implemented nationally while retaining the familiarity and flexibility of a regionally-based service provider. We have developed and maintain integrated, advanced systems to facilitate the exchange of information among our operating units and clients. These systems include our Lawson financial reporting system, IDX Billing System and our TeamWorksTM physician database and software package. As a result of these investments 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. The strength of our information systems has enhanced our ability to collect patient payments and reimbursements in an orderly and timely fashion and has increased our billing and collections productivity.

      Ability to Recruit and Retain High Quality Physicians. A key to our success has been our ability to recruit and retain high quality physicians to service our contracts. While our local presence gives us 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 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 industry. Our Chief Executive Officer, H. Lynn Massingale, M.D., has been with Team Health and its predecessor entity since its founding in 1979. Our senior corporate and affiliate executives have an average of over 20 years experience in the outsourced physician staffing and medical services industries. Members of our management team have, with the inclusion of performance-based options, an indirect fully diluted ownership interest of approximately 20.5% of Team Health, Inc. As a result of its substantial equity interest, we believe our management team has significant incentive to maintain its existing client base through the continued provision of high quality services to them and to continue to increase our revenue and profitability through new growth.

Business strategy

      Increase Revenue from Existing Customers. We have a strong record of achieving growth in revenue from our existing customer base. In 2003, net revenue less provision for uncollectibles from same contracts, which consist of contracts under management from the beginning of the period through the end of the subsequent period, grew by approximately 8.9% on a year over year basis. We plan to continue to grow revenue from existing customers by:

  •  capitalizing on increasing patient volumes,
 
  •  continuing to improve documentation of care delivered, thereby capturing full reimbursement for services provided,
 
  •  implementing fee schedule increases, where appropriate,
 
  •  increasing the scope of services offered within contracted healthcare facilities,
 
  •  capitalizing on our financial strength and resources with respect to potential clients looking for financial stability, and
 
  •  increasing staffing levels and expanding services at current military sites of service to recapture patients who receive services off base as a result of military facilities outsourcing their staffing needs.

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      Capitalize on Outsourcing Opportunities to Win New Contracts. We believe we are well positioned to capitalize on the growth of the overall healthcare industry as well as the growth of the hospital outsourcing market and the military permanent staffing market, 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 by:

  •  replacing competitors at hospitals that currently outsource their services,
 
  •  obtaining new contracts from healthcare facilities that do not currently outsource, and
 
  •  expanding our present base of military treatment facility contracts by demonstrating the economic benefits of our service arrangements to such facilities.

      During the past three years, we have been awarded 426 new outsourced contracts, including 336 contracts to service areas of military treatment facilities with outsourced healthcare staffing.

      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 assessment and screening, semi-annual risk review for all providers,
 
  •  risk management quality improvement programs,
 
  •  physician education and in-service programs, including peer review and monitoring,
 
  •  loss prevention information such as risk alert bulletins, and
 
  •  early intervention of potential professional liability claims and pre-deposition review.

      Pursue Selective Acquisitions. We intend to selectively explore small strategic acquisitions in the fragmented outsourcing market. Since 1999, we have successfully completed and integrated nine acquisitions (excluding Spectrum Healthcare Resources) for an aggregate purchase price of less than $50 million.

The refinancing transactions

      Simultaneously with the closing of the offering of the old notes, we and our subsidiary guarantors entered into new senior secured credit facilities, consisting of a $250.0 million term loan facility and an $80.0 million revolving credit facility (the “new credit facilities”), redeemed or repurchased our 12% senior subordinated notes due 2009 (the “existing notes”), redeemed $100.0 million of our preferred stock (aggregate liquidation preference of $158.8 million as of December 31, 2003), paid a dividend of $27.6 million to holders of our common stock, and paid a compensatory bonus of $1.3 million to holders of stock options. We refer in this prospectus to these transactions, collectively, as the “refinancing transactions.” As of March 31, 2004, we had approximately $76.9 million of availability under the new credit facilities net of undrawn letters of credit.

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Tender offer and redemption of existing notes

      On March 23, 2004, we completed a tender offer with respect to all of our outstanding $100.0 million aggregate principal amount of 12% senior subordinated notes due 2009 (the “existing notes”). We used a portion of the net proceeds from the offering of our old notes and borrowings under the new credit facilities to pay for our existing notes accepted for purchase in the tender offer. On April 22, 2004, we redeemed the existing notes not purchased in the tender offer at a price equal to 108% of the principal amount thereof, plus accrued and unpaid interest to April 22, 2004, or $9,011,750.

Equity sponsors

      Madison Dearborn Partners, Inc., Cornerstone Equity Investors, LLC and Beecken Petty O’Keefe & Company, L.L.C. jointly sponsored the recapitalization of our company in March 1999. Affiliates of Madison Dearborn and Cornerstone each contributed 45% of the cash equity capital invested by the equity sponsors in the recapitalization, and an affiliate of Beecken Petty provided 10%. The investment by the equity sponsors represents an indirect ownership interest in our common equity of approximately 78.9%. The equity sponsors have a history of investing together in healthcare services companies, including investments in companies such as Valitas Health Services, Inc., which we subsequently acquired, and Health Management Associates.

      Madison Dearborn Partners, Inc. is a private equity firm that focuses on investments in several specific industry sectors, including healthcare, communications, consumer and financial services. Madison Dearborn through limited partnerships of which it is the general partner, has in excess of $7 billion of capital under management. Prior to forming Madison Dearborn in 1993, its principals managed the $2.4 billion management buyout and venture capital portfolio of First Chicago Corporation. Since 1980, Madison Dearborn professionals have invested in more than 190 management buyout and equity transactions, including investments in healthcare services companies such as Health Management Associates, Valitas Health Services, Inc., Cerner Corporation, Genesis Health Ventures and National Mentor Holdings and Path Lab Holdings. In other industries, Madison Dearborn has made investments in companies such as Nextel Communications, Inc., Buckeye Cellulose Corporation, General Nutrition Companies, Inc., Jefferson Smurfit Group PLC, Omnipoint Corporation, Packaging Corporation of America and Tuesday Morning Corporation.

      Cornerstone Equity Investors, LLC is a private equity firm that focuses on investments in middle-market companies, primarily in the healthcare services, business services, consumer and technology industries. Since 1984, Cornerstone has managed funds with aggregate committed capital of $1.2 billion and has invested in over 100 companies through management buyouts and expansion financings. Cornerstone has invested in a number of healthcare services companies, such as Health Management Associates, Valitas Health Services, Inc., VIPS Healthcare Information Solutions, Inc. and Interim Healthcare, Inc. In other industries, Cornerstone has invested in companies such as Dell Computer, Card Establishment Services, Crossland Mortgage and True Temper Sports, Inc.

      Beecken Petty O’Keefe & Company, L.L.C. is a private equity firm that focuses exclusively on the healthcare industry. Since 1995, Beecken Petty has invested in a wide range of healthcare companies, including Valitas Health Services, Inc., AbilityOne Corporation, DentalCare Partners, Inc. and Same Day Surgery, L.L.C.


      Our company is incorporated under the laws of the State Of Tennessee. Our principal executive offices are located at 1900 Winston Road, Knoxville, Tennessee 37919, and our telephone number is (800) 342-2898.

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Purpose of the Exchange Offer

      On March 23, 2004, we sold, through a private placement exempt from the registration requirements of the Securities Act, $180,000,000 of our 9% Senior Subordinated Notes due 2012. We refer to these notes as “old notes” in this prospectus.

      Simultaneously with the private placement, we entered into a registration rights agreement with the initial purchaser of the old notes. Under the registration rights agreement, we are required to use our reasonable best efforts to cause a registration statement for substantially identical notes, which will be issued in exchange for the old notes, to become effective. We refer to the notes to be registered under this exchange offer registration statement as the “exchange notes” and collectively with the old notes, we refer to them as the “Notes” in this prospectus. You may exchange your old notes for exchange notes in this exchange offer. You should read the discussion under the headings “— Summary of the Exchange Offer,” “The Exchange Offer” and “Description of the Notes” for further information regarding the exchange notes.

      We did not register the old notes under the Securities Act or any state securities law, nor do we intend to after the exchange offer. As a result, the old notes may only be transferred in limited circumstances under the securities laws. If the holders of the old notes do not exchange their old notes in the exchange offer, they lose their right to have the old notes registered under the Securities Act, subject to certain limitations. Anyone who still holds old notes after the exchange offer may be unable to resell their old notes.

      However, we believe that holders of the exchange notes may resell the exchange notes without complying with the registration and prospectus delivery provisions of the Securities Act, if they meet certain conditions. You should read the discussion under the headings “— Summary of the Exchange Offer” and “The Exchange Offer” for further information regarding the exchange offer and resales of the exchange notes.

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Summary of the Exchange Offer

 
The Initial Offering of Old Notes We sold the old notes on March 23, 2004 to J.P. Morgan Securities Inc., Banc of America Securities LLC and Merrill Lynch Pierce Fenner & Smith Incorporated. We refer to J.P. Morgan Securities Inc., Banc of America Securities LLC and Merrill Lynch Pierce Fenner & Smith Incorporated as the “initial purchasers.” 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.
 
Registration Rights Agreement Simultaneously with the initial sale of the outstanding securities, we entered into a registration rights agreement for the 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 SEC 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 is declared effective. The exchange offer is intended to satisfy our obligations under the registration rights agreement. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights with respect to your old notes.
 
The Exchange Offer We are offering to exchange the exchange notes, which are being registered under the Securities Act, for your old notes. To be exchanged, an old note must be properly tendered and accepted. All old notes that are validly tendered and not validly withdrawn will be exchanged. We will issue exchange notes promptly after the expiration of the exchange offer.
 
Resales We believe that the exchange notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act provided that:
 
• the exchange notes are being acquired in the ordinary course of your business;
 
• you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes issued to you in the exchange offer; and
 
• you are not an “affiliate” of ours as defined in Rule 405 of the Securities Act.
 
If any of these conditions are not satisfied and you transfer any exchange notes issued to you in the exchange offer without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your exchange notes from these requirements, you may incur liability under the Securities Act. We will not assume, nor will we indemnify you against, any such liability.

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Each broker-dealer that is issued exchange notes in the exchange offer for its own account in exchange for old notes that were acquired by that broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, resale or other retransfer of the exchange notes issued to it in the exchange offer. See “Plan of Distribution.”
 
Expiration Date The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2004, unless we decide to extend the expiration date.
 
Conditions to the Exchange Offer The exchange offer is not subject to any conditions other than that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission, that no proceedings have been instituted or threatened against us which would impair our ability to proceed with the exchange offer, and that we have received all necessary governmental approvals to proceed with the exchange offer.
 
Procedures for Tendering old notes We issued the old notes as global securities. When the old notes were issued, we deposited the global securities representing the old notes with The Bank of New York, as custodian for the Depository Trust Company, known as DTC, acting as book-entry depositary. The Bank of New York issued a certificateless depositary interest in each global security we deposited with it, which together represent a 100% interest in the old notes, to DTC. Beneficial interests in the old notes, which are held by direct or indirect participants in DTC through the certificateless depositary interests, are shown on records maintained in book-entry form by DTC.
 
You may tender your old notes through book-entry transfer in accordance with DTC’s Automated Tender Offer Program, known as ATOP. To tender your old notes by a means other than book-entry transfer, a letter of transmittal must be completed and signed according to the instructions contained in the letter of transmittal. The letter of transmittal and any other documents required by the letter of transmittal must be delivered to the exchange agent by mail, facsimile, hand delivery or overnight carrier. In addition, you must deliver the old notes to the exchange agent or comply with the procedures for guaranteed delivery. See “The Exchange Offer — Procedures for Tendering old notes” for more information.
 
Do not send letters of transmittal and certificates representing old notes to us. Send these documents only to the exchange agent. See “The Exchange Offer — Exchange Agent” for more information.
 
Special Procedures for Beneficial Owners If you are the beneficial owner of book-entry interests and your name does not appear on a security position listing of DTC as

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the holder of the book-entry interests or if you are a beneficial owner of old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender the book-entry interests or old notes in the exchange offer, you should contact the person in whose name your book-entry interests or old notes are registered promptly and instruct that person to tender on your behalf.
 
Withdrawal Rights You may withdraw the tender of your old notes at any time prior to 5:00 p.m., New York City time on                     , 2004.
 
Federal Income Tax Considerations The exchange of old notes should not be a taxable event for United States federal income tax purposes. See “Certain United States Federal Income Tax Considerations.”
 
Use of Proceeds We will not receive any proceeds from the issuance of the exchange notes pursuant to the exchange offer. We will pay all of our expenses incident to the exchange offer.
 
Exchange Agent The Bank of New York is serving as the exchange agent in connection with the exchange offer.

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The Exchange Notes

      The form and terms of the exchange notes are the same as the form and terms of the old notes, except that the exchange notes will be registered under the Securities Act. As a result, the exchange notes will not bear legends restricting their transfer and will not contain the registration rights and liquidated damage provisions contained in the old notes. The exchange notes represent the same debt as the old notes. The old notes and the exchange notes are governed by the same indenture and are together considered a “series” of securities under that indenture. We use the term “Notes” in this prospectus to refer collectively to the old notes and the exchange notes.

 
Issuer Team Health, Inc.
 
Securities offered $180,000,000 in principal amount of 9% Senior Subordinated Exchange Notes due 2012.
 
Maturity date April 1, 2012.
 
Interest payment dates April 1 and October 1 of each year, beginning on October 1, 2004.
 
Guarantees Each of our U.S. restricted subsidiaries will guarantee the notes on a senior subordinated basis.
 
Ranking The notes will be our unsecured senior subordinated obligations and will:
 
• rank junior to all of our existing and future senior indebtedness, which will include indebtedness under our new credit facilities;
 
• rank equally with all of any future senior subordinated indebtedness;
 
• rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the notes; and
 
• be effectively subordinated to all of our existing and future secured obligations, including indebtedness under our new credit facilities, to the extent of the value of the assets securing such obligations.
 
Similarly, the guarantees by our subsidiaries will:
 
• rank junior to all of the existing and future senior indebtedness of such subsidiaries, which will include the guarantees under our new credit facilities;
 
• rank equally with any future senior subordinated indebtedness of such subsidiaries;
 
• rank senior in right of payment to future indebtedness of such subsidiaries that is expressly subordinated in right of payment to the guarantees; and
 
• be effectively subordinated to all existing and future secured obligations of such subsidiaries, including the guarantees under our new credit facilities, to the extent of the value of the assets securing such obligations.
 
Optional redemption Prior to April 1, 2008, we may redeem some or all of the notes at a price equal to 100% of the principal amount, plus any

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accrued and unpaid interest to the date of redemption, plus a “make-whole” premium. Thereafter, we may redeem some or all of the notes at any time on or after April 1, 2008. We may also redeem up to 35% of the aggregate principal amount of the notes using the proceeds of one or more equity offerings at any time prior to April 1, 2007. The redemption prices are described under “Description of the Notes — Optional Redemption.”
 
Change of control and asset sales If we experience specific kinds of changes of control, we will be required to make an offer to purchase the notes at a purchase price of 101% of the principal amount thereof, plus accrued but unpaid interest to the purchase date. See “Description of the notes — Repurchase at the Option of Holders — Change of Control.”
 
If we sell assets, under certain circumstances, we will be required to make an offer to purchase the notes at their face amount, plus accrued but unpaid interest to the purchase date. See “Description of the notes — Repurchase at the Option of Holders — Asset Sales.”
 
Certain covenants The indenture restricts our ability and the ability of our restricted subsidiaries to, among other things:
 
• incur additional indebtedness;
 
• make certain distributions, investments and other restricted payments;
 
• create certain liens;
 
• enter into transactions with affiliates;
 
• limit the ability of restricted subsidiaries to make payments to us; and
 
• merge, consolidate or sell substantially all of our assets.
 
These covenants are subject to important exceptions and qualifications described under the heading “Description of the Notes.”
 
Risk Factors You should carefully consider all of the information in this prospectus and, in particular, you should evaluate the specific risk factors set forth under “Risk Factors.”

      For more complete information about the notes, see the “Description of the Notes” section of this prospectus.

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Summary Historical Consolidated Financial Data

      The following table presents our summary historical consolidated financial data for the fiscal years ended December 31, 2001, December 31, 2002 and December 31, 2003, which is 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 three months ended March 31, 2003 and 2004, which is derived from our unaudited consolidated financial statements and the notes to those statements. Operating results for the three fiscal months ended March 31, 2003 and 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year. Because the data in this table is 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.

                                         
Three months
Year ended December 31, ended March 31,


2001 2002 2003 2003 2004





(unaudited)
(Dollars in thousands)
Statement of Operations Data:
                                       
Net revenue less provision for uncollectibles
  $ 629,067     $ 834,098     $ 999,746     $ 238,414     $ 261,410  
Gross profit
    105,913       161,533       137,367       (5,124 )     50,425  
General and administrative expenses
    63,998       81,744       95,554       21,463       24,694  
Depreciation and amortization
    14,978       20,015       22,018       5,523       3,485  
Interest expense, net
    22,739       23,906       23,343       6,215       7,318  
Provision (benefit) for income taxes
    871       13,198       (1,410 )     (13,641 )     76  
Net earnings (loss)
    (1,459 )     16,138       (2,811 )     (24,809 )     (36 )
Dividends on preferred stock
    11,889       13,129       14,440       3,561       3,602  
Net earnings (loss) attributable to common stockholders
    (13,348 )     3,009       (17,251 )     (28,370 )     (3,638 )
Other Financial Data:
                                       
Net cash provided by (used in) operating activities
  $ 49,737     $ 52,480     $ 101,741       9,625     $ (1,181 )
Net cash provided by (used in) investing activities
    (22,826 )     (174,762 )     (26,279 )     (7,259 )     6,768  
Net cash provided by (used in) financing activities
    (12,132 )     99,888       (22,287 )     (2,250 )     (60,927 )
Capital expenditures
    5,955       9,796       8,972       3,229       925  
Ratio of earnings to fixed charges(1)
          2.2x                   1.0x  
                 
December 31, As of March 31,
2003 2004


(unaudited)
Balance Sheet Data:
               
Cash and cash equivalents
  $ 100,964     $ 45,624  
Working capital(2)
    86,729       78,291  
Total assets
    731,049       658,785  
Total debt
    299,415       438,250  
Mandatory redeemable preferred stock
    158,846        
Total stockholders’ equity (deficit)
    (115,203 )     (147,832 )

(1)  For the purpose of calculating the ratio of fixed charges, earnings consist of earnings before provision for income taxes plus fixed charges. Fixed charges consist of interest expensed or capitalized and the portion of rental expense we believe is representative of the interest component of rental expenses. For 2001, earnings were insufficient to cover fixed charges by $588. For 2003, earnings were insufficient to cover fixed charges by $4,221. For the three months ended March 31, 2003, earnings were insufficient to cover fixed charges by $38,450.
 
(2)  Working capital means current assets minus current liabilities.

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RISK FACTORS

      An investment in the exchange notes is subject to a number of risks. You should carefully consider the following risk factors as well as the other information and data included in this prospectus prior to making an investment in the exchange notes. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely affect our business, financial condition or results of operations. In such case, you may lose all or part of your original investment.

Risk Factors Related to the Exchange Notes

 
Because there is no public market for the exchange notes, you may not be able to sell your exchange notes.

      The exchange notes will be registered under the Securities Act, but will constitute a new issue of securities with no established trading market, and there can be no assurance as to:

  •  the liquidity of any trading market that may develop;
 
  •  the ability of holders to sell their exchange notes; or
 
  •  the price at which the holders would be able to sell their exchange notes.

      If a trading market were to develop, the exchange notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar securities and our financial performance.

      We understand that the initial purchasers presently intend to make a market in the exchange notes. However, they are not obligated to do so, and any market-making activity with respect to the exchange notes may be discontinued at any time without notice. In addition, any market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the exchange offer or the pendency of an applicable shelf registration statement. There can be no assurance that an active trading market will exist for the exchange notes or that any trading market that does develop will be liquid.

      In addition, any holder of old notes who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

 
Your old notes will not be accepted for exchange if you fail to follow the exchange offer procedures.

      We will issue exchange notes pursuant to this exchange offer only after a timely receipt of your old notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you want to tender your old notes, please allow sufficient time to ensure timely delivery. If we do not receive your old notes, letter of transmittal and other required documents by the expiration date of the exchange offer, we will not accept your old notes for exchange. We are under no duty to give notification of defects or irregularities with respect to the tenders of old notes for exchange. If there are defects or irregularities with respect to your tender of old notes, we will not accept your old notes for exchange.

 
If you do not exchange your old notes, your old notes will continue to be subject to the existing transfer restrictions and you may be unable to sell your old notes.

      We did not register the old notes, nor do we intend to do so following the exchange offer. Old notes that are not tendered will therefore continue to be subject to the existing transfer restrictions and may be transferred only in limited circumstances under the securities laws. If you do not exchange your old notes,

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you will lose your right to have your old notes registered under the federal securities laws. As a result, if you hold old notes after the exchange offer, you may be unable to sell your old notes.

      If a large number of outstanding old notes are exchanged for exchange notes issued in the exchange offer, it may be difficult for holders of outstanding old notes that are not exchanged in the exchange offer to sell their old notes, since those old notes may not be offered or sold unless they are registered or there are exemptions from registration requirements under the Securities Act or state laws that apply to them. In addition, if there are only a small number of old notes outstanding, there may not be a very liquid market in those old notes. There may be few investors that will purchase unregistered securities in which there is not a liquid market.

 
If you exchange your old notes, you may not be able to resell the exchange notes you receive in the exchange offer without registering them and delivering a prospectus.

      You may not be able to resell exchange notes you receive in the exchange offer without registering those exchange notes or delivering a prospectus. Based on interpretations by the Commission in no-action letters, we believe, with respect to exchange notes issued in the exchange offer, that:

  •  holders who are not “affiliates” of Team Health, Inc. within the meaning of Rule 405 of the Securities Act;
 
  •  holders who acquire their exchange notes in the ordinary course of business; and
 
  •  holders who do not engage in, intend to engage in, or have arrangements to participate in a distribution (within the meaning of the Securities Act) of the exchange notes;

      do not have to comply with the registration and prospectus delivery requirements of the Securities Act.

      Holders described in the preceding sentence must tell us in writing at our request that they meet these criteria. Holders that do not meet these criteria could not rely on interpretations of the SEC in no-action letters, and would have to register the exchange notes they receive in the exchange offer and deliver a prospectus for them. In addition, holders that are broker-dealers may be deemed “underwriters” within the meaning of the Securities Act in connection with any resale of exchange notes acquired in the exchange offer. Holders that are broker-dealers must acknowledge that they acquired their outstanding exchange notes in market-making activities or other trading activities and must deliver a prospectus when they resell notes they acquire in the exchange offer in order not to be deemed an underwriter.

Risk Factors Related to the Notes

Our substantial indebtedness could make it more difficult to pay our debts, divert our cash flow from operations for debt payments, limit our ability to borrow funds and increase our vulnerability to general adverse economic and industry conditions.

      We have now and, after the offering, will continue to have a significant amount of indebtedness. As of March 31, 2004, we had total indebtedness of approximately $438 million.

      Our substantial indebtedness could have important consequences to holders of our debt or equity. For example, it could:

  •  make it more difficult to pay our debts as they become due during general negative economic and market industry conditions because if our revenues decrease due to general economic or industry conditions, we may not have sufficient cash flow from operations to make our scheduled debt payments,
 
  •  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to our competitors with less debt,

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  •  require a substantial portion of our cash flow from operations for debt payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and
 
  •  limit our ability to borrow additional funds.

We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under our new credit facilities to service our indebtedness. These obligations require a significant amount of cash.

      Our business may not generate sufficient cash flows from operating activities. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future. This, to some extent, 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, will generally reduce our cash flow.

      We cannot assure you that our future cash flow will be sufficient to meet our obligations and commitments. If we are unable to generate sufficient cash flow from operations in the future to service our indebtedness and to meet our other commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness (including the notes), selling material assets or operations or seeking to raise additional debt or equity capital. We cannot assure you that any of these actions could be effected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. In addition, our existing or future debt agreements, including the indenture and the new credit facilities, may contain restrictive covenants prohibiting us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts. See “Management’s discussion and analysis of financial condition and results of operations — Liquidity and capital resources,” “Description of senior secured credit facilities” and “Description of the notes.”

Our new credit facilities and the indenture impose certain restrictions. Failure to comply with any of these restrictions could result in acceleration of our debt. Were this to occur, we would not have sufficient cash to pay our accelerated indebtedness.

      The operating and financial restrictions and covenants in our debt agreements, including the new credit facilities and the indenture governing the notes, may adversely affect our ability to finance future operations or capital needs or to engage in other business activities. The new credit facilities and/or the indenture will restrict our ability to, among other things:

  •  declare dividends or redeem or repurchase capital stock,
 
  •  prepay, redeem or purchase other debt,
 
  •  incur liens,
 
  •  make loans and investments,
 
  •  incur additional indebtedness,
 
  •  amend or otherwise alter debt and other material agreements,
 
  •  make capital expenditures,
 
  •  engage in mergers, acquisitions or asset sales,
 
  •  transact with affiliates, and
 
  •  alter the business we conduct.

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      In addition, the new credit facilities will require us to maintain certain financial ratios. A failure to comply with the restrictions contained in the new credit facilities or the indenture, or to maintain the financial ratios in the new credit facilities, could lead to an event of default which could result in an acceleration of the indebtedness. We cannot assure you that our future operating results will be sufficient to enable compliance with the covenants in the new credit facilities, the indenture or other indebtedness or to remedy any such default. In addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to make any accelerated payments, including those under the notes. See “Description of senior secured credit facilities” and “Description of the Notes.”

Your right to receive payments on the notes is subordinated to our senior debt and the senior debt of the guarantors.

      Payment on the notes will be subordinated in right of payment to all of our and the guarantors’ senior debt, including our and their obligations under the new credit facilities. As a result, upon any distribution to our or our subsidiaries’ creditors in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our subsidiaries or our or their property, the holders of senior debt will be entitled to be paid in full in cash before any payment may be made on the notes. In these cases, sufficient funds may not be available to pay all of our creditors, and holders of notes may receive less, ratably, than the holders of senior debt and, due to the turnover provisions in the indenture, less, ratably, than the holders of unsubordinated obligations, including trade payables. In addition, all payments on the notes will be blocked in the event of a payment default on senior debt and may be blocked for limited periods in the event of certain nonpayment defaults on our new credit facilities.

      As of March 31, 2004, the notes and the subsidiary guarantees would have been subordinated to approximately $250 million of senior indebtedness, excluding $3.1 million in undrawn letters of credit, and approximately $76.9 million would have been available for borrowing as additional senior debt under our new credit facilities. We will be permitted to incur additional indebtedness, including senior debt, in the future under the terms of the indenture.

Fraudulent conveyance laws permit courts to void guarantees and require noteholders to return payments received from guarantors in specific circumstances.

      Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of a guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee, received less than reasonably equivalent value or fair consideration for the issuance of such guarantee and:

  •  was insolvent or rendered insolvent by reason of such incurrence,
 
  •  was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital, or
 
  •  intended to incur or believed that it would incur, debts beyond its ability to pay such debts as they mature.

      In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor.

      The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

  •  the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets,

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  •  the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or
 
  •  it could not pay its debts as they become due.

      On the basis of historical information, recent operating history and other factors, we believe that each guarantor, after giving effect to its guarantee of these notes and the refinancing transactions, will not be insolvent, will not have unreasonably small capital for the business in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making such determinations or that a court would agree with our conclusions in this regard.

We may be unable to finance a change of control offer.

      If certain change of control events occur, we will be required to make an offer for cash to purchase the notes at 101% of their principal amount, plus accrued and unpaid interest and additional interest, if any. However, we cannot assure you that we will have the financial resources necessary to purchase the notes upon a change of control or that we will have the ability to obtain the necessary funds on satisfactory terms, if at all. A change of control would result in an event of default under our new credit facilities and may result in a default under other of our indebtedness that may be incurred in the future. The new credit facilities prohibit the purchase of outstanding notes prior to repayment of the borrowings under the new credit facilities and any exercise by the holders of the notes of their right to require us to repurchase the notes will cause an event of default under our new credit facilities. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indenture. See “Description of the Notes — Repurchase at the Option of Holders — Change of Control.”

Despite our current levels of debt, we may still incur more debt and increase the risks described above.

      We may be able to incur significant additional indebtedness in the future. If we or our subsidiaries add new debt to our current debt levels, the related risks that we and they now face could intensify, making it less likely that we will be able to fulfill our obligations to holders of the notes. None of the agreements governing our indebtedness prohibits us or our subsidiaries from doing so, although the new credit facilities and the indenture will place certain limitations. The new revolving credit facility provides aggregate availability of up to $80.0 million, none of which was drawn as of March 31, 2004.

If an active trading market does not develop for these notes you may not be able to resell them.

      We do not intend to apply for listing of the old notes or, the exchange notes on any securities exchange or for quotation through the National Association of Securities Dealers Automatic Quotation (the “Nasdaq”) system. We expect that the exchange notes will continue to be eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages (“PORTAL”) market. The initial purchasers have informed us that they currently intend to make a market in the old notes and the exchange notes. However, the initial purchasers are not obligated to do so and may discontinue any such market-making at any time without notice.

      The liquidity of any market for the notes will depend upon various factors, including:

  •  the number of holders of the notes,
 
  •  the interest of securities dealers in making a market for the notes,
 
  •  the overall market for high yield securities,
 
  •  our financial performance or prospects, and
 
  •  the prospects for companies in our industry generally.

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      Accordingly, we cannot assure you that a market or liquidity will develop for the notes or, if issued, the exchange notes.

      Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the notes. We cannot assure you that the market for the notes, if any, will not be subject to similar disruptions. Any such disruptions may adversely affect you as a holder of the notes.

Risk Factors Related to our Company

We derive a substantial portion of our net revenue less provision for uncollectibles ($229.0 million in 2003) from services provided to the Department of Defense under the TRICARE Program. This Program is scheduled to undergo significant changes beginning in June 2004 that could have a material impact on our current revenues and profits.

      We provide staffing for healthcare facilities located on military bases that provide related services to military personnel and their dependents as a subcontractor under the TRICARE program administered by the Department of Defense. The Department of Defense has a requirement for an integrated healthcare delivery system that includes a contractor managed care support contract to provide health, medical and administrative support services to its eligible beneficiaries. We currently provide our services through subcontract arrangements with managed care organizations that contract directly with the TRICARE program.

      On August 1, 2002, the Department of Defense issued a request for proposals for the next generation of managed care support contracts, also known as the “TRICARE Contracts”. The intent of the TRICARE Contracts is to replace the existing managed care support contracts on a phased-in basis between June and November 2004. The TRICARE Contracts proposal provided for the awarding of prime contracts to three managed care organizations to cover three distinct geographical regions of the country. The award of the prime contracts was announced in August 2003.

      The Department of Defense is currently in the process of determining how it will procure the civilian positions that it will require going forward. Options currently being discussed include “rolling-over” existing staffed positions with existing providers, such as us, through the recently selected managed care organizations, to terminating all existing contracts for staffed positions and putting ongoing staffing needs of military treatment facilities out for competitive bidding.

      The impact on our results of operations and financial condition resulting from the changes in the TRICARE Contracts program are not known or able to be estimated at this time. We have exclusive contracts with two of the three future prime contractors for future resource sharing. In the event the Department of Defense opts to allow for the rollover of existing staffing, we expect to maintain and expand on the business that it currently has in the West and North regions under the TRICARE Contracts. We do not have a contract to provide staffing with the managed care organization that has been awarded the South region under the TRICARE Contracts. In 2003, we derived approximately $47.9 million of net revenue less provision for uncollectibles from staffing contracts located in the South region. We expect that we will be able to pursue direct service contracts with individual military treatment facilities in the South region, as we currently provide staffing to military treatment facilities in this region. The potential success and impact on our results of operations in obtaining direct service contracts is not known or able to be estimated at this time. Alternatively, if the Department of Defense opts to terminate its existing staffing contracts and enter into a competitive bidding process for such positions across all regions, our existing revenues and margins and financial condition may be materially adversely affected.

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

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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 physician 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 current insurance market for professional liability insurance coverage had changed significantly during the two years since our last policy renewal. Several significant insurance providers of such coverage have ceased to provide such coverage and others have 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 such level of coverage for us 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 actuarial estimates, for losses in respect of such insurance, as well as the professional liability losses of Team Health and other corporate entities. These losses will be funded by our captive insurance company and, to the extent these losses exceed the assets of 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 affiliates 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 professional liability losses incurred by Team Health or other corporate entities. While our provisions for professional liability claims and expenses are determined through actuarial estimates, there can be no assurance that such actuarial estimates will not be exceeded by actual losses and related expenses in the future.

      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 (“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.

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The reserves that we have established in respect of our professional liability losses are subject to inherent uncertainties.

      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. In a study completed in May 2003, based on information as of October 2002, the independent actuary firm projected that ultimate losses for the March 12, 2003 to March 11, 2004 period, discounted to present value using a 4% discount rate, will be in the range of $44.1 million to $70.5 million. 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 9 of the notes to our consolidated financial statements.

We may incur substantial costs defending our interpretations of 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 government regulation, including numerous laws directed at 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 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,

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      (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 physicians,

      (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.

      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.

      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.

      If federal or state government officials challenge our operations or arrangements with third parties which 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 limited or prohibited 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.

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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 program prohibits the reassignment of Medicare payments due to a physician or other healthcare provider to any other person or entity unless the billing arrangement between that physician or other healthcare provider and the other person or entity falls within an enumerated exception to the Medicare reassignment prohibition. Historically, there was no exception that allowed us to receive directly Medicare payments related to the services of independent contractor physicians. However, the Medicare Prescription Drug Improvement and Modernization Act of 2003 amended the Medicare reassignment statute as of December 8, 2003 and may now permit our independent contractor physicians to reassign their Medicare receivable to us. At this time we are evaluating whether to restructure our method of billing and collecting Medicare payments in light of this new statutory reassignment exception.

      In the meantime, we currently use a “lockbox” model which we believe complies with the Medicare reassignment rules and we have notified Medicare carriers of the details of our lockbox billing arrangement. With respect to Medicare services that our independently contracted physicians render, 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. However, we cannot assure you that government authorities will not challenge our lockbox model as a result of changes in the applicable statutes and regulations or new interpretations of existing statutes and regulations.

      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 our 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.

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

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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.

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 revenue less provision for uncollectibles from payments made by government sponsored healthcare programs such as Medicare and state reimbursed programs. There are increasing 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.

      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 7, 2003, Centers for Medicare and Medicaid Services (“CMS”) issued its updates to the physician fee schedule payment rates for 2004. These 2004 physician fee schedule payment rate updates were subsequently revised on January 7, 2004 to implement provisions of The Medicare Prescription Drug Improvement and Modernization Act of 2003, which provide that the update to the conversion factor for physicians’ services for 2004 and 2005 will increase by at least 1.5%. Without this legislative change, the update for 2004 would have reduced fee schedule payment rates by 4.5% with a smaller reduction in 2005. As a result of the legislative change in January 2004, we now estimate that we will realize an increase in such revenues in 2004 from Medicare and other related revenue sources of approximately $3.9 million.

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, the indenture and/or the new credit facilities 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.

A reclassification of our independent contractor physicians by tax authorities could require us to pay retroactive taxes and penalties.

      As of December 31, 2003, we contracted with approximately 2,500 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

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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.

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 evaluate 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.

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 are currently in the form of a subcontractor relationship with the prime contractor holding a contract with the government. Both types of contracts are generally automatically renewable 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, 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. 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 be able to find suitable acquisition candidates or successfully integrate completed acquisitions into our current operations in order to profitably operate our consolidated company.

      When we obtain new contracts with hospitals and managed care companies, which increasingly involves a competitive bidding process, we must accurately assess the costs we will incur in providing

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services in order to realize adequate profit margins or otherwise meet our objectives. Increasing pressures from healthcare payors to restrict or reduce reimbursement rates at a time when the costs of providing medical services continue to increase make the integration of new contracts, as well as maintenance of existing contracts, more difficult. A portion of our growth in net revenue 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 we may not be able to identify suitable acquisition candidates in the future, we may not be able to obtain acceptable financing or we may not be able to consummate any future 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. 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.

We may not be able to successfully recruit and retain qualified physicians to serve as our independent contractors or employees.

      Our ability to recruit and retain affiliated physicians and qualified personnel significantly affects our performance at hospitals and urgent care clinics. In the recent past, our client hospitals have increasingly demanded 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 our contracts. Moreover, because of the scope of the geographic and demographic diversity of the hospitals and other facilities we contract with, we must recruit physicians to staff a broad spectrum of contracts. We have had difficulty in the past recruiting physicians to staff contracts in some regions of the country and at some less economically advantaged hospitals. Moreover, 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 ability to recruit and retain competent physicians to serve as our employees or independent contractors. We may not be able to attract and retain a sufficient number of competent physicians and other healthcare professionals to continue to expand our operations. We believe that we have experienced a loss of some contracts in the past because of our inability to staff those contracts with qualified physicians. In addition, 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,
 
  •  the ability to recruit and retain qualified physicians, technicians and nursing staffing,

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  •  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 as Emcare, Inc; PhyAmerica Physician Group, Inc.; The Schumacher Group; and NES Healthcare Group, some of which have substantially greater financial and other resources available to them. In addition, some of these firms may have greater access than us to physicians and potential clients. We also compete against local physician groups and self-operated hospital emergency departments for satisfying staffing and scheduling needs.

We depend on reimbursements by third-party payors, as well as payments by individuals.

      We receive a substantial portion of our payments for healthcare services from third-party payors, including Medicare, Medicaid, private insurers, managed care organizations and hospitals. We received approximately 56% of our net revenue less provision for uncollectibles from such third-party payors during fiscal 2003, including approximately 19% from Medicare and Medicaid. Additionally, we receive approximately 23% of our net revenue less provision for uncollectibles from MCSCs.

      The reimbursement process is complex and can involve lengthy delays. Third-party payors 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 payors 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 payors. 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 we provide health care services to uninsured individuals. Amounts not covered by third-party payors are the obligations of individual patients. We may not receive whole or partial payments from these uninsured individuals.

      The risks associated with third-party payors 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. Our collection policies or our allowance for Medicare, Medicaid, MCSCs and contractual discounts and doubtful accounts receivable may not be adequate.

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 debt expense, and cash flow. We bill numerous and varied payors, such as self-pay patients, various forms of commercial insurance companies and the Medicare and Medicaid Programs. These different payors 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.

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      Additional factors that could complicate our billing include:

  •  disputes between payors as to which party is responsible for payment,
 
  •  variation in coverage for similar services among various payors,
 
  •  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 payors.

      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.

We are subject to the risk that the former shareholders of Spectrum Healthcare Resources (“SHR”) will be unable to fulfill their obligations to us under a sale agreement.

      In connection with the acquisition of SHR on May 1, 2002, subject to certain limitations, the previous shareholders of SHR and related entities have indemnified us against certain potential losses attributable to events or conditions that existed prior to May 1, 2002. The indemnity limit is $10.0 million, with certain potential losses, as defined, subject to a $0.5 million “basket” before such losses are recoverable from the previous shareholders. In addition, a separate indemnification exists with a limit of $10.0 million relating to 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.

We are controlled by our principal equityholders, which have the power to take unilateral action.

      Madison Dearborn Partners, Inc. and Cornerstone Equity Investors, LLC control our business affairs and policies. Circumstances may occur in which the interests of these equity holders could be in conflict with the interests of the holders of the notes. In addition, 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 holders of the notes. See “Management,” “Security ownership of certain beneficial owners” and “Certain relationships and related transactions.”

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USE OF PROCEEDS

      This exchange offer is intended to satisfy our obligations under the registration rights agreement. We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes contemplated in this prospectus, we will receive outstanding securities in like principal amount, the form and terms of which are the same as the form and terms of the exchange notes, except as otherwise described in this prospectus. The old notes surrendered in exchange for exchange notes will be retired and canceled. Accordingly, no additional debt will result from the exchange. We have agreed to bear the expense of the exchange offer.

      The net proceeds from the sale of the old notes were approximately $180.0 million, less the initial purchasers’ commission and fees and expenses. We used the net proceeds from the sale of the old notes, together with funds from borrowings under our new credit facility, as follows

           
(in millions)
       
Sources:
       
Cash on hand
  $ 76.4  
New credit facilities:
       
 
Revolving credit facility
     
 
Term loan facility
    250.0  
Senior subordinated notes offered hereby
    180.0  
     
 
Total sources of funds
  $ 506.4  
     
 
Uses:
       
Repayment of existing debt
  $ 299.4  
Redemption of preferred stock
    162.4  
Payment of dividend
    28.9  
Premiums, fees and expenses
    15.7  
     
 
Total uses of funds
  $ 506.4  
     
 

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THE EXCHANGE OFFER

Purpose of the Exchange Offer

      Simultaneously with the sale of the old notes, we entered into a registration rights agreement with J.P. Morgan Securities Inc., Banc of America Securities LLC and Merrill Lynch Pierce Fenner & Smith Incorporated. 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 SEC and (ii) to cause such registration statement to be declared effective by the SEC. We also agreed to use our commercially reasonable efforts to cause the exchange offer to be consummated not later than 60 days after the exchange offer registration statement is declared effective. A copy of the registration rights agreement has been filed as an exhibit herewith.

      We are conducting the exchange offer to satisfy our contractual obligations under the registration rights agreement. The form and terms of the exchange notes are the same as the form and terms of the old notes, except that the exchange notes will be registered under the Securities Act, and holders of the exchange notes will not be entitled to the payment of any additional amounts pursuant to the terms of the registration rights agreement, as described below.

      The registration rights agreement provides that, promptly after the exchange offer registration statement has been declared effective, we will offer to holders of the old notes the opportunity to exchange their existing notes for exchange notes having a principal amount, interest rate, maturity date and other terms substantially identical to the principal amount, interest rate, maturity date and other terms of their old notes. We will use our commercially reasonable efforts to complete the exchange offer no later than 60 days after the exchange offer registration statement is declared effective. The exchange notes will be accepted for clearance through the DTC, Clearstream, Luxembourg and the Euroclear System with a new CUSIP and ISIN number and common code. All of the documentation prepared in connection with the exchange offer will be made available at the offices of The Bank of New York, our exchange agent.

      Based on existing interpretations of the Securities Act by the staff of the SEC, we believe that the holders of the exchange notes (other than holders who are broker-dealers) may freely offer, sell and transfer the exchange notes. However, holders of old notes who are our affiliates, who intend to participate in the exchange offer for the purpose of distributing the exchange notes, or who are broker-dealers who purchased the old notes from us for resale, may not freely offer, sell or transfer the old notes, may not participate in the exchange offer and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any offer, sale or transfer of old notes.

      Each holder of old notes who is eligible to and wishes to participate in the exchange offer will be required to represent that it is not our affiliate, that at the time of the commencement of the exchange offer it has no arrangement or understanding with any person to participate in the distribution of the exchange notes. In addition, any broker-dealer who acquired the old notes for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the exchange notes. We will agree to provide sufficient copies of the latest version of such prospectus to such broker-dealers, if subject to similar prospectus delivery requirements for a period ending 180 days from the last exchange date, as defined in the registration rights agreement.

      If applicable interpretations of the staff of the Commission do not permit us to effect the exchange offer, we will use our reasonable best efforts to cause to become effective a shelf registration statement relating to resales of the notes and to keep that shelf registration statement effective until the expiration of the time period referred to in Rule 144(k) under the Securities Act, or such shorter period that will terminate when all notes covered by the shelf registration statement have been sold. We will, in the event of such a shelf registration, provide to each noteholder copies of a prospectus, notify each noteholder when the shelf registration statement has become effective and take certain other actions to permit resales of the notes. A noteholder that sells notes under the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will

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be subject to certain of the civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of the registration rights agreement that are applicable to such a noteholder (including certain indemnification obligations).

      If the exchange offer is not completed (or, if required, the shelf registration statement is not declared effective) on or before the date that is 210 days after the closing date (the “Target Registration Date”), the annual interest rate borne by the notes will be increased by 0.25% per annum, with respect to the first 90 days after the Target Registration Date, and, if the exchange offer is not completed (or, if required, the shelf registration statement is not declared effective) prior to the end of such 90-day period, by an additional 0.25% per annum, up to a maximum amount of 1.0% per annum, in each case until the exchange offer is completed or the shelf registration statement is declared effective.

Terms of the Exchange Offer

      Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of old notes accepted in the exchange offer. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000.

      The form and terms of the exchange notes are the same as the form and terms of the existing notes except that:

        (i) the exchange notes bear a series B designation and a different CUSIP number from the old notes;
 
        (ii) the exchange notes have been registered under the Securities Act and will therefore not bear legends restricting their transfer; and
 
        (iii) the holders of the exchange notes will be deemed to have agreed to be bound by the provisions of the registration rights agreement and each security will bear a legend to that effect.

The exchange notes will evidence the same debt as the outstanding securities and will be entitled to the benefits of the indenture.

      Holders of old notes do not have any appraisal or dissenters’ rights under the Delaware General Corporations Law, or the indenture in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC.

      We will be deemed to have accepted validly tendered old notes when, as and if we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the exchange notes from us.

      If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of specified other events set forth in this prospectus or otherwise, the certificates for any unaccepted old notes will be returned, without expense, to the tendering holder as promptly as practicable after the expiration date of the exchange offer.

      Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of existing notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See “— Fees and Expenses.”

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Expiration Date; Extensions; Amendments

      The term “expiration date” will mean 5:00 p.m., New York City time, on                     , 2004, unless we, in our sole discretion, extend the exchange offer, in which case the term “expiration date” will mean the latest date and time to which the exchange offer is extended.

      To extend the exchange offer, prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date, we will:

        (1) notify the exchange agent of any extension by oral notice (promptly confirmed in writing) or written notice, and
 
        (2) mail to the registered holders an announcement of any extension.

      We reserve the right, in our sole discretion,

        (1) if any of the conditions below under the heading “— Conditions” shall have not been satisfied,

        (A) to delay accepting any old notes,
 
        (B) to extend the exchange offer; provided, however, that if we are required to extend the exchange offer in the event of a change in price or a change in the percentage of old notes sought, we will extend the exchange offer for a period of ten business days after such change in price or percentage, or
 
        (C) to terminate the exchange offer, or

        (2) to amend the terms of the exchange offer in any manner; provided, however, that if we amend the exchange offer to make a material change, including the waiver of a material condition, we will extend the exchange offer, if necessary, to keep the exchange offer open for at least five business days after such amendment or waiver.

Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the registered holders. We will give oral notice (promptly confirmed in writing) or written notice of any delay, extension or termination to the exchange agent.

Interest on the Exchange Notes

      The exchange notes will bear interest from their date of issuance. Holders of existing notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the exchange notes. Such interest will be paid with the first interest payment on the exchange notes on October 1, 2004. Interest on the old notes accepted for exchange will cease to accrue upon issuance of the exchange notes.

      Interest on the exchange notes is payable semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2004.

Procedures for Tendering Existing Notes

      Only a holder of old notes may tender old notes in the exchange offer. To tender in the exchange offer, a holder must:

  •  complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal;
 
  •  have the signatures on the letter of transmittal guaranteed if required by the letter of transmittal or transmit an agent’s message in connection with a book-entry transfer; and
 
  •  mail or otherwise deliver the letter of transmittal or the facsimile, together with the old notes and any other required documents, to be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date.

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      To tender old notes effectively, the holder must complete a letter of transmittal or an agent’s message and other required documents and the exchange agent must receive all the documents prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the old notes shall be made by book-entry transfer in accordance with the procedures described below. Confirmation of the book-entry transfer must be received by the exchange agent prior to the expiration date.

      The term “agent’s message” means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that the book-entry transfer facility has received an express acknowledgment from the participant in the book-entry transfer facility tendering the outstanding securities that the participant has received and agrees:

        (1) to participate in ATOP;
 
        (2) to be bound by the terms of the letter of transmittal; and
 
        (3) that we may enforce the agreement against the participant.

      By executing the letter of transmittal, each holder will make to us the representations set forth above in the fifth paragraph under the heading See “ — Purpose of the Exchange Offer.”

      The tender by a holder and the acceptance of the tender by us will constitute agreement between the holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal or agent’s message.

      The method of delivery of the existing notes and the letter of transmittal or agent’s message and all other required documents to the exchange agent is that the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or old notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for them

      Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner’s behalf. See “Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner” included with the letter of transmittal.

      An institution that is a member firm of the Medallion system must guarantee signatures on a letter of transmittal or a notice of withdrawal unless the old notes are tendered:

        (1) by a registered holder who has not completed the box entitled “Special Registration Instructions” or “Special Delivery Instructions” on the letter of transmittal; or
 
        (2) for the account of a member firm of the Medallion system.

      If the letter of transmittal is signed by a person other than the registered holder of any existing notes listed in that letter of transmittal, the old notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder’s name appears on the old notes. An institution that is a member firm of the Medallion System must guarantee the signature.

      If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, the person signing should so indicate when signing, and evidence satisfactory to us of its authority to so act must be submitted with the letter of transmittal.

      We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the outstanding securities at DTC for the purpose of facilitating the exchange offer, and subject to the establishment of this account, any financial institution that is a participant in DTC’s system may make book-entry delivery of outstanding securities by causing DTC to transfer the old notes into the exchange agent’s account with respect to the old notes in accordance with

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DTC’s procedures for the transfer. Although delivery of the old notes may be effected through book-entry transfer into the exchange agent’s account at DTC, unless an agent’s message is received by the exchange agent in compliance with ATOP, an appropriate letter of transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the exchange agent at its address set forth below on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under the procedures. Delivery of documents to DTC does not constitute delivery to the exchange agent.

      All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered old notes and withdrawal of tendered old notes will be determined by us in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any existing notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right in our sole discretion to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give the notification. Tenders of old notes will not be deemed to have been made until the defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

Guaranteed Delivery Procedures

      Holders who wish to tender their outstanding securities and:

        (1) whose old notes are not immediately available;
 
        (2) who cannot deliver their old notes, the letter of transmittal or any other required documents to the exchange agent; or
 
        (3) who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if:

        1. they tender through an institution that is a member firm of the Medallion System;
 
        2. prior to the expiration date, the exchange agent receives from an institution that is a member firm of the Medallion System a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery setting forth the name and address of the holder, the certificate number(s) of the old notes and the principal amount of old notes tendered, stating that the tender is being made and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof together with the certificate(s) representing the old notes or a confirmation of book-entry transfer of the old notes into the exchange agent’s account at DTC, and any other documents required by the letter of transmittal will be deposited by the member firm of the Medallion System with the exchange agent; and
 
        3. the exchange agent receives
 
        (A) such properly completed and executed letter of transmittal or facsimile of the letter of transmittal,
 
        (B) the certificate(s) representing all tendered old notes in proper form for transfer or a confirmation of book-entry transfer of the old notes into the exchange agent’s account at DTC, and

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        (C) all other documents required by the letter of transmittal

      upon three New York Stock Exchange trading days after the expiration date.

      Upon request to the exchange agent, we will send a notice of guaranteed delivery to holders who wish to tender their old notes according to the guaranteed delivery procedures set forth above.

Withdrawal of Tenders

      Except as otherwise provided in this prospectus, holders may withdraw tenders of old notes at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of old notes in the exchange offer, the exchange agent must receive a letter or facsimile transmission notice of withdrawal at its address set forth in this prospectus prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Any notice of withdrawal must:

        (1) specify the name of the person having deposited the old notes to be withdrawn;
 
        (2) identify the old notes to be withdrawn, including the certificate number(s) and principal amount of the old notes, or, in the case of old notes transferred by book-entry transfer, the name and number of the account at DTC to be credited;
 
        (3) be signed by the holder in the same manner as the original signature on the letter of transmittal by which the old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the old notes register the transfer of the old notes into the name of the person withdrawing the tender; and
 
        (4) specify the name in which any old notes are to be registered, if different from that of the person depositing the old notes to be withdrawn.

We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices. Our determination will be final and binding on all parties. We will not deem old notes so withdrawn to have been validly tendered for purposes of the exchange offer. We will not issue exchange notes for withdrawn old notes unless you validly retender the withdrawn old notes. We will return any old notes which have been tendered but which are not accepted for exchange to the holder of the old notes at our cost as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn old notes by following one of the procedures described above under “— Procedures for Tendering Existing Notes” at any time prior to the expiration date.

Conditions

      Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or issue exchange notes for, any old notes, and may terminate or amend the exchange offer as provided in this prospectus before the acceptance of the old notes, if:

        (1) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our sole judgment, would reasonably be expected to impair our ability to proceed with the exchange offer or any development has occurred in any existing action or proceeding which may be harmful to us or any of our subsidiaries; or
 
        (2) the exchange offer violates any applicable law or any applicable interpretation by the staff of the SEC; or
 
        (3) any governmental approval has not been obtained, which we believe would be reasonably necessary for the consummation of the exchange offer as outlined in this prospectus.

      These conditions are for our sole benefit and we may assert them at any time before the expiration of the exchange offer. Our failure to exercise any of the foregoing rights will not be a waiver of our rights.

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Exchange Agent

      The Bank of New York has been appointed as the exchange agent for the exchange offer. You should direct all

  •  executed letters of transmittal,
 
  •  questions,
 
  •  requests for assistance,
 
  •  requests for additional copies of this prospectus or of the letter of transmittal, and
 
  •  requests for Notices of Guaranteed Delivery,

      to the exchange agent at the following address:

THE BANK OF NEW YORK

         
By Facsimile:
  By Hand:
  By Overnight Courier or
Registered/Certified Mail:
       
(212) 298-1915
  101 Barclay Street, 7 East   101 Barclay Street, 7 East
Attention: Customer Service
  New York, New York 10286   New York, New York 10286
    Attention: Corporate Trust Operations   Attention: Corporate Trust Operations
    For Information, call:
(212) 815-3738
   

Delivery to an address other than set forth above will not constitute a valid delivery.

Fees and Expenses

      We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telephone or in person by our and our affiliates’ officers and regular employees.

      We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses incurred in connection with these services.

      We will pay the cash expenses to be incurred in connection with the exchange offer. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others.

Accounting Treatment

      The exchange notes will be recorded at the same carrying value as the old notes, which is the accreted value, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as a result of the exchange offer. The expenses of the exchange offer will be deferred and charged to expense over the term of the exchange notes.

Transfer Taxes

      Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes in connection with the exchange. However, holders who instruct us to register exchange notes in the name of, or request that old notes not tendered or not accepted in the exchange offer be returned to, a person other than a registered tendering holder will be responsible for the payment of any applicable transfer tax on that transfer.

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Consequences of Failure to Exchange

      The old notes that are not exchanged for exchange notes pursuant to the exchange offer will remain restricted securities. Accordingly, the old notes may be resold only:

        (1) to us upon redemption thereof or otherwise;
 
        (2) so long as the outstanding securities are eligible for resale pursuant to Rule 144A, to a person inside the United States who is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act, which other exemption is based upon an opinion of counsel reasonably acceptable to us;
 
        (3) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or
 
        (4) pursuant to an effective registration statement under the Securities Act,

in each case in accordance with any applicable securities laws of any state of the United States.

Resale of the exchange notes

      With respect to resales of exchange notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives exchange notes, whether or not the person is the holder (other than a person that is our affiliate within the meaning of Rule 405 under the Securities Act) in exchange for old notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the exchange notes, will be allowed to resell the exchange notes to the public without further registration under the Securities Act and without delivering to the purchasers of the exchange notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires exchange notes in the exchange offer for the purpose of distributing or participating in a distribution of the exchange notes, the holder cannot rely on the position of the staff of the SEC expressed in the no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each broker-dealer that receives exchange notes for its own account in exchange for old notes, where the old notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes.

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CAPITALIZATION

      The following table sets forth our consolidated cash and cash equivalents capitalization as of March 31, 2004. This table should be read in conjunction with “Summary historical financial data,” “Selected historical consolidated financial data” and the historical financial statements and related notes thereto included elsewhere in this offering memorandum. See also “Management’s discussion and analysis of financial condition and results of operations — Liquidity and capital resources.”

             
March 31, 2004

(unaudited)
(In thousands)
Cash and cash equivalents
  $ 45.6  
     
 
Long-term debt
       
 
New credit facilities(1)
    250.0  
 
9% senior subordinated notes due 2012 offered hereby
    180.0  
 
12% senior subordinated notes due 2009(2)
    8.3  
   
Total debt
    438.3  
Stockholders’ deficit
    (147.8 )
     
 
   
Total capitalization
    290.5  
     
 


(1)  Our new credit facilities consists of a six-year $80 million revolving credit facility and a seven-year $250.0 million term loan facility. The amount set forth above excludes undrawn letters of credit outstanding of $3.1 million. See “Description of senior secured credit facilities.”
 
(2)  Effective March 23, 2004, we completed a tender offer for our outstanding 12% senior subordinated notes in the amount of $100.0 million, plus a call premium of $8.0 million. As a result of the tender offer, approximately $91.8 million of the 12% senior subordinated notes were repaid and in addition a related call premium of approximately $7.5 million was paid on March 23, 2004. The remainder of the 12% senior subordinated notes outstanding were subsequently repaid on April 21, 2004 along with an estimated call premium of approximately $0.7 million.

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SELECTED HISTORICAL 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, 2003 has been derived from our audited historical consolidated financial statements and the financial data as of and for each of the three month periods ended March 31, 2003 and 2004 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.

                                                         
Three months ended
Year ended December 31, March 31,


1999 2000 2001 2002 2003 2003 2004







(unaudited)
Statement of Operations Data:
                                                       
Net revenue
  $ 852,153     $ 918,974     $ 965,285     $ 1,230,703     $ 1,479,013     $ 350,139     $ 397,302  
Provision for uncollectibles
    309,713       329,291       336,218       396,605       479,267       111,725       135,892  
     
     
     
     
     
     
     
 
Net revenue less provision for uncollectibles
    542,440       589,683       629,067       834,098       999,746       238,414       261,410  
Cost of services rendered:
                                                       
Professional service expenses
    419,607       444,320       493,380       635,573       746,409       181,996       194,711  
Professional liability costs
    21,899       24,276       29,774       36,992       115,970       61,542       16,274  
     
     
     
     
     
     
     
 
Gross profit
    100,934       121,087       105,913       161,533       137,367       (5,124 )     50,425  
General and administrative expenses
    51,491       57,794       63,998       81,744       95,554       21,463       24,694  
Terminated transaction expense
          2,000                                
Management fee and other expenses
    506       591       649       527       505       125       157  
Impairment of intangibles
                4,137       2,322       168              
Depreciation and amortization
    9,943       12,638       14,978       20,015       22,018       5,523       3,485  
Recapitalization expense
    16,013                                      
Interest expense, net
    20,909       25,467       22,739       23,906       23,343       6,215       7,318  
Refinancing costs
                      3,389                   14,731  
     
     
     
     
     
     
     
 
Earnings (loss) before income taxes and cumulative effect of change in accounting principle
    2,072       22,597       (588 )     29,630       (4,221 )     (38,450 )     40  
Provision (benefit) for income taxes
    1,250       9,317       871       13,198       (1,410 )     (13,641 )     76  
     
     
     
     
     
     
     
 
Earnings (loss) before cumulative effect of change in accounting principle
    822       13,280       (1,459 )     16,432       (2,811 )     (24,809 )     (36 )
Cumulative effect of change in accounting principle, net of income tax benefit
                      (294 )                  
Net earnings (loss)
    822       13,280       (1,459 )     16,138       (2,811 )     (24,809 )     (36 )
Dividends on preferred stock
    8,107       10,783       11,889       13,129       14,440       3,561       3,602  
     
     
     
     
     
     
     
 
Net earnings (loss) attributable to common stockholders
  $ (7,285 )   $ 2,497     $ (13,348 )   $ 3,009     $ (17,251 )     (28,370 )     (3,638 )
     
     
     
     
     
     
     
 

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Three months ended
Year ended December 31, March 31,


1999 2000 2001 2002 2003 2003 2004







(unaudited)
Other Data:
                                                       
Net cash provided by (used in) operating activities
    37,963       52,130       49,737       52,480       101,741     $ 9,625     $ (1,181 )
Net cash provided by (used in) investing activities
    (14,984 )     (12,900 )     (22,826 )     (174,762 )     (26,279 )     (7,259 )     6,768  
Net cash provided by (used in) financing activities
    3,369       (13,646 )     (12,132 )     99,888       (22,287 )     (2,250 )     (60,927 )
Capital expenditures
    10,615       7,359       5,955       9,796       8,972       3,229       925  
Ratio of earnings to fixed charges(1)
    1.1x       1.8x             2.2x                   1.0x  
Balance Sheet Data (at end of period):
                                                       
Cash and cash equivalents
  $ 29,820     $ 55,404     $ 70,183     $ 47,789     $ 100,964             $ 45,624  
Working capital(2)
    107,550       124,105       104,039       70,163       86,729               78,291  
Total assets
    442,199       502,098       500,198       674,240       731,049               658,785  
Total debt
    241,676       229,201       217,300       320,500       299,415               438,250  
Mandatory redeemable preferred stock
    108,107       118,890       130,779       144,405       158,846                
Total stockholders’ equity (deficit)
    (88,620 )     (86,123 )     (99,690 )     (97,432 )     (115,203 )             (147,832 )
     
     
     
     
     
             
 


(1)  For the purpose of calculating the ratio of fixed charges, earnings consist of earnings before provision for income taxes plus fixed charges. Fixed charges consist of interest expensed or capitalized and the portion of rental expense we believe is representative of the interest component of rental expenses. For 2001, earnings were insufficient to cover fixed charges by $588. For 2003, earnings were insufficient to cover fixed charges by $4,221. For the three months ended March 31, 2003, earnings were insufficient to cover fixed charges by $38,450.
 
(2)  Working capital means current assets minus current liabilities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

      The following discussion should be read in conjunction with “Selected historical consolidated financial data” and our consolidated financial statements and the related notes included elsewhere in this offering memorandum. This offering memorandum contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.

Company overview

      We believe we are among the largest national providers of outsourced physician staffing and administrative services to hospitals and other healthcare providers in the United States and the largest provider of outsourced physician staffing and administrative services to military treatment facilities. In addition to providing physician staffing, we also provide a broad array of non-physician healthcare services including specialty technical staffing, para-professionals and nurse staffing on a permanent basis to the military.

      Our regional operating models include comprehensive programs for emergency medicine, radiology, anesthesiology, inpatient care, pediatrics and other healthcare services, principally within hospitals and other healthcare facilities, including military treatment facilities.

      Acquisitions. During the past three years, we have successfully acquired and integrated the contracts of three hospital-based physician groups and related companies in addition to the acquisition in 2002 of the leading provider of military staffing to the military. In addition, during the past three years we have also acquired three businesses engaged in providing such services as billing and collection, physician management services and non-hospital-based physician services.

      Acquisitions, with the exception of the military staffing business, have been financed through a combination of cash and future contingent payments. All of our acquisitions during the past three years were accounted for using the purchase method of accounting. As such, operating results of those acquired businesses are included in our consolidated financial statements since their respective dates of acquisition. Subsequent to each acquisition, the acquired operations have either been converted to all or at least our key financial and operating systems.

      Strategic acquisitions continue to be a core component of our growth strategy. The market for outsourced medical services is highly fragmented and served primarily by small local and regional physician groups, which represent over 60% of the market and generally lack the resources and depth of services necessary to compete with national providers. Our acquisition strategy is to target those companies with strong clinical reputations and quality contracts with larger hospitals.

      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 traditional hospitals typically have terms of three years and are generally automatically renewable under the same terms and conditions unless either party to the contract gives notice of their intent not to renew the contract. Our average contract tenure for hospital contracts is approximately eight years. Our contracts with the four MCSCs have been in place since 1995 to 1998, which are the inception dates of participation by each of the MCSCs in the TRICARE program. However, the existing managed care support contracts are currently scheduled to be replaced on a phase-in basis between June and November 2004.

      Approximately 56% of our net revenue less provision for uncollectibles is generated under fee-for-service arrangements through which we bill and collect the professional fees for the services provided. Conversely, under our flat-rate contracts, hospitals or military treatment facilities pay us a fee based on the hours of physician coverage provided, but the hospital or military treatment facility is responsible for its own billing and collection. In states where physician employees service our contracts directly because there is no prohibition against such arrangements, Medicare payments for such services are made directly to us.

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In states where the physicians providing services are our independent contractors, Medicare payments for those services are paid into a lockbox account in the name of the independent contractor physician and subsequently directed into a Company account.

Critical accounting policies and estimates

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

 
Revenue recognition

      Net Revenue. A significant portion (70.4% of our revenue in 2003, 71.7% in the three months ended March 31, 2004) resulted from fee-for-service patient visits. The recognition of net revenue (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 revenue due to differing payers being subject to different contractual allowance amounts. Such changes in net revenue 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 revenue are adjusted in the following month based on actual chart volumes processed.

      Net Revenue Less Provision For Uncollectibles. Net revenue less provision for uncollectibles reflects management’s estimate of billed amounts to ultimately 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 and are calculated at the individual contract level. 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.

      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

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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 actuary 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. Accordingly, we recorded a loss estimate, discounted at 4%, of $50.8 million in our statement of operations for the three months ended March 31, 2003.

      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 a cash outflow in 2004.

      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. As noted above, due to the long pattern of payout for such exposures, we anticipate that a substantial portion of such latter amount will not be realized in the form of actual cash outlays from our captive insurance subsidiary until periods beyond 2004.

      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.

      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. During 2003, 2002 and 2001, we recorded losses due to impairments of intangibles of $0.2 million, $2.3 million and $4.1 million, respectively. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which required us to analyze our goodwill for impairment issues during the first three months of 2002, and thereafter on an annual basis. As a result of the initial impairment review, we recorded as a cumulative change of accounting principle in 2002 a loss of $0.3 million net of related tax benefit.

Overview of statements of operations

      Net Revenues and Provision for Uncollectibles. Net revenue consists of three components: fee-for-service revenue, contract revenue, and other revenue. Fee-for-service revenue represents revenue earned

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under contracts for which we bill and collect the professional component of the 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 payments from patients or their third party payors. Contract revenue represents revenue generated under contracts in which we provide physician and administrative services in return for a contractually negotiated fee. Contract revenue also includes supplemental revenue from hospitals where we may have a fee-for-service contract arrangement. Other revenue consists primarily of revenue from management and billing services provided to outside parties.

      Revenues are recorded in the period the services are rendered as determined by the respective contracts with healthcare providers. As is standard in the healthcare industry, revenue is reported net of third party contractual adjustments. As a result, gross charges and net revenue differ considerably. Revenue in our financial statements is reported at net realizable amounts from patients, third-party payors and other payors. We also record a provision for uncollectibles, which represents our estimate of losses based on the experience of each individual contract. All services provided are expected to result in cash flows and are therefore reflected as revenues in the financial statements.

      Management, in estimating the amounts to be collected resulting from its over six million annual fee-for-service patient visits and procedures, considers several factors, including but not limited to, prior contract collection experience, current period changes in payor mix and patient acuity indicators, reimbursement rate trends in governmental and private sector insurance programs and trends in collections from self-pay patients. Historically, management has taken this information regarding net collections and allocated the reductions from gross billings and estimated net collections between contractual allowances (a reduction from gross revenues to arrive at net revenue) and provision for uncollectibles based on trended historical data, particularly with respect to such factors as payor mix and its collection experience with self-pay accounts.

      In 2001, we recorded a charge of $24.5 million to increase our contractual allowances for patient accounts receivable for periods prior to 2001. This charge resulted from a change in estimated collections rates based on a detailed analysis of our outstanding accounts receivable using additional data developed during the period. The results of the additional research indicated that our estimated collection rates for prior periods were lower than originally estimated. The charge in 2001 also led to the development of a more formulaic and uniform estimation of our collection rates in 2002 which takes into account the aforementioned factors as well as other less significant factors.

      The complexity of the estimation process associated with our fee-for-service volumes and diverse payor 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.

      Net revenue less the provision for uncollectibles is an estimate of cash collections and, as such, is a key measurement by which management evaluates the performance of individual contracts as well as the company as a whole.

      Approximately 42% of our revenue less provision for uncollectibles in 2003 was derived from payments made by government sponsored healthcare programs, principally Medicare, Medicaid and TRICARE. These programs are subject to substantial regulation by federal and state governments. Funds received under Medicare and Medicaid are subject to audit and, accordingly, retroactive adjustments of these revenues may occur. We, however, have never had any substantial retroactive adjustment due to a Medicare or Medicaid audit. Additionally, funds received from a MCSC as a result of participation in the TRICARE program are subject to audit and subsequent retroactive adjustment. Reimbursable fee payments for Medicare and Medicaid patients for some services are defined and limited by the Centers for Medicare and Medicaid Services (“CMS”) and some state laws and regulations. During 2003, the Medicare program announced that its physician reimbursement rates would increase in 2004 by approximately 1.5%. We estimate that we will realize an increase in such revenues in 2004 from Medicare and other related revenue sources of approximately $3.9 million based on 2003 volumes of such covered patients.

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      Cost of Services Rendered. Cost of services rendered consists of professional services expenses and professional liability costs. Professional expenses primarily consist of fees paid to physicians and other providers under contract with us, outside collection fees relating to independent billing contracts, operating expenses of our internal billing centers and other direct contract service costs. Approximately 81% of our physicians are independently contracted physicians who are not employed by us and the remainder are our employees. We typically pay emergency department and urgent care center physicians a flat hourly rate for each hour of coverage provided or, increasingly more often, based on relative value units for services provided. We typically pay radiologists and primary care physicians an annual salary. The 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 expenses that we pay for employed physicians.

      Professional liability costs represent the cost of covering our physician and related professional staff that are under contract with us. 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. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claim payments. The accrual includes an estimate of the losses that will result from incidents that occurred during the reporting period, but were not reported that period. These claims are referred to as incurred-but-not-reported claims. Our historical statements of operations include a professional liability cost that is comprised of three components including insurance premiums, incurred-but-not-reported claims estimates and self-insurance costs.

Results of operations

      The following provides an analysis of our results of operations and should be read in conjunction with our audited and unaudited financial statements. The operating results of the periods presented were not significantly affected by general inflation in the U.S. economy.

      Net revenue 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 the company as a whole. The following table sets forth the components of net earnings as a percentage of net revenue less provision for uncollectibles for the periods indicated:

                                         
Three Months
Year ended December 31, ended March 31,


2001 2002 2003 2003 2004





(unaudited)
Fee-for-service revenue
    125.5%       108.8%       104.1%       103.4%       109.0%  
Contract revenue
    25.3       35.1       40.8       40.6       40.2  
Other revenue
    2.6       3.6       3.0       2.9       2.8  
Net revenue
    153.4       147.5       147.9       146.9       152.0  
Provision for uncollectibles
    53.4       47.5       47.9       46.9       52.0  
Net revenue less provision for uncollectibles
    100.0       100.0       100.0       100.0       100.0  
     
     
     
     
     
 
Professional service expenses
    78.4       76.2       74.7       76.3       74.5  
Professional liability costs
    4.8       4.4       11.6       25.8       6.2  
Gross profit
    16.8       19.4       13.7       (2.1 )     19.3  
General and administrative expenses
    10.2       9.8       9.6       9.0       9.4  
Management fee and other expenses
    0.1       0.1       0.1       0.1       0.1  
Impairment of intangibles
    0.6       0.3                    
Depreciation and amortization
    2.4       2.4       2.1       2.3       1.3  
Interest expense, net
    3.6       2.8       2.3       2.6       2.8  

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Three Months
Year ended December 31, ended March 31,


2001 2002 2003 2003 2004





(unaudited)
Refinancing costs
          0.4                   5.6  
Earnings (loss) before income taxes and cumulative effect of change in accounting principle
    (0.1 )     3.6       (0.4 )     (16.1 )      
Provision (benefit) for income taxes
    0.1       1.6       (0.1 )     (5.7 )      
Earnings (loss) before cumulative effect of change in accounting principle
    (0.2 )     2.0       (0.3 )     (10.4 )      
Cumulative effect of change in accounting principle, net of income tax benefit
                             
Net earnings (loss)
    (0.2 )     2.0       (0.3 )     (10.4 )      
Dividends on preferred stock
    1.9       1.6       1.4       1.5       1.4  
Net earnings (loss) attributable to common stockholders
    (2.1 )     0.4       (1.7 )     (11.9 )     (1.4 )
     
     
     
     
     
 
 
Three months ended March 31, 2004 compared to the three months ended March 31, 2003

      Net Revenues. Net revenues for the three months ended March 31, 2004 increased $47.2 million, or 13.5%, to $397.3 million from $350.1 million for the three months ended March 31, 2003. The increase in net revenues of $47.2 million included an increase of $38.5 million in fee-for-service revenue, $8.3 million in contract revenue and $0.3 million in other revenue. For the three month periods ended March 31, 2004 and 2003, fee-for-service revenue was 71.7% of net revenue in 2004 compared to 70.4% in 2003, contract revenue was 26.4% of net revenue in 2004 compared to 27.6% in 2003 and other revenue was 1.9% of net revenue in 2004 compared to 2.0% in 2003.

      Provision for Uncollectibles. The provision for uncollectibles was $135.9 million for the three months ended March 31, 2004 compared to $111.7 million for the three months ended March 31, 2003, an increase of $24.2 million or 21.7%. The provision for uncollectibles as a percentage of net revenue was 34.2% for the three months ended March 31, 2004 compared to 31.9% for the three months ended March 31, 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 percentage resulted from fee schedule and average acuity pricing increases in excess of increased average collection rates principally as a result of a payer mix shift toward more self-insured emergency department patient visits.

      Net Revenue Less Provision for Uncollectibles. Net revenue less provision for uncollectibles for the three months ended March 31, 2004 increased $23.0 million, or 9.6%, to $261.4 million from $238.4 million for the corresponding three months in 2003. Same contract revenue less provision for uncollectibles, which consists of contracts under management in both periods, increased $17.1 million, or 8.0%, to $230.4 million in 2004 from $213.4 million in 2003. The increase in same contract revenue of 8.0% includes the effects of both higher estimated net revenue per billing unit and increased volume between periods. Overall, same contract revenue increased approximately 7.0% between periods due to higher estimated net revenue per billing unit. Acquisitions contributed $1.6 million and new contracts obtained through internal sales contributed $23.3 million of the increase. The aforementioned increases were partially offset by $19.0 million of revenue derived from contracts that terminated during the periods.

      Professional Service Expenses. Professional service expenses, which includes physician costs, billing and collection expenses and other professional expenses, totaled $194.7 million for the three months ended March 31, 2004 compared to $182.0 million for the three months ended March 31, 2003, an increase of $12.7 million or 7.0%. The increase of $12.7 million in professional service expenses included

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approximately $4.4 million resulting from acquisitions and net growth in new contract sales. The remaining increase of approximately $8.3 million resulted from increases in average rates paid per hour of provider service and increased staffing hours on a same contract basis.

      Professional Liability Costs. Professional liability costs were $16.3 million in 2004 compared with $61.5 million in 2003 for a decrease of $45.3 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 increased $5.5 million between periods. The Company’s cost of professional liability insurance in 2004 is based on an actuarial estimate of losses under the Company’s captive insurance program. In 2003, such costs reflected premium costs under a premium based commercial insurance program.

      Gross Profit (Loss). Gross profit (loss) was a profit of $50.4 million for the three months ended March 31, 2004, compared to a loss of $5.1 million in 2003. 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, net new contract growth and increased contribution from steady state operations. Gross profit as a percentage of revenue less provision for uncollectibles for the three months ended March 31, 2004 was 19.3% compared to 19.2% before the provision for excess losses for the three months ended March 31, 2003.

      General and Administrative Expenses. General and administrative expenses for the three months ended March 31, 2004 increased to $24.7 million from $21.5 million for the three months ended March 31, 2003, for an increase of $3.2 million between periods. General and administrative expenses as a percentage of net revenue less provision for uncollectibles were 9.4% for the three months ended March 31, 2004, compared to 9.0% for the three months ended March 31, 2003. Included in general and administrative expenses in 2004 is approximately $1.3 million related to a bonus paid to stock option holders in connection with a refinancing of the Company’s debt structure. Excluding the effect of the stock option bonus expense, general and administrative expenses increased approximately $1.9 million, or 8.8%. The remaining increase in general and administrative expenses between years was principally due to increases in salaries and benefits of approximately $1.1 million and $0.9 million for professional consulting expenses related to improving its billing and collection processes.

      Management Fee and Other Operating Expenses. Management fee and other operating expenses were $0.2 million for the three months ended March 31, 2004 and $0.1 million for the corresponding period in 2003.

      Depreciation and Amortization. Depreciation and amortization was $3.5 million for the three months ended March 31, 2004 and $5.5 million for the three months ended March 31, 2003. Amortization expense decreased by $1.9 million between periods due to certain of the Company’s intangibles becoming fully amortized in 2003.

      Net Interest Expense. Net interest expense increased $1.1 million to $7.3 million for the three months ended March 31, 2004 compared to $6.2 million for the corresponding period in 2003. The increase in net interest expense is primarily due to a loss realized on hedging instruments associated with debt that was repaid on March 23, 2004.

      Refinancing Costs. The Company 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.

      Earnings (Loss) before Income Taxes. Earnings before income taxes for the three months ended March 31, 2004 were $40,000 compared to a loss of $38.5 million for the three months ended March 31, 2003.

      Provision (Benefit) for Income Taxes. Provision for income taxes for the three months ended March 31, 2004 was $0.1 million compared to a benefit of $13.6 million for the three months ended March 31, 2003.

      Net Earnings (Loss). Net loss for the three months ended March 31, 2004 was $36,000 compared to a net loss of $24.8 million for the three months ended March 31, 2003.

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      Dividends on Preferred Stock. The Company recognized $3.6 million of dividends for the three months ended March 31, 2004 and 2003, respectively, on its Class A mandatory redeemable preferred stock.

Year ended December 31, 2003 compared to year ended December 31, 2002

      Net Revenue. Net revenue 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 revenue of $248.3 million included an increase of $133.4 million in fee-for-service revenue, $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 revenue in 2003 compared to 73.7% in 2002, contract revenue was 27.6% of net revenue in 2003 compared to 23.8% in 2002 and other revenue was 2.0% of net revenue 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 revenue, 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 Revenue Less Provision for Uncollectibles. Net revenue 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 revenue 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 $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

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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 revenue 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 Emergency Department 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.

      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 its 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 its outstanding Class A mandatory redeemable preferred stock.

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Year ended December 31, 2002 compared to the year ended December 31, 2001

      Net Revenue. Net revenue in 2002 increased $265.4 million, or 27.5%, to $1,230.7 million from $965.3 million in 2001. During 2001, we recorded a charge of $24.5 million to increase its contractual allowances for patient accounts receivable for periods prior to 2001. The impact of this charge was to reduce fee-for-service net revenue in 2001 by $24.5 million. The increase in net revenue of $265.4 million included an increase of $118.1 million in fee-for-service revenue, $133.5 million in contract revenue and $13.8 million in other revenue. Fee-for-service revenue was 73.7% of net revenue in 2002 compared to 81.8% in 2001, contract revenue was 23.8% of net revenue in 2002 compared to 16.5% in 2001 and other revenue was 2.5% of net revenue in 2002 compared to 1.7% in 2001. The change in the mix of revenues is principally due to the acquisition of SHR in 2002. SHR derives a higher percentage of its revenues from hourly contract billings than fee-for-service contracts.

      Provision for Uncollectibles. The provision for uncollectibles was $396.6 million in 2002 compared to $336.2 million in 2001, an increase of $60.4 million or 18.0%. As a percentage of net revenue, the provision for uncollectibles was 32.2% in 2002 compared to 34.8% in 2001. The provision for uncollectibles is primarily related to revenue generated under fee-for-service contracts which is not expected to be fully collected. The lower percentage of net revenue in 2002 is principally due to the lower mix of fee-for-service revenue within the total revenues of SHR which was acquired on May 1, 2002.

      Net Revenue Less Provision for Uncollectibles. Net revenue less provision for uncollectibles in 2002 increased $205.0 million, or 32.6% ($180.5 million, or 27.6%, after giving effect to the $24.5 million charge in 2001), to $834.1 million from $629.1 million in 2001. 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 $31.8 million, or 5.7%, to $585.9 million in 2002 from $554.0 million in 2001. The increase in same contract revenue of 5.7% includes the effects of both increased billing volume and higher estimated net revenue per billing unit between periods. Overall, same contract revenue increased approximately 4.1% between periods due to an increase in billing volume and physician mix. Beginning January 1, 2002, our reimbursement under the Medicare Program was reduced. The estimated effect of such reduction in 2002 was $9.0 million. Acquisitions contributed $139.1 million and new contracts obtained through internal sales contributed $48.7 million of the remaining increase. The increases noted above were partially offset by $39.2 million of revenue derived from contracts that terminated during the periods.

      Professional Service Expenses. Professional service expenses in 2002 were $635.6 million compared to $493.4 million in 2001, an increase of $142.2 million or 28.8%. Professional service expenses includes physician costs, billing and collection expenses and other professional expenses. The increase of $142.2 million included $102.4 million resulting from acquisitions between periods. As a percentage of net revenue less provision for uncollectibles, professional service expenses were 76.2% in 2002 compared to 78.4% (75.5% after giving effect to the charge of $24.5 million) in 2001. The remaining increase in professional service expenses was principally due to increases in physician hours and rates and costs associated with the addition of capacity in our billing operations between periods. In addition, we experienced increased usage of mid-level practitioners and physician assistants in 2002 in an effort to improve emergency department productivity and to meet increased emergency department volumes.

      Professional Liability Expense. Professional liability expense was $37.0 million in 2002 compared with $29.8 million in 2001, resulting in an increase between periods of $7.2 million or 24.2%. The increase in our professional liability insurance cost in addition to increases resulting from acquisitions ($1.9 million), reflects the cost of higher premiums between periods under its two year policy from such coverage which began March 12, 2001, as well as a provision for claim losses in excess of insurance limits.

      Gross Profit. Gross profit increased to $161.5 million in 2002 from $105.9 million in 2001. The increase in gross profit after giving effect to the charge of $24.5 million in 2001 is attributable to the contribution of acquisitions. Gross profit as a percentage of revenue less provision for uncollectibles increased to 19.4% in 2002 compared to 16.8% in 2001 due to the factors described above.

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      General and Administrative Expenses. General and administrative expenses in 2002 increased to $81.7 million from $64.0 million in 2001, for an increase of $17.7 million, or 27.7%, between years. General and administrative expenses as a percentage of net revenue less provision for uncollectibles were 9.8% in 2002 compared to 10.2% in 2001. The increase in general and administrative expenses between years included expenses associated with acquired operations of $13.7 million, accounting for 21.4% of the 27.7% increase between periods. The remaining net increase of 6.3% was principally due to increases in salaries and related benefit costs resulting from annual wage increases and inflation and the full year effect of additional staff added in 2001.

      Management Fee and Other Expenses. Management fee and other expenses were $0.5 million and $0.6 million in 2002 and 2001, respectively.

      Impairment of Intangibles. Impairment of intangibles was $2.3 million and $4.1 million in 2002 and 2001, respectively. Two of our contracts were determined to be impaired during 2002 and in 2001 a portion of our intangibles relating to its radiology operations were reduced to their estimated fair market value.

      Depreciation and Amortization. Depreciation and amortization was $20.0 million in 2002 compared to $15.0 million in 2001. Depreciation increased by $1.2 million between years. The increase in depreciation expense was due to capital expenditures made during 2001 and 2002. Amortization expense increased $3.8 million between years principally due to amortization of identifiable intangibles resulting from acquisitions made during 2001 and 2002, partially offset by no longer amortizing goodwill subsequent to January 1, 2002 (amortization of goodwill was $2.0 million for the twelve months ended December 31, 2001) as a result of implementing SFAS No. 142, Goodwill and Other Intangible Assets.

      Net Interest Expense. Net interest expense increased $1.2 million to $23.9 million in 2002 compared to $22.7 million in 2001. The increase in net interest expense is principally due to additional debt outstanding resulting from acquisitions partially offset by lower interest rates between periods.

      Refinancing Costs. We expensed in 2002 $3.4 million of deferred financing costs related to previously outstanding bank debt which was refinanced in 2002.

      Earnings (Loss) before Income Taxes and Cumulative Effect of Change in Accounting Principle. Earnings before income taxes and cumulative effect of change in accounting principle in 2002 were $29.6 million compared to a loss of $0.6 million in 2001.

      Provision for Income Taxes. Provision for income taxes in 2002 was $13.2 million compared to a provision of $0.9 million in 2001. The increase in income tax expense in 2002 over 2001 was due to the increased level of earnings before income taxes in 2002.

      Earnings (Loss) before Cumulative Effect of Change in Accounting Principle. Earnings before cumulative effect of change in accounting principle in 2002 was $16.4 million compared to a loss of $1.5 million in 2001.

      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 earnings in 2002 were $16.1 million compared to a net loss of $1.5 million in 2001.

      Dividends on Preferred Stock. We accrued $13.1 million and $11.9 million of dividends in 2002 and 2001, respectively, on our outstanding Class A mandatory redeemable preferred stock.

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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, with the exception of the acquisition of a provider of medical staffing to military treatment facilities on May 1, 2002, have been sufficient to meet our aforementioned cash requirements.

      In March 2004, we completed a restructuring of 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 $91.8 million of such bonds being repaid, plus payment of a call premium of $7.5 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 $7.1 million in costs through March 31, 2004 (in addition to a $7.5 million call premium on its previously outstanding 12% Senior Subordinated Bonds) to complete the above transactions.

      In addition, our 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 have total debt outstanding of $438.3 million as of March 31, 2004, compared to $299.4 million as of December 31, 2003. Included in debt outstanding at March 31, 2004, is approximately $8.2 million of 12% Senior Subordinated Notes that were subsequently repaid on April 21, 2004, plus a call premium of approximately $0.7 million. The combination of additional debt outstanding at interest rates equal to or less than interest rates on its previous debt outstanding prior to the above transactions and lower balances on invested cash, both on an after-tax basis, is expected to result in an increased net of tax cash outflow for the remaining nine months of 2004 of approximately $3.7 million. Total principal payments on outstanding debt in 2004, including the elimination of an excess cash flow definition payment due under our previous bank credit facility, will decline by approximately $41.7 million from required payments prior to the refinancing.

      Cash used in operating activities in the three months ended March 31, 2004 was $1.2 million compared to cash provided by operating activities in the corresponding period in 2003 of $9.6 million. The $10.8 million decrease in cash provided by operating activities was principally due to costs associated with the refinancing as well as taxes paid during the period offset by net cash retained under our self-insured professional liability insurance program. Cash provided from investing activities in the three months ended March 31, 2004 was $6.8 million compared to a use of cash in 2003 of $7.3 million. The $14.1 million increase in cash provided by investing activities was principally due to 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 the three months ended March 31, 2004 and 2003 was $60.9 million and $2.3 million, respectively. The $58.6 million decrease in cash resulting from financing activities was due to the debt restructuring and dividend paid in 2004.

      We spent $0.9 million in the first three months of 2004 and $3.2 million in the first three months of 2003 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

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acquisitions, including contingent payments, were $1.5 million during the three months ended March 31, 2004 and $1.6 million in the corresponding period in 2003. Future contingent payment obligations are approximately $9.2 million as of March 31, 2004.

      We made scheduled debt maturity payments of $2.3 million in the first three months of 2003 in accordance with our applicable term loan facilities in effect at the time.

      Net cash provided by operating activities was $101.7 million in 2003, $52.5 million in 2002 and $49.7 million in 2001. The changes were primarily attributable to an increased level of net earnings after excluding the non-cash charge and favorable changes in operating assets and liabilities between 2003 and 2002, while 2002 operating cash flow increased slightly from 2001 due primarily to a higher level of net earnings. Net cash provided by (used in) financing activities was $(22.3) million in 2003, $99.9 million in 2002 and $(12.1) million in 2001. The use of cash during 2003 and 2001 was due primarily to payments on notes payable while the cash provided in 2002 was due primarily to the refinancing of the credit facility. Net cash used in investing activities was $26.3 million in 2003, $174.8 million in 2002 and $22.8 million in 2001. The changes were primarily attributable to the increased level of acquisition funding in 2002, due principally to the Spectrum acquisition.

      We spent $9.0 million in 2003, $9.8 million in 2002 and $6.0 million in 2001 for capital expenditures. These capital expenditures are primarily for information technology related maintenance capital and development projects. We expect to spend approximately $12.0 million for capital expenditures in 2004.

      We have historically been an acquirer of other physician staffing businesses and interests. Such acquisitions in recent years have been completed for cash. The acquisition of SHR on May 1, 2002, at a purchase price of $147.0 million (before transaction costs and adjustment for net working capital) was financed through the use of available cash of approximately $39.9 million and the use of the existing credit facilities. The acquisitions in many cases (excluding the acquisition of SHR) include contingent purchase price payment amounts that are payable in years subsequent to the years of acquisition. Cash payments made in connection with acquisitions, including contingent payments, were $2.5 million in 2003 and $165.7 million in 2002. Future contingent payment obligations are approximately $9.2 million as of December 31, 2003.

      We made scheduled debt maturity payments of $12.7 million in 2003 and $10.9 million in 2002 in accordance with our applicable term loan facilities. In addition, in conjunction with the acquisition of SHR, on May 1, 2002, we entered into the existing credit facilities to finance the acquisition of SHR and to repay our outstanding bank term facilities in the amount of $110.9 million on May 1, 2002.

      We began providing effective March 12, 2003, for our 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 our 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 will be retained within our captive insurance company and therefore not immediately available for general corporate purposes. As of March 31, 2004, cash or cash equivalents and related investments held within the captive insurance company totaled approximately $15.1 million. As part of the change to the current program of self-insurance for professional liability risks, we exercised an option with our previous commercial insurance provider, at a cost of $30.6 million that was paid in 2003, to insure us for our “tail” exposure for periods prior to March 12, 2003 up to a maximum of commercial insurance company coverage of $130.0 million.

      Our new senior credit facility at March 31, 2004 provides for up to $80.0 million of borrowings under a senior revolving credit facility and $250.0 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 its capital stock, acquire the capital stock or assets of another business, pay dividends, and requires us to meet or exceed

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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 flow,” as defined in the agreement.

      As of March 31, 2004, we had total cash and cash equivalents of approximately $45.6 million and a revolving credit facility borrowing availability of $76.9 million. Our ongoing cash needs in the three months ended March 31, 2004 were met from internally generated operating sources and there were no borrowings by us under our revolving credit facility.

      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 table reflects a summary of obligations and commitments outstanding with payment dates as of December 31, 2003 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
  $     $ 7,500     $ 5,000     $ 417,500     $ 430,000  
Operating leases
    7,387       13,650       9,314       2,840       33,191  
     
     
     
     
     
 
 
Subtotal
    7,387       21,150       14,314       420,340       463,191  
                                           
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
  $ 2,679     $     $     $     $ 2,629  
Contingent acquisition payments
    209       8,318       171             9,198  
     
     
     
     
     
 
      3,338       8,318       171             11,827  
     
     
     
     
     
 
 
Total obligations and commitments
  $ 10,725     $ 29,468     $ 14,485     $ 420,340     $ 475,018  
     
     
     
     
     
 

Effect of recent changes in accounting standards

      On December 31, 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“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 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 12, we adopted the disclosure requirements of SFAS No. 148 and 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.

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      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. Our mandatory redeemable preferred stock is subject to the provisions of this statement. In addition, dividends on its redeemable preferred stock will be required to be included in interest expense in our statements of operations. The provisions of SFAS No. 150 are applicable to our financial statements beginning in 2005. We do not expect the adoption of SFAS No. 150 to have a material effect on our results of 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. We have no interest in any entities created nor did we 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 us.

      In November 2003, the Emerging Issues Task Force (“EITF”) of the FASB issued its codifying pronouncement Accounting for Claims-Made Insurance and Retroactive Insurance Contracts (“EITF No. 03-8”). EITF No. 03-8 codified previously issued authoritative accounting guidance in the area of insurance contracts and related activity thereto. We had previously offset in its consolidated balance sheets its liability for known and incurred but not reported professional liability losses with a corresponding receivable for such estimated losses from our commercial insurance companies under policies in effect for such periods. Such prior accounting treatment was pursuant to the AICPA’s “Audit and Accounting Guide for Health Care Organizations”. EITF No. 03-8 concluded that, under circumstances such as in our insured professional liability policies, since a right of legal offset does not exist due to the fact that there are three parties to an incurred claim, (the insured, the insurer and the claimant), the related liability should be classified separately on a gross basis with a separate related receivable recognized as being due from insurance carriers. Accordingly, our consolidated balance sheet as of December 31, 2003, reflects the provisions of EITF 03-8 and the corresponding liability and receivable previously netted to zero in our consolidated balance sheet for 2002 has been reclassified.

Market risk and inflation

      We are exposed to market risk related to changes in interest rates. We do not use derivative financial instruments for speculative or trading purposes.

      Our earnings are affected by changes in short-term interest rates as a result of borrowings under our senior credit facilities. Interest rate swap agreements are used to manage a portion of our interest rate exposure.

      We were obligated under the terms of our senior credit facility agreement to obtain within 90 days of the date of entering into the agreement interest rate hedge agreements at amounts such that 50% of our

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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. Subsequent to March 31, 2004, we entered into an interest rate swap agreement that effectively converted $35.0 million of our variable rate Term Loan B to a fixed rate of 3.2% through March 31, 2007. The agreement is a contract to exchange, on a quarterly basis, floating interest rate payments based on the eurodollar rate, for fixed interest rate payments over the life of the agreement. This agreement exposes us to credit losses in the event of non-performance by the counterparty to the financial instrument. The counterparty to our interest rate swaps agreement is a creditworthy financial institution and we believe the counterparty will be able to fully satisfy its obligations under the contracts.

      We had previously entered into a forward interest rate swap agreement effective November 7, 2002, to effectively convert $62.5 million of floating-rate borrowings to 3.86% fixed-rate borrowings. The contract had a final expiration date of April 30, 2005. As a result of the payment of the underlying borrowings in 2004, we realized a loss of approximately $1.7 million related to this interest rate hedge agreement to reflect its value on a mark to market basis.

      At March 31, 2004, the fair value of our total debt, which has a carrying value of $438.3 million, was approximately $433.3 million. We had $250.0 million of variable debt outstanding at March 31, 2004. If the market interest rates for our variable rate borrowings averaged 1% more during the twelve months subsequent to March 31, 2004, our interest expense would increase, and earnings before income taxes would decrease, by approximately $2.5 million. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

Professional liability costs

      A significant operating cost for us is the cost of providing for our professional liability losses. Our cost associated with professional liability losses was $16.3 million for the three months ended March 31, 2004 and $10.7 million (prior to a provision for losses in excess of an aggregate loss limit of $50.8 million) in fiscal 2003. Such costs represent a combination of premiums for the purchase of commercial insurance or through self-insurance reserve provisions. Our professional liability commercial insurance coverage in effect for the four-year period ended March 11, 2003, ended on such date. We implemented, effective March 12, 2003, a program of insurance that includes both a captive insurance company arrangement and self-insurance reserve provisions for potential losses beginning on such date. Our provisions for professional liability losses are now substantially determined through actuarial studies of our projected losses. Such actuarial projected losses, in addition to considering our loss experience, also include assumptions as to the frequency and severity of claims which in turn may be influenced by market expectations and experience in general.

TRICARE program

      During 2003, we derived approximately $229.0 million of revenue for services rendered to military personnel and their dependents as a subcontractor under the TRICARE program administered by the Department of Defense. The Department of Defense has a requirement for an integrated healthcare delivery system that includes a contractor managed care support contract to provide health, medical and administrative support services to its eligible beneficiaries. We currently provide our services through subcontract arrangements with managed care organizations that contract directly with the TRICARE program.

      On August 1, 2002, the Department of Defense issued a request for proposals for the next generation of managed care support contracts, also known as the “TRICARE Contracts”. The intent of the TRICARE Contracts is to replace the existing managed care support contracts on a phased-in basis between June and November 2004. The TRICARE Contracts proposal provided for the awarding of prime contracts to three managed care organizations to cover three distinct geographical regions of the country. The award of the prime contracts was announced in August 2003.

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      The Department of Defense is currently in the process of determining how it will procure the civilian positions that it will require going forward. To date only a small percentage of the existing staffed positions have been awarded. The government is considering “rolling over” some of the positions into the new managed case contracts in a similar arrangement to today’s current resource sharing program. Additionally, the government will utilize direct government contracting vehicles to procure some of the existing as well the new staffing arrangements. We expect to competitively bid for most of the existing positions as well as the new positions.

      The impact on our results of operations and financial condition resulting from the changes in the TRICARE Contracts program are not known or able to be estimated at this time. We have exclusive contracts with two of the three future prime contractors for future resource sharing. The potential success and impact on our results of operations in obtaining direct service contracts is not known or able to be estimated at this time. Alternatively, if the Department of Defense opts to terminate its existing staffing contracts and enter into a competitive bidding process for such positions across all regions, our existing revenues and margins and financial condition may be materially adversely affected.

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. Accordingly, revenues derived from hourly contract business is generally lower in the fourth quarter of the year due to the number of holidays therein.

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BUSINESS

Our company

      We are among the largest national providers of outsourced physician staffing and administrative services to hospitals and other healthcare providers in the United States. Since our inception, we have focused primarily on providing outsourced services to hospital emergency departments, which account for the majority of our revenue. As a result of an acquisition on May 1, 2002, we also are the leading provider of medical staffing to military treatment facilities. In addition to providing physician staffing in various specialties within military treatment facilities, we also provide to such facilities a broad array of non-physician healthcare services, including specialty technical staffing, para-professionals and nurse staffing on a permanent basis.

      While national in scope, we operate through regional operating models. These 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, including military treatment facilities. We primarily provide permanent staffing that enables management of hospitals and other healthcare facilities to outsource their recruiting, hiring, payroll and benefits functions. We recruit and hire or subcontract with healthcare professionals who then provide professional services within the healthcare facilities we contract or subcontract with. Currently, we provide permanent staffing, management and administrative services to approximately 450 hospitals, imaging centers, surgery centers, clinics and military treatment facilities in 44 states.

      The range of physician and non-physician staffing and administrative services that we provide includes the following:

  •  recruiting, scheduling and credentials coordination for clinical and non-clinical medical professionals,
 
  •  administrative support services, such as payroll, insurance coverage, continuing education services and management training, and
 
  •  coding, billing and collection of fees for services provided by medical professionals.

      Our historical focus has primarily been on providing outsourced services to emergency departments, which accounted for approximately 63% of our net revenue less provision for uncollectibles in 2003. The emergency departments that we staff are generally located in larger hospitals with emergency departments whose patient volumes are more than 15,000 patient visits per year. In higher volume emergency departments, we believe our experience and expertise in such a complex environment enables our hospital clients to provide high quality and efficient physician and administrative services. In this type of environment we can generate profitable margins, establish stable long-term relationships, obtain attractive payor mixes and recruit and retain high quality physicians and other providers and staff.

      We are the leading provider of permanent healthcare staffing services to military treatment facilities, which accounted for 23% of our net revenue less provision for uncollectibles in 2003. We significantly expanded our overall base of business in 2002 by acquiring the leading provider of permanent healthcare staffing services to military treatment facilities. This acquisition provided an entry into a portion of the healthcare staffing market not previously served by us. In the current military healthcare setting, permanent staffing agreements exist on a three-way basis to include a military hospital or clinic, a TRICARE (the U.S. military healthcare payor system) Regional Managed Care Support Contractor (“MCSC”), which functions as the paying entity, and us. We currently have contracts with all four MCSCs that serve the military market.

Industry overview

      According to the Centers for Medicare and Medicaid Services (“CMS”), national healthcare spending in 2002 increased 9.3%, compared to an increase of 8.5% in 2001. Healthcare spending grew 5.7%

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faster than the overall economy as measured by the growth of the gross domestic product (“GDP”). The healthcare share of the GDP increased from 14.1% in 2001 to 14.9% in 2002. Public spending continued its accelerated pace in 2002 accounting for approximately 46% of total healthcare payments with the Medicaid and Medicare programs funding 16% and 17% of aggregate spending, respectively. Private payors funded more than half of the national healthcare spending in 2002. Hospital services have historically represented the single largest component of this spending, accounting for approximately 30.4% of total healthcare spending in 2002. Hospital spending increased by 9.5% in 2002, marking the fourth consecutive year of accelerated growth. Spending for physician services reached $340 billion in 2002, an increase of 7.7% from 2001.

      In the increasingly complex healthcare regulatory, managed care and reimbursement environment, healthcare facilities are under significant pressure from the government and private payors to both improve the quality and reduce the cost of care. In response, such healthcare facilities have increasingly outsourced the staffing and management of multiple clinical areas to contract management companies with specialized skills and a standardized model to improve service, increase the overall quality of care and reduce administrative costs. In addition, we believe the healthcare industry is continuing to experience an increasing trend toward outpatient treatment rather than the traditional inpatient treatment. Healthcare reform efforts in recent years have placed an increasing emphasis on reducing the time patients spend in hospitals. As a result, we believe the severity of illnesses and injuries treated in an emergency department or other hospital setting is likely to continue to increase.

      Emergency Medicine. According to the American Hospital Association, over 3,800 community hospitals in the United States operate emergency departments, and approximately 83% of these hospitals outsource their physician staffing and management for this department. In 2002, emergency department expenditures were approximately $75.0 billion, with emergency physician services accounting for approximately $26.0 billion. In 2002, emergency departments handled over 110 million patient visits, and up to 39% of all hospital inpatient admissions originate in the emergency department. In addition, the average number of patient visits per hospital emergency department increased at a compounded annual growth rate of approximately 4% between 1998 and 2002.

      The market for outsourced emergency department medical and administrative services is highly fragmented. Approximately 61% of the market is served by a large number of small, local and regional physician groups. These local providers often lack the depth of services and administrative and systems infrastructure necessary to compete with national providers in the increasingly complex healthcare business and regulatory environment.

      Military Staffing. Permanent civilian staffing is used extensively in military hospitals today and we believe that this model will gain acceptance within other government markets as hospital administrators grapple with shortages of physicians, para-professional providers, nurses and specialty technicians coupled with a growing demand for services. Industry sources project the military permanent medical staffing market to increase from $572 million to at least $750 million over the next five years, representing a 6% compounded annual growth rate. Military hospitals have been among the innovators and early adopters of permanent staffing. Faced with insufficient staffing levels and the inability to effectively recruit and retain sufficient numbers of physicians and nurses, military hospitals were losing patients to more costly civilian hospitals. By increasing staffing levels, the military has been able to leverage excess facility space and “recapture” medical services, providing them on base at a lower cost to the federal government.

      The medical staffing market in governmental settings is expected to experience continued growth due to the growth of military healthcare expenditures coupled with the well-documented shortage of nurses and other healthcare professionals. The key growth drivers of the governmental staffing market are:

  •  government “Optimization” plan implementation. The government is critically aware of the healthcare costs it bears when individuals entitled to military healthcare go off base for healthcare treatments. As such, it has implemented an “Optimization” plan that seeks to recapture this spending primarily through increased staffing levels of healthcare providers on base. By recapturing medical services through augmented military staffing, we estimate that the government has spent

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  approximately $500 million less in the community in 2003 and is targeting to increase its savings by at least 10% per year, and
 
  •  decrease in active duty and government employed staff (“GS”). We estimate that there are 131,000 active-duty and government employed staff is not expected to grow in the near future due to budgetary constraints of the federal government. We estimate that this number has decreased from approximately 143,000 since the mid-1990s and we are anticipating a similar trend over the next decade. As the GS staff is reduced, the opportunity to prevent the loss of current military hospital services into civilian community hospitals at a greater cost to the government presents itself.

      The global war on terrorism effort has lead to additional opportunities for growth as the system requires professionals to replace active duty healthcare professionals shipped overseas to front line military hospitals.

      Radiology. The demand for radiologists is estimated to be growing by approximately 4.5% a year due to an increasing population and advancements in radiological procedures, while the supply of radiologists is growing at a lower rate of 2-3% per year. The national shortage of radiologists presents an advantage to a company like Team Health that has the resources to effectively recruit in the current employment marketplace. The current market for radiologists and their services has altered the traditional fee-for-service compensation arrangement with a hospital. In today’s market for radiology services we more frequently are entering into cost-plus arrangements with hospitals. These arrangements reduce our economic risk for such services in a time of escalating professional compensation for radiologists in general. As with the outsourced hospital emergency department clinical and administrative services, the market for outsourced radiology services is highly fragmented and served by a large number of small, local and, to a lesser extent, regional radiology groups. Smaller radiology groups are often at a competitive disadvantage since they often lack the capital, range of medical equipment, teleradiology night time support and information systems required to meet the increasingly complex needs of hospitals.

      Anesthesiology. The American Society of Anesthesiologists estimates that 40 million anesthetics are administered each year in America and that 90% involve an MD anesthesiologist (“MDA”). The net collected total revenue market for anesthesiologist services is estimated to be $11.5 billion. This market is served primarily by groups of physicians whose size ranges from 25-40 MDAs. There are very few groups having in excess of 60 MDAs per group. The groups are largely self-governed and many enjoy exclusive contracts with hospitals and outpatient centers requiring anesthesia services. The majority of the groups require various management services with most groups contracting out their billing needs to third-party providers of such services. There is not a dominant provider of management services to anesthesia groups. We believe that we are one of the largest single providers of management services to anesthesia groups.

      Inpatient Services (Hospitalist). According to the Society of Hospital Medicine (“SHM”), a hospitalist is “a doctor whose primary professional focus is the general medical care of hospitalized patients.” A recent study by the SHM indicates that hospitals employed 75% more hospitalists in 2003 than in 2002. There are presently approximately 7,000—8,000 practicing hospitalists in the U.S., and a recent analysis projects an ultimate hospitalist workforce of approximately 20,000, making it comparable in size to cardiology. An article in the January 2002 issue of the Journal of the American Medical Association reported that the implementation of hospitalist programs was associated with significant reductions in resource use, usually measured as hospital costs (average decrease of 13.4%) or average length of stay (average decrease of 16.6%). Studies of patient satisfaction levels indicated no change in using a hospitalist model, and several studies have indicated improved clinical outcomes, such as inpatient mortality and readmission rates.

      There are several factors that portend continued growth of the hospitalist model, including cost pressures on hospitals, physician groups and managed care organizations; the increased acuity of hospitalized patients and the accelerated pace of their hospitalizations; and the time pressures of primary care physicians in the office. We believe there is potential for significant growth in this service line over the coming years.

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Competitive strengths

      Leading Market Position. We believe we are among the largest national providers of outsourced emergency physician staffing and administrative services in the United States and the largest 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 relatively fixed costs 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.

      The TRICARE Program is scheduled to undergo significant changes beginning in June 2004. We believe our current abilities and strengths in providing outsourced permanent healthcare staffing to military treatment facilities will be significant factors in maintaining our existing staffing business and in successfully competing for new business under the TRICARE Program.

      Regional Operating Models Supported by a National Infrastructure. We service our agreements from 14 regional management sites organized under eight operating units, which allows us to deliver locally focused services with the resources and sophistication of a national provider. Our local presence creates closer relationships with healthcare facilities, resulting in responsive service and high physician retention rates. Our strong relationships in local markets enable us to effectively market our services to both local hospital and military treatment facility 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 efficiently manage the operations and billing and collections processes. We also provide each of our regional management sites with centralized staffing support, purchasing economies of scale, payroll administration, coordinated marketing efforts 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 proprietary information systems link our billing, collection, recruiting, scheduling, credentials coordination and payroll functions among our regional management sites, allowing our best practices and procedures to be delivered and implemented nationally while retaining the familiarity and flexibility of a regionally-based service provider. We have developed and maintain integrated, advanced systems to facilitate the exchange of information among our operating units and clients. These systems include our Lawson financial reporting system, IDX Billing System and our TeamWorksTM physician database and software package. As a result of these investments 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. The strength of our information systems has enhanced our ability to collect patient payments and reimbursements in an orderly and timely fashion and has increased our billing and collections productivity.

      Ability to Recruit and Retain High Quality Physicians. A key to our success has been our ability to recruit and retain high quality physicians to service our contracts. While our local presence gives us 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 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 industry. Our Chief Executive Officer, H. Lynn Massingale, M.D., has been with Team Health and its predecessor entity

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since its founding in 1979. Our senior corporate and affiliate executives have an average of over 20 years experience in the outsourced physician staffing and medical services industries. Members of our management team have, with the inclusion of performance-based options, an indirect fully diluted ownership interest of approximately 20.5% of Team Health, Inc. As a result of its substantial equity interest, we believe our management team has significant incentive to maintain its existing client base through the continued provision of high quality services to them and to continue to increase our revenue and profitability through new growth.

Business strategy

      Increase Revenue from Existing Customers. We have a strong record of achieving growth in revenue from our existing customer base. In 2003, net revenue less provision for uncollectibles from same contracts, which consist of contracts under management from the beginning of the period through the end of the subsequent period, grew by approximately 8.9% on a year over year basis. We plan to continue to grow revenue from existing customers by:

  •  capitalizing on increasing patient volumes,
 
  •  continuing to improve documentation of care delivered, thereby capturing full reimbursement for services provided,
 
  •  implementing fee schedule increases, where appropriate,
 
  •  increasing the scope of services offered within contracted healthcare facilities,
 
  •  capitalizing on our financial strength and resources with respect to potential clients looking for financial stability, and
 
  •  increasing staffing levels and expanding services at current military sites of service to recapture patients who receive services off base as a result of military facilities outsourcing their staffing needs.

      Capitalize on Outsourcing Opportunities to Win New Contracts. We believe we are well positioned to capitalize on the growth of the overall healthcare industry as well as the growth of the hospital outsourcing market and the military permanent staffing market, 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 by:

•  replacing competitors at hospitals that currently outsource their services,
 
•  obtaining new contracts from healthcare facilities that do not currently outsource, and
 
•  expanding our present base of military treatment facility contracts by demonstrating the economic benefits of our service arrangements to such facilities.

      During the past three years, we have been awarded 426 new outsourced contracts, including 336 contracts to service areas of military treatment facilities with outsourced healthcare staffing.

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      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. We intend to selectively explore small strategic acquisitions in the fragmented outsourcing market. Since 1999, we have successfully completed and integrated nine acquisitions (excluding Spectrum Healthcare Resources) for an aggregate purchase price of less than $50 million.

Contractual arrangements

      In 2003, approximately 56% of our net revenue less provision for uncollectibles was generated under fee-for-service arrangements. Our contracts with military treatment facilities are primarily hourly rate contracts but also include fee-for-service contracting. As a result of our growth in contracting in military staffing, a growing percentage of our consolidated net revenues are being derived from 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 contracts with military treatment facilities are generally for one year and are currently in the form of a subcontractor relationship with the prime contractor holding a contract with the government. Both forms of contracts are generally automatically renewable 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. Our contracts with the four MCSCs have been in place since 1996 to 2000. However, the TRICARE Program is scheduled to undergo significant changes beginning in June 2004.

      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 collection.

      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 a contractually negotiated fee.

      Military Treatment Facilities. Our current contracts with military treatment facilities are similar to our contracts with hospitals in that we contract on both an hourly or fee-for-service basis. We provide permanent staffing solutions to military treatment facilities primarily under hourly rate contracts as a subcontractor to the prime contractor holding a contract with the government. Other contractual

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arrangements include fee-for-service contracts where we bill and collect the charges for medical services provided by our contracted healthcare professionals. In a fee-for service contract we accept responsibility for billing and collection.

      Physicians. We contract with physicians as independent contractors or employees to provide services to fulfill our contractual obligations to our hospital clients. We typically either 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 (“RVU”) based payment, or (3) a combination of both a fixed rate and a RVU-based component. The 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 the physician to sign a non-compete and non-solicitation agreement. Although the terms of our non-compete agreements vary from physician to physician, the non-compete agreements 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 December 31, 2003, we had working relationships with approximately 3,100 physicians, of which approximately 2,500 were independently contracted.

      Other Healthcare Professionals. We provide through contractual agreements, para-professional providers, nurses, specialty technicians and administrative support staff on a long-term contractual basis to military treatment facilities. These healthcare professionals are compensated on an hourly or fee-for-service basis depending on the arrangements in the staffing agreement. 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.” As of December 31, 2003, we employed approximately 3,900 other healthcare professionals.

Service lines

      We provide a full range of outsourced physician staffing and administrative services in emergency medicine, radiology, anesthesiology, inpatient services, pediatrics, and other departments of a hospital. We also provide a full range of healthcare management services to military treatment facilities for the beneficiaries of U.S. military personnel through TRICARE. 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. 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 that this has also been a significant factor in our successful growth in the area of military treatment facilities. As the outsourcing trend continues, we believe our delivery platform of regional site management supported by a national infrastructure will result in higher customer satisfaction and a more stable contract base than many of our larger competitors.

      Emergency Department. We believe we are one of the largest providers of outsourced physician staffing and administrative services for hospital emergency departments in the United States. Approximately 63% of our net revenue less provision for uncollectibles in 2003 came from hospital emergency department contracts. As of December 31, 2003, we independently contracted with or employed approximately 2,200 hospital emergency department physicians. We contract with the hospital to provide qualified emergency physicians and other healthcare providers for the hospital emergency department. In

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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 WaitLossTM apply proven process improvement methodologies to departmental operations. Physician documentation templates promote 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 contract bidding process.

      In the past three years, Team Health acquired 20 contracts as a result of the acquisition of three hospital emergency department and physician groups. The acquired hospital emergency department contracts were generally with hospitals in large markets with an average patient volume exceeding 15,000 visits per year. During this period we have also successfully negotiated 55 new outsourced hospital emergency department contracts. These contracts have been obtained either through direct selling or through a competitive bidding process initiated by hospitals.

      Partially offsetting the growth in the number of hospital emergency department contracts attributed to acquisitions and direct sales are contract terminations. In the past three years, 66 hospital emergency department contracts in total were terminated. Hospital cancellations can be attributed to a number of factors, including consolidation among hospitals, medical staff politics and pricing. In 2003, we experienced a net loss of 12 emergency department contracts. During 2003, we terminated a number of contracts due to the cost of professional liability insurance affecting the profitability of certain contracts on a localized market basis.

      Radiology. We provide outsourced radiology physician staffing and administrative services in the United States both on a fee-for-service basis, as well as, increasingly, on a cost-plus basis with hospitals. 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 smaller but rapidly growing component of our radiology business is our 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 December 31, 2003, we independently contracted with or employed approximately 70 radiologists. We have traditionally focused on the hospital-based radiology market, although we also maintain contracts with outpatient diagnostic imaging centers.

      Temporary Staffing. We provide temporary staffing (locum tenens) of physicians and para-professionals to hospitals and other healthcare provider organizations through our subsidiary Daniel and Yeager, Inc. (“Daniel and Yeager”). Specialties placed through Daniel and Yeager include anesthesiology, radiology, primary care, and emergency medicine among others. Revenues from our services are generally derived from a standard contract rate based upon the type of service provided. During the past three years, our temporary staffing business has experienced a 61.1% increase in business volume as measured by the number of hours staffed due to additional demand for temporary specialty staffing.

      Inpatient Services. We also provide outsourced physician staffing and administrative services for inpatient services, which include hospitalist services and house coverage services. Our inpatient services contracts with hospitals are generally on a cost-plus or flat rate basis. As of December 31, 2003, we independently contracted with or employed approximately 110 inpatient physicians. Since 2001, we experienced net revenue and contract growth in our inpatient services business primarily due to new contract sales and to a lesser extent, rate increases on existing contracts.

      Anesthesiology. We provide a wide range of management services to anesthesiology 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

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practice software. We also arrange for the provision of billing and other management services on a management fee basis to anesthesiologist practices. Our anesthesiologist services are organized under an anesthesiologist operating unit known as “THAMS” (Team Health Anesthesiology Management Services). THAMS currently provides management and/or billing services to 15 integrated anesthesia practices with approximately 500 providers under management. Overall, we are able to offer essential services to anesthesiologist groups that enable them to focus on the clinical practice of medicine while leaving the day-to-day business management issues related to their groups to us.

      Pediatrics. We also provide outsourced pediatrics physician staffing and administrative services for general and pediatric hospitals. We provide these services on a cost-plus or flat rate basis. 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. As of December 31, 2003, we independently contracted with or employed approximately 140 pediatric physicians providing pediatric services in such settings. Since 2001, we have experienced net revenue and contract growth 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. In addition, in 2002 we acquired the assets and operations of three after-hours and weekend pediatric services locations. During 2003, we opened three additional after-hours and weekend pediatric services locations.

      Primary Care Clinics and Occupational Medicine. We provide primary care staffing and administrative services in stand-alone primary clinics and in clinics located within the work-site of industrial clients. While such clinics are not a major focus of our business, they are complementary to our hospital client’s 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 provided either on a fee-for-service basis or most frequently, on a contract basis. Revenues less provision derived from such non-physician staffing services grew to approximately 13% of our revenues in 2003.

Services

      We provide a full range of outsourced physician and non-physician healthcare professional staffing and administrative services for emergency medicine, radiology, anesthesiology, inpatient services, pediatrics, and other areas of healthcare facilities.

      Our outsourced staffing and administrative services include:

  •  contract management,
 
  •  staffing,
 
  •  recruiting,
 
  •  credentials coordination,
 
  •  scheduling,
 
  •  payroll administration and benefits,
 
  •  information systems,
 
  •  consulting services,
 
  •  billing and collection,
 
  •  risk management,

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  •  continuing education services, and
 
  •  management training.

      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 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 operations staff to meet the clinical area’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 55 professionals dedicated to the recruitment of qualified physicians. These professionals are regionally located and are focused on matching qualified, career-oriented physicians with healthcare facilities. Common recruiting methods include the use of our proprietary national physician database, attending trade shows, placing website and professional journal advertisements and telemarketing.

      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 in operation at all operating units. The database uses the American Medical Association master file, which we believe contains over 1,000,000 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 the information. Prospects expressing interest in one of our practice opportunities provide more extensive information 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.

      Credentials Coordination. We gather primary source information regarding physicians to facilitate the review and evaluation of physicians’ credentials by healthcare facility.

      Scheduling. Our scheduling department assists 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 to provide physician staffing and administrative services. Our clinical employees benefit significantly by 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 on a stand-alone basis. 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 TeamWorksTM, a national physician database and

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software package that facilitates the recruitment and retention of physicians and supports our contract requisition, credentials coordination, automated application generation, scheduling and payroll operations.

      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 and 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 WaitLossTM, 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. It periodically measures the 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 issues regarding risk management and total quality management. 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.

      Billing and collection. 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 concentrated in five core-billing facilities and operate on a uniform billing system—the IDX software system. The IDX system has proven to be a powerful billing and accounts receivable software package with strong reporting capabilities. 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 of gathering 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 markedly diminished labor and postage expenses. At the present time, approximately 94% of our approximately non-military staffing six million billed annual patient encounters are being processed by one of the five billing facilities.

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      We also operate an internal collection agency called IMBS. This agency utilizes an advanced collection agency software package linked to a predictive dialer. Substantially all collection placements generated from our billing facilities are sent to the IMBS agency. Comparative analysis has shown that the internal collection agency is more cost effective than the use of outside agencies and 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.

      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 have a proactive role 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,
 
  •  tracking/ trending the cause of accidents and claims,
 
  •  pre-hire risk assessment 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.

      Continuing education services. Our internal continuing education services are fully accredited by the Accreditation Council for Continuing Medical Education. This allows us to grant our physicians and nurses continuing education credits for 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 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.

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 five 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.

      Although practices vary from healthcare facility to healthcare facility, 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.

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Operations

      We currently operate through eight operating units with management located at fourteen 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 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 services



AHP
  Tampa, FL     Pediatrics  
Daniel and Yeager
  Huntsville, AL     Temporary Staffing  
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 Anesthesia
  Knoxville, TN     Anesthesiology  
Team Health Southwest
  Houston, TX     Emergency Department  
Team Health West
  Pleasanton, CA     Emergency Department  
Team Radiology
  Knoxville, TN     Radiology  

Insurance

      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.

      We provide 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 December 31, 2003, we had approximately 6,700 employees, of which approximately 4,500 were physicians and other healthcare professionals with remaining employees working in billing and collections, operations and administrative support functions. Our employees are not covered by any labor agreements nor affiliated with any unions.

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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 (collectively, “Management Services”):

  •  the identification and recruitment of physicians and other healthcare professionals for the performance of emergency medicine, radiology and other services at hospitals, out-patient 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 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 related to these laws 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, including California, prohibit general business corporations, such as us, from practicing medicine, controlling physicians’ medical decisions or engaging in some practices such as splitting fees with physicians. In 2003, we derived approximately 12% of our net revenue less provision for uncollectibles from services rendered in the state of California. The laws of some states, including Florida, do not prohibit non-physician entities from practicing medicine but generally retain a ban on some types of fee splitting arrangements. In 2003, we derived approximately 17% 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, with most requiring compliance similar to that required under the Fair Debt Collection Practices Act. We believe that we are in substantial compliance with the 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 prohibits 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. These fraud and abuse laws define federal healthcare programs to include plans and programs that provide health benefits funded by the United States government including Medicare, 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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      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 the courts or regulatory agencies.

      In order to obtain additional clarification on the anti-kickback statute, a provider can obtain written interpretative advisory opinions under the federal anti-kickback statute from the Department of Health and Human Services 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.

      In 1998, Office of Inspector General of the Department of Health and Human Services 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, might constitute illegal remuneration under the federal anti-kickback statute. The Inspector General’s analysis focused on the marketing activities conducted by the management company and apparently concluded the proposed management services arrangement 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 contractual arrangement which 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 the Department of Health and Human Services will not be able to successfully challenge our arrangements under the federal anti-kickback statute in the future.

      In addition to the federal statutes discussed above, we are also 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 and fines and criminal penalties. State statutes and regulations typically 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.

      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 closely track Stark II’s prohibitions and exceptions. Stark II prohibits the referral of Medicare and Medicaid patients by a physician to an entity for the provision of particular “designated health

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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 to the Medicare or Medicaid program 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 to the Medicare or Medicaid program 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 twice the amount claimed, and possibly exclusion from participation in federal healthcare programs.

      The term “designated health services” includes several services commonly performed or supplied by hospitals or medical clinics to which we provide physician staffing. In addition, “financial relationship” is broadly defined to include any direct or indirect ownership or investment interest or compensation arrangement under which a physician receives remuneration. Stark II is broadly written, and at this point, the complete set of implementing regulations which clarify the statute have not been finalized. Currently, Phase I of the final regulations has been issued to clarify the meaning and application of only certain provisions of Stark II, including the general prohibition against physician self-referrals, certain exceptions for ownership and compensation arrangements, and definitions of key terms. However, as the Phase I regulations were subject to a comment period, these regulations may change as a result of the analysis of such comments. Phase II of the regulations will purportedly address the remaining provisions of Stark II as well as the comments received about Phase I regulations, but no date has been set for their issuance.

      Until Phases I and II are complete, we lack definitive guidance as to the application of certain key aspects of Stark II as they relate to our arrangements with physicians and hospitals. We believe that we can present reasonable arguments that our arrangements with physicians and hospitals either do not implicate Stark II or, if they do, that they comply with its requirements. Likewise, we believe that these arrangements substantially comply with similar state physician self-referral statutes. However, we cannot assure you that the government will not challenge our existing organizational structure and our contractual arrangements with affiliated physicians, professional corporations and hospitals as being inconsistent with Stark II or its state law equivalents.

      Other Fraud and Abuse Laws. 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.

      The federal Civil False Claims Act imposes civil liability on individuals and entities that submit false or fraudulent claims for payment to the government. Violations of the 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 tam suit on behalf of the government against a healthcare provider for violations of the 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 government recovering money. 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’s counsel 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

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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 False Claims Act, at least five states — California, Illinois, Florida, Tennessee, and Texas — have enacted laws modeled after the False Claims Act that allow these states to recover money which was fraudulently obtained by a healthcare provider from the state such as Medicaid funds provided by the state.

      In addition to the False Claims Act, under the Health Insurance Portability and Accountability Act of 1996 there are two additional federal crimes: “Health Care Fraud” and “False Statements Relating to Health Care Matters.” The Health Care Fraud statute prohibits knowingly and willfully executing a scheme or artifice to defraud any healthcare benefit program, including private payers. A violation of this statute is a felony and may result in fines, imprisonment and/or exclusion from government-sponsored programs. The False Statements statute prohibits 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. A violation of this statute is a felony and may result in fines and/or imprisonment.

      In addition to criminal and civil monetary penalties, health care providers that are found to have defrauded the federal health care programs may be excluded from participation in these programs. Those excluded will not receive payment under Medicare, or other federal health care 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 health care item or service. The presence of aggravating circumstances in a case can lead to a lengthier period of exclusion. The Office of Inspector General of HHS 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.

      Administrative Simplification. The Health Insurance Portability and Accountability Act of 1996 (“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 is one of the key factors driving the legislation.

      In August 2000, the Health and Human Services agency (“HHS”) issued final regulations establishing electronic data transmission standards that healthcare providers must use when submitting or receiving certain healthcare data electronically. All 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 its request and was therefore required to comply with these regulations by October 16, 2003. However in September 2003 CMS granted an indefinite extension due to the number of both providers and carriers, both government and commercial, not being ready to implement the new standards. We have completed the necessary actions to comply with these new standards and is ready to convert electronic data into this new format as carriers notify Team Health of their ability to accept the format.

      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. All 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

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information. Most affected entities, including us, are required to comply with these regulations by April 21, 2005.

      In April 2003, CMS issued interim final regulations related to the enforcement and imposition of penalties on entities that violate HIPPA 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 HIPPA. Sanctions are expected to include criminal penalties and civil sanctions. We have established a plan and engaged the resources necessary to comply with HIPAA. At this time, we believe our operations are currently conducted in substantial compliance with these HIPAA regulations. Based on the existing and proposed HIPAA regulations, we believe that the cost of its 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 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, including California, 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 Health Care 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 39,000 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 $54,000. Our aggregate monthly lease payments total approximately $638,000. 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 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 malpractice 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 the reserves and such liabilities, if incurred, should not have a significant negative effect on our operating results and financial condition.

      On March 30, 2004, the Company received a subpoena from the Department of Health and Human Services Office of Inspector General located in Concord, California requesting certain information for the period 1999 to present relating to its billing practices. It is the Company’s policy to fully cooperate with the requests of government agencies. Due to the lack of information available to the Company at this time relating to the subpoena, we are unable to ascertain the significance of the information request. Management believes that its billing practices are in substantial compliance with all regulatory requirements. Management at this time can not predict the outcome of the matter and whether it will have a material adverse effect on the Company’s business, financial condition or results of operations.

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MANAGEMENT

Directors and executive officers

      The following table sets forth the names, ages as of December 31, 2003, and a brief account of the business experience each of our directors and executive officers.

             
Name Age Position



Lynn Massingale, M.D. 
    51     President, Chief Executive Officer and Director
Robert J. Abramowski
    53     Executive Vice President, Finance and Administration
Robert C. Joyner
    56     Executive Vice President, General Counsel
    58     Executive Vice President, Billing and Reimbursement
David P. Jones
    36     Chief Financial Officer
    40     Director
    48     Director
Glenn A. Davenport
    50     Director
Earl P. Holland
    58     Director
    37     Director
Timothy P. Sullivan
    45     Director

      Lynn Massingale, M.D. has been President, Chief Executive Officer and Director of Team Health since its founding in 1994. 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.

      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 as Vice President and Controller with Extendicare Health Services, Inc. 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. Mr. Joyner graduated with a BSBA degree in 1969 and a JD in 1972, both from the University of Florida.

      Stephen Sherlin has served as Executive Vice President, Billing and Reimbursement since February 2000. Mr. Sherlin joined Team Health in January 1997 as Senior Vice President, Finance and Administration, and was promoted to 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.

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      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 in Knoxville.

      Nicholas W. Alexos became a director in 1999. Prior to co-founding Madison Dearborn Partners, Inc., 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 Company and National Mentor, Inc. Mr. Alexos received a B.B.A. from Loyola University and an M.B.A. from the University of Chicago Graduate School of Business.

      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.

      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 Team Health in 2001. Mr. Holland has over 31 years of experience working in the healthcare industry. Prior to his retirement in January, 2001, Mr. Holland held several positions with Health Management Associates (HMA), including the positions of Vice President and Chief Operating Officer at the time of his retirement. HMA is a publicly traded healthcare company traded on the NYSE. 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.

      Kenneth W. O’Keefe became a director in 1999. Prior to co-founding Beecken Petty O’Keefe & Company, L.L.C., Mr. O’Keefe was with ABN AMRO Incorporated and an affiliated entity, The Chicago Dearborn Company, for four years. Previously, Mr. O’Keefe was with The First National Bank of Chicago. Mr. O’Keefe currently serves on the Boards of Directors of Spectrum Holdings of Delaware, LLC, Same Day Surgery, LLC, Seacoast Technologies, Inc. and AbilityOne Corporation. 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, Inc. Mr. Sullivan was with First Chicago Venture Capital. Mr. Sullivan concentrates on investments in the healthcare industry and currently serves on the Boards of Directors of Milnot Holding Corporation, National Mentor, Inc. and Spectrum Healthcare Services, Inc. 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 reflects the annual and long-term compensation for our chief executive officer and the four next most highly compensated executive officers at December 31, 2003 (the “Named Executive Officers”).

Summary compensation table

                                                           
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. 
    2003     $ 516,566     $ 164,497           $     $ 76,815 (3)   $ 757,878  
 
President and Chief
    2002       418,022       206,813       45,000       75,000       78,222 (3)     778,057  
 
Executive Officer
    2001       412,000       206,929                   81,700 (3)     700,629  
Michael L. Hatcher*
    2003       324,236       84,204                   26,515 (4)     434,955  
 
Chief Operating Officer
    2002       270,652       106,509       22,500       25,000       24,649 (4)     426,810  
      2001       262,998       103,464                   26,076 (4)     392,538  
Robert J. Abramowski
    2003       289,913       64,998                   15,247 (5)     370,158  
 
Executive Vice President,
    2002       288,325       95,597             50,000       9,295 (5)     443,217  
 
Finance and Administration
    2001       282,989       21,000                   129,042 (5)     433,031  
    2003       236,385       70,679                   15,454 (4)     322,518  
 
Executive Vice President,
    2002       235,137       93,066       7,000       12,500       12,793 (4)     353,496  
 
Billing and Reimbursement
    2001       229,803       90,406                   11,206 (4)     331,415  
Robert C. Joyner
    2003       235,732       50,546                   19,290 (4)     305,568  
 
Executive Vice President,
    2002       224,766       63,363       7,000       37,500       18,059 (4)     343,688  
 
General Counsel
    2001       203,189       55,871                   16,048 (4)     275,108  


  * Mr. Hatcher has resigned his position with us effective February 29, 2004. We intend to purchase all of the stock Mr. Hatcher holds of Team Health Holdings.

(1)  Represents options granted under the Team Health Option Plan (as defined below).
 
(2)  Represents bonuses authorized and approved by our Board of Directors in conjunction with the successful acquisition of SHR.
 
(3)  All other compensation for Dr. Massingale includes the following:
                         
2001 2002 2003



Life insurance
  $ 57,110     $ 46,210     $ 51,660  
Other
    24,590       32,012       25,155  

  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. Hatcher, Mr. Sherlin and Mr. Joyner is less than 10% of their annual compensation each year.
 
(5)  All other compensation for Mr. Abramowski includes the following:
                         
2001 2002 2003



Moving expenses
  $ 122,123     $     $  
Health insurance
    5,137       5,964       7,176  
401(k) matching contribution
                5,500  
Other
    1,782       3,331       2,571  

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      Additionally, Dr. Massingale provides professional medical services to client hospitals under independent contractor agreements with our subsidiaries. During 2003, 2002, and 2001, Dr. Massingale was paid $1,500, $834 and $1,918, respectively, under these agreements.

Stock option plans

      In March 1999, we adopted the Team Health Inc. Stock Option Plan (the “Team Health 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 2003.

      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 2003. There were no options exercised during 2003.

                                 
Numbers of
securities
underlying
unexercised Value of unexercised
options at fiscal in-the-money options
Shares year end(#) at fiscal year end($)
acquired on Value exercisable/ exercisable/
Name exercise realized unexercisable unexercisable(1)





Lynn Massingale, M.D.
        $       —/45,000     $ —/607,950  
Michael L. Hatcher
        $       —/22,500     $ —/303,975  
        $       4,667/22,333     $ 63,046/249,244  
Robert C. Joyner
        $       4,667/22,333     $ 63,046/249,244  
Robert J. Abramowski
        $       11,750/35,250     $ 158,743/476,228  


(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, 2003. The fair market value of options under the Team Health, Inc. Stock Option Plan, as determined by our Board of Directors, was $18.01 per share.

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 2003, including the Named Executive Officers.

Employment agreements

      We have entered into employment and non-compete agreements with certain members of our senior management, including the Named Executive Officers.

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      The employment agreements for the Named Executive Officers include five-year terms beginning March 11, 1999 for Dr. Massingale and Mr. Sherlin, and beginning April 1, 2003 for Mr. Joyner and beginning October 3, 2000 for Mr. Abramowski. These agreements automatically renew for successive one-year terms unless either party gives notice at least 180 days prior to the expiration of the then current term. No such notices of non-renewal were given by any party with respect to the agreements with Dr. Massingale or Mr. Sherlin. 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 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 annual base salaries as of December 31, 2003 and the base bonus that can be earned by each of the named Executive officers is as follows:

                 
Annual
base salary Bonus %


Lynn Massingale, M.D.
    $500,000       65%  
    246,385       50%  
Robert C. Joyner
    240,000       50%  
Robert J. Abramowski
    319,884       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. 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 885,205 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.

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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.

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, Inc., respectively. Cornerstone and Madison Dearborn are two of our equity sponsors.

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SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS

      Team Health Holdings owns 92.7% of our outstanding common stock and voting interests. Pacific Physician Services, Inc., a wholly-owned subsidiary of Caremark Rx, Inc. (formerly known as MedPartners, Inc.) owns the remaining 7.3% of our outstanding common stock and voting interests. Physician Services, Inc. can be reached in care of Caremark Rx, Inc. at 3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244. The following table sets forth certain information regarding the actual beneficial ownership of Team Health Holdings’ ownership units by:

        (1) each person, other than the directors and executive officers of Team Health Holdings, known to Team Health Holdings to own more than 5% of the outstanding membership units of Team Health Holdings, and
 
        (2) certain executive officers and members of the board of directors of Team Health Holdings.

      Except as otherwise indicated below, each of the following individuals can be reached in care of Team Health, Inc. at 1900 Winston Road, Suite 300, Knoxville, Tennessee 37919.

                           
Team Health Holdings

Percentage of
outstanding
common Percentage of
Beneficial owner(1) units voting units



Cornerstone Equity Investors IV, L.P. 
    38.3 %     38.3 %        
  c/o Cornerstone Equity Investors, LLC
717 Fifth Avenue, Suite 1100
New York, New York 10022
                       
Madison Dearborn Capital Partners II, L.P. 
    38.3 %     38.3 %        
  c/o Madison Dearborn Partners
Three First National Plaza, Suite 3800
Chicago, Illinois 60602
                       
Healthcare Equity Partners, L.P. and
Healthcare Equity Q.P. Partners, L.P. 
    8.5 %     8.5 %        
  c/o Beecken Petty O’Keefe & Company, L.L.C.
200 W. Madison St., Suite 1910
Chicago, Illinois 60606
                       
Executive Officers and Directors:
                       
 
Lynn Massingale, M.D. 
    3.2 %     3.2 %        
 
Robert J. Abramowski
                   
 
Robert C. Joyner
    *       *          
      *       *          
 
David P. Jones
    *       *          
      38.3 %     38.3 %        
      38.3 %     38.3 %        
 
Glenn A. Davenport
    *       *          
 
Earl P. Holland
    *       *          
      8.5 %     8.5 %        
 
Timothy P. Sullivan(2)
    38.3 %     38.3 %        
 
Executive officers and directors as a group (11 persons):
    89.3 %     89.3 %        

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Represents less than 1%.

(1)  Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing 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 exercisable within 60 days of closing of the offering are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.

(2)  Includes units held by Madison Dearborn Capital Partners. Messrs. Alexos and Sullivan disclaim beneficial ownership of such units. Messrs. Alexos and Sullivan’s address is c/o Madison Dearborn Partners, Three First National Plaza, Suite 3800, Chicago, Illinois 60602.
 
(3)  Includes units held by Cornerstone Equity Investors. Mr. O’Brien disclaims beneficial ownership of such units. Mr. O’Brien’s address is c/o Cornerstone Equity Investors, LLC, 717 Fifth Avenue, Suite 1100, New York, New York 10022.
 
(4)  Includes units held by Healthcare Equity Partners. Mr. O’Keefe disclaims beneficial ownership of such units. Mr. O’Keefe’s address is c/o Beecken Petty O’Keefe & Company, L.L.C., 200 W. Madison St., Suite 1910, Chicago, Illinois 60606.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Recapitalization agreement

      Under a recapitalization agreement, on March 12, 1999 we were acquired by the equity sponsors and members of our 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 stockholders agreement.

Acquisition

      On May 1, 2002, we acquired all of the operations of Spectrum Health Resources (“SHR”), a provider of physician and other professional medical staffing to military treatment facilities for a purchase price of approximately $145.4 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 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 Team Health 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 the equity holders of Team Health as well as its bond holders.

      In connection with the acquisition of SHR, subject to certain limitations, the previous shareholders of SHR and related entities have indemnified us against certain potential losses attributable to events or conditions that existed prior to May 1, 2002. The indemnity limit is $10.0 million, with certain potential losses, as defined, subject to a $0.5 million “basket” before such losses are recoverable from the previous shareholders. In addition, a separate indemnification exists with a limit of $10.0 million relating to 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 stockholders, Team Health Holdings and 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

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        (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.

Registration rights agreement

      In connection with the recapitalization, both Team Health and our stockholders, Team Health Holdings and 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 (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 under which each of Cornerstone, Madison Dearborn and Beecken Petty 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.

      In exchange for such services, Cornerstone, Madison Dearborn and Beecken Petty 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 provides written notice of termination. The management services agreement will automatically terminate upon the consummation of an initial public offering.

Team Health Holdings amended and restated limited liability company agreement

      Cornerstone, Madison Dearborn, Beecken Petty 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

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preferred units are entitled to return of capital contributions prior to any distributions made to holders of the common units.

      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 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, 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, 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. One of our executive officers, Dr. Massingale owns 20% of Park Med Properties. We paid $658,945 in 2003 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 a consolidated affiliate of Team Health. In 2003, the consolidated affiliate paid $76,156 to Park Med Properties in connection with the lease agreement.

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DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES

      The following description does not purport to be complete and is qualified in its entirety by reference to the credit agreement, which is available from us upon request. The terms of the senior credit facilities have not been finalized, and the terms and amounts of the senior credit facilities may differ from those set forth in this offering memorandum.

      The senior credit facilities will consist of (i) a six-year $80.0 million revolving credit facility (containing a subfacility available for the issuance of letters of credit and a subfacility for the issuance of swing-line loans) and (ii) a seven-year $250.0 million term loan facility.

      The term loan facility will be required to be prepaid with, and after the repayment in full of such term loans, repayment of the revolving credit facility will be required in an amount equal to, (a) 100% of the net cash proceeds of all asset sales and dispositions by us and our subsidiaries, subject to certain exceptions, (b) 100% of the net cash proceeds from extraordinary receipts, subject to certain exceptions, (c) 100% of the net cash proceeds of issuances of certain debt obligations by us and our subsidiaries, subject to certain exceptions, (d) 50% of the net cash proceeds from equity issuances by us and our subsidiaries, subject to certain exceptions, and (e) 50% (or 25% under certain circumstances) of our annual excess cash flow (as defined in the credit agreement).

      Voluntary prepayments and commitment reductions will be permitted in whole or in part, without premium or penalty, subject to minimum prepayment or reduction requirements, provided that voluntary prepayments of eurodollar loans on a date other than the last day of the relevant interest period will be subject to the payment of customary breakage costs, if any; provided, however, voluntary prepayments of the term loan facility made during the first year of the senior credit facilities that are financed with the proceeds of debt issued to finance such prepayments shall be made at a premium of 101% of the principal amount.

      All of our obligations under the senior credit facilities will be unconditionally guaranteed by each existing and subsequently acquired or organized subsidiary that is not a “controlled foreign corporation” under the Internal Revenue Code. The obligations under the senior credit facilities (including the guarantees) will be secured by substantially all of our present and future assets and all present and future assets of each guarantor, including but not limited to (i) a first-priority pledge of all of the outstanding capital stock owned by us or any guarantor in any domestic subsidiary, (ii) a first-priority pledge of 65% of the outstanding capital stock owned by us or any guarantor in any “controlled foreign corporation” (or 100% under certain circumstances), (iii) all intercompany debt owned by us or any guarantor, and (iv) perfected first-priority security interests in all of our present and future assets and the present and future assets of each guarantor, subject to certain limited exceptions.

      Loans under the senior credit facilities will bear interest at a floating rate equal to the LIBOR or the base rate, in each case, plus a margin. The margin in respect of (x) term loans is expected to be 3.25% per year in the case of LIBOR loans and 2.25% per year in the case of base rate loans and (y) revolving loans is expected to, for the first six months, be 2.50% per year in the case of LIBOR loans and 1.50% per year in the case of base rate loans, and, thereafter, be determined in accordance with a performance pricing grid based on our leverage ratio. In addition, the lenders under the revolving credit facility will be paid a fee on unused commitments under that facility at a rate equal to 0.50% per annum. During the existence of any payment default under the credit agreement, the margin on all overdue obligations under the senior credit facilities shall increase by 2.00% per year.

      The credit agreement documentation will contain customary representations and warranties and customary covenants restricting our and our subsidiaries’ ability to, among other things and subject to various exceptions, (i) declare dividends, make distributions or redeem or repurchase capital stock, (ii) prepay, redeem or repurchase other debt, (iii) incur liens or grant negative pledges, (iv) make loans and investments and enter into acquisitions and joint ventures, (v) incur additional indebtedness, (vi) amend or otherwise alter our organizational documents or any debt and other material agreements,

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(vii) make capital expenditures, (viii) engage in mergers, acquisitions and asset sales, (ix) conduct transactions with affiliates, (x) alter the nature of our businesses or (xi) change our fiscal quarter or our fiscal year. We and our subsidiaries also will be required to comply with specified financial covenants (including, without limitation, a leverage ratio and a fixed charge coverage ratio) and various affirmative covenants.

      Events of default under the credit agreement will include, but will not be limited to, (i) our failure to pay principal, interest, fees or other amounts under the credit agreement when due or after expiration of a grace period, (ii) any representation or warranty proving to have been materially incorrect when made, (iii) covenant defaults subject, with respect to certain covenants, to a grace period, (iv) bankruptcy events, (v) a cross default to certain other debt, (vi) unsatisfied final judgments over a threshold, (vii) a change of control, (viii) ERISA defaults and (ix) the invalidity or impairment of any loan document or any security interest.

      In addition, the credit agreement will include customary provisions regarding breakage or redeployment costs incurred in connection with prepayments, changes in capital adequacy and capital requirements or their interpretation, illegality, unavailability, reserves without proration or offset and payments free and clear of withholding.

      Borrowings under the senior credit facilities after the closing of the refinancing transactions will be subject to the accuracy of representations and warranties (including the absence of any material adverse change in our condition) and the absence of any defaults (including any defaults under the financial covenants).

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DESCRIPTION OF THE NOTES

      You can find the definitions of certain terms used in this description under the subheading “Certain Definitions.” In this description, the word “Company” refers only to Team Health, Inc. and not to any of its subsidiaries.

      The Company issued the old notes and will issue the exchange notes under an indenture dated March 23, 2004 among itself, the Guarantors and The Bank of New York, as trustee. The terms of the exchange notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended.

      The following description is a summary of the material provisions of the indenture and the registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as holders of the exchange notes. Copies of the proposed form of indenture are available as set forth below under the subheading “Additional Information.”

Brief Description of the Notes and the Subsidiary Guarantees

     The Notes

      These Notes are:

  •  general unsecured obligations of the Company;
 
  •  subordinated in right of payment to all Senior Debt of the Company;
 
  •  senior in right of payment to any future Indebtedness of the Company that is expressly subordinated in right of payment to the Notes; and
 
  •  unconditionally guaranteed by the Guarantors.

     The Subsidiary Guarantees

      These Notes are guaranteed by each Domestic Restricted Subsidiary of the Company.

      The Subsidiary Guarantees of these Notes are:

  •  general unsecured obligations of each Guarantor;
 
  •  subordinated in right of payment to all Senior Debt of each Guarantor; and
 
  •  senior in right of payment to any future Indebtedness of each Guarantor that is expressly subordinated in right of payment to the Subsidiary Guarantee of that Guarantor.

      As of the date of the Indenture, all of our subsidiaries will be “Restricted Subsidiaries.” However, under the circumstances described below under the subheading “— Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries,” we will be permitted to designate certain of our subsidiaries as “Unrestricted Subsidiaries.” Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries will not guarantee the Notes.

Principal, Maturity and Interest

      The Company issued $180.0 million aggregate principal amount of old notes in the offering of old notes. The Company will issue Notes in denominations of $1,000 and integral multiples of $1,000. The Notes will mature on April 1, 2012.

      Interest on these Notes will accrue at the rate of 9% per annum and will be payable semi-annually in arrears on April 1 and October 1, commencing on October 1, 2004. The Company will make each interest payment to the Holders of record of these Notes on the immediately preceding March 15 and September 15. Interest on these Notes will accrue from the date of original issuance or, if interest has

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already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

      Additional Notes may be issued from time to time after this offering, subject to the provisions of the Indenture described below under the caption “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.” The Notes offered hereby and any additional Notes subsequently issued under the Indenture would be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase.

      The interest rate on the old notes is subject to increase if the Company does not file a registration statement relating to the Exchange Offer on a timely basis, if the registration statement is not declared effective on a timely basis or if certain other conditions are not satisfied, all as further described under the section “The Exchange Offer.” All references herein to interest on the Notes shall include any such Liquidated Damages that may be payable.

Methods of Receiving Payments on the Notes

      If a Holder has given wire transfer instructions to the Company, the Company will make all principal, premium and interest payments on those Notes in accordance with those instructions. All other payments on these Notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York unless the Company elects to make interest payments by check mailed to the Holders at their address set forth in the register of Holders.

Paying Agents and Registrar for the Notes

      The Trustee will initially act as Paying Agent and Registrar. The Company may change the Paying Agent or Registrar without prior notice to the Holders of the Notes, and the Company or any of its Subsidiaries may act as Paying Agent or Registrar.

Transfer and Exchange

      A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed.

      The registered Holder of a Note will be treated as the owner of it for all purposes.

Subsidiary Guarantees

      The Guarantors will jointly and severally guarantee, on a senior subordinated basis, the Company’s obligations under the Notes. Each Subsidiary Guarantee will be subordinated to the prior payment in full of all Senior Debt of that Guarantor. The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. See “Risk factors — Risk factors related to the notes — Fraudulent conveyance laws permit courts to void guarantees and require noteholders to return payments received from guarantors in specific circumstances.”

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      A Guarantor may not sell or otherwise dispose of all or substantially all of its assets, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person unless:

        (1) immediately after giving effect to that transaction, no Default or Event of Default exists; and
 
        (2) either:

        (a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (unless such Guarantor is the surviving Person) assumes all the obligations of that Guarantor under the Subsidiary Guarantee of such Guarantor, the Indenture and the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or
 
        (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture.

      The Subsidiary Guarantee of a Guarantor will be released:

        (1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation), if the Company applies the Net Proceeds of that sale or other disposition, in accordance with the applicable provisions of the Indenture; or
 
        (2) in connection with the sale of all of the capital stock of a Guarantor, if the Company applies the Net Proceeds of that sale, in accordance with the applicable provisions of the Indenture; or
 
        (3) in connection with any transaction which results in a Guarantor ceasing to be a Restricted Subsidiary of the Company, if the transaction is not in violation of the applicable provisions of the Indenture; or
 
        (4) if the Company designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary, in accordance with the applicable provisions of the Indenture.

      See “— Repurchase at the Option of Holders — Asset Sales.”

Subordination

      The payment of all Obligations on these Notes will be subordinated to the prior payment in full of all Senior Debt of the Company.

      The holders of Senior Debt will be entitled to receive payment in full in cash or Cash Equivalents of all amounts due or to become due in respect of Senior Debt before the Holders of Notes will be entitled to receive any payment with respect to the Notes (except that Holders of Notes may receive Reorganization Securities), in the event of any distribution to creditors of the Company in any Insolvency or Liquidation Proceeding with respect to the Company. Upon any such Insolvency or Liquidation Proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities (other than Reorganization Securities), to which the Holders of the Notes or the Trustee would be entitled will be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holders of the Notes or by the Trustee if received by them, directly to the holders of Senior Debt (pro rata to such holders on the basis of the amounts of Senior Debt held by such holders) or their Representative or Representatives, as their interests may appear, for application to the payment of the Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt.

      The Company also may not make any payment in respect of the Notes (except in Reorganization Securities) if:

        (1) a payment default on Designated Senior Debt occurs and is continuing; or

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        (2) any other default occurs and is continuing on Designated Senior Debt that permits holders of the Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a “Payment Blockage Notice”) from the Credit Agent or the holders or the Representative of any Designated Senior Debt.

      Payments on the Notes may and shall be resumed:

        (1) in the case of a payment default, upon the date on which such default is cured or waived; and
 
        (2) in case of a nonpayment default, the earliest of (a) the date on which such nonpayment default is cured or waived, (b) 179 days after the date on which the applicable Payment Blockage Notice is received and (c) the date on which the Trustee receives written notice from the Credit Agent or the Representative for such Designated Senior Debt, as the case may be, rescinding the applicable Payment Blockage Notice, unless the maturity of any Designated Senior Debt has been accelerated.

      During any consecutive 360-day period, the aggregate of all periods for which a Payment Blockage Notice shall be effective (each, a “Payment Blockage Period”) shall not exceed 179 days and there shall be a period of at least 181 consecutive days in each consecutive 360-day period when no Payment Blockage Period is in effect. No event of default which existed or was continuing with respect to the Senior Debt for which a Payment Blockage Notice was given on the date such Payment Blockage Period commenced shall be or be made the basis for the commencement of any subsequent Payment Blockage Period unless such event of default is cured or waived for a period of not less than 90 consecutive days.

      Notwithstanding anything to the contrary, payments and distributions made from the trust established pursuant to the provisions described under “— Satisfaction and Discharge” or “— Legal Defeasance and Covenant Defeasance” will be permitted and will not be subordinated so long as the payments into the trust were made in accordance with the requirements described under “— Satisfaction and Discharge” or “— Legal Defeasance and Covenant Defeasance” and did not violate the subordination provisions when they were made.

      As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of the Company, Holders of these Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. See “Risk Factors — Risk factors related to the notes — Your right to receive payments on the notes is subordinated to our senior debt and the senior debt of the guarantors.” The Company and its Restricted Subsidiaries will be subject to certain financial tests limiting the amount of additional Indebtedness, including Senior Debt, that the Company and its Restricted Subsidiaries can incur. See “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.”

Optional Redemption

     Redemption with Proceeds from Equity Offerings

      At any time prior to April 1, 2007, the Company may, on one or more occasions, redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price of 109% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that:

        (1) at least 65% of the aggregate principal amount of Notes issued under the Indenture remains outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company and its Subsidiaries); and
 
        (2) the redemption must occur within 90 days of the date of the closing of such Equity Offering.

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     Redemption prior to April 1, 2008

      At any time prior to April 1, 2008, the Notes will be redeemable, on one or more occasions, in whole or in part, at the option of the Company upon not less than 30 nor more than 60 days’ notice at a redemption price equal to the sum of:

        (1) 100% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date; plus
 
        (2) the Make-Whole Amount, if any.

      The term “Make-Whole Amount” shall mean, in connection with any optional redemption of any Note, the excess, if any, of:

        (1) the aggregate present value as of the date of such redemption of the redemption price of such Note on April 1, 2008 (as set forth in the table below) and the aggregate amount of interest payments (exclusive of interest accrued to the redemption date) that would have been payable in respect of such Note through April 1, 2008 if such prepayment had not been made, determined by discounting, on a semi-annual bond equivalent basis, such redemption price and interest at the Treasury Rate (determined on the business day preceding the date of such redemption) plus 75 basis points, from the respective dates on which such redemption price and interest would have been payable if such payment had not been made; over
 
        (2) the principal amount of the Note being redeemed.

      “Treasury Rate” means, in connection with the calculation of any Make-Whole Amount with respect to any Note, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity, as compiled by and published in the most recent Statistical Release that has become publicly available at least two business days prior to the redemption date, equal to the period from the redemption date to April 1, 2008. If no maturity exactly corresponds to such period, yields for the published maturities occurring prior to and after such maturity most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month, except that if the period from such redemption date to April 1, 2008 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

      “Statistical Release” means the statistical release designated “H.15(519)” or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. government securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination, then such other reasonably comparable index which shall be designated by the Trustee.

     Redemption on or after April 1, 2008

      On or after April 1, 2008, the Company may, on one or more occasions, redeem all or a part of these Notes, upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon, to the applicable redemption date, if redeemed during the twelve-month period beginning on April 1 of the years indicated below:

         
Year Percentage


2008
    104.500 %
2009
    102.250 %
2010 and thereafter
    100.000 %

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Selection and Notice

      If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows:

        (1) if the Notes are listed, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or
 
        (2) if the Notes are not so listed, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate.

      In addition, if a partial redemption is made pursuant to the provisions described under “— Optional Redemption — Redemption with Proceeds from Equity Offerings,” selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless that method is otherwise prohibited.

      No Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional.

      If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.

Mandatory Redemption

      Except as set forth below under “— Repurchase at the Option of Holders,” the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.

Repurchase at the Option of Holders

     Change of Control

      If a Change of Control occurs, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder’s Notes pursuant to the Change of Control Offer. In the Change of Control Offer, the Company will offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest thereon, if any, to the date of purchase. Within 60 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date, pursuant to the procedures required by the Indenture and described in such notice. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture relating to such Change of Control Offer, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof.

      On the Change of Control Payment Date, the Company will, to the extent lawful:

        (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
 
        (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and

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        (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company.

      The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof.

      Prior to complying with any of the provisions of this “Change of Control” covenant, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

      The provisions described above that require the Company to make a Change of Control Offer following a Change of Control will be applicable regardless of whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

      The Company’s outstanding Senior Debt currently prohibits the Company from purchasing any Notes, and also provides that certain change of control events with respect to the Company would constitute a default under the agreements governing the Senior Debt. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes, the Company could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.

      The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

      The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the assets of the Company and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another Person or group may be uncertain.

     Asset Sales

      The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

        (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets or Equity Interests issued or sold or otherwise disposed of;

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        (2) such fair market value is determined by the Company’s Board of Directors (or a committee thereof); and
 
        (3) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of (A) cash or Cash Equivalents, (B) assets (other than securities) to be used in a Permitted Business, (C) Equity Interests in a Person engaged in a Permitted Business if such Person is, or will become as a result of such Asset Sale, a Restricted Subsidiary, or (D) any combination of the assets described in clauses (A), (B) and (C). For purposes of this provision, each of the following shall be deemed to be cash:

        (a) any liabilities (as shown on the Company’s or such Restricted Subsidiary’s most recent balance sheet) of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to an agreement that releases the Company or such Restricted Subsidiary from further liability; and
 
        (b) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into assets of the type referred to in clauses (3)(A) through (D) above within 180 days (to the extent of the cash and the fair market value of such other assets received in that conversion); and
 
        (c) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (c) then outstanding, not to exceed the greater of (x) $10.0 million and (y) 1.5% of Total Assets at the time of receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value).

      Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or any such Restricted Subsidiary may apply such Net Proceeds, at its option:

        (1) to repay or repurchase Senior Debt of the Company or any Guarantor or any Indebtedness of any Restricted Subsidiary that is not a Guarantor;
 
        (2) to acquire Equity Interests in a Person engaged in a Permitted Business if such Person is, or will become as a result thereof, a Restricted Subsidiary;
 
        (3) to make a capital expenditure in a Permitted Business; or
 
        (4) to acquire assets (other than securities) to be used in a Permitted Business.

      Pending the final application of any such Net Proceeds, the Company may temporarily reduce the revolving Indebtedness under the Senior Credit Facilities or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.

      Any Net Proceeds from Asset Sales that are not applied or invested as provided in the preceding paragraph will constitute Excess Proceeds. When the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will be required to make an offer to purchase from all Holders of Notes (an “Asset Sale Offer”) and, if applicable, redeem or purchase (or make an offer to do so) any Pari Passu Indebtedness of the Company the provisions of which require the Company to redeem or purchase (or make an offer to do so) such Indebtedness with the proceeds from any Asset Sales, the maximum aggregate principal amount of Notes and such Pari Passu Indebtedness that may be purchased out of such Excess Proceeds. The offer price for the Notes in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest, if any, to the date of purchase, and will be payable in cash and the redemption or purchase price for such Pari Passu Indebtedness shall be as set forth in the related documentation governing such Indebtedness. If any Excess Proceeds remain after consummation of an

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Asset Sale Offer, the Company may use such Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

Certain Covenants

     Restricted Payments

      The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

        (i)  (x) declare or pay any dividend or make any other payment or distribution on account of the Company’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment on such Equity Interests in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such other than dividends or distributions payable in Qualified Equity Interests or (y) pay any Designated Option Payments;
 
        (ii)  purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company (other than any such Equity Interests owned by the Company or any Restricted Subsidiary of the Company);
 
        (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes or the Subsidiary Guarantees, except scheduled payments of interest or principal at Stated Maturity thereof; or
 
        (iv)  make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as “Restricted Payments”),

      unless, at the time of and after giving effect to such Restricted Payment:

        (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
 
        (2) the Company would, after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock;” and
 
        (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8) and (9) of the next succeeding paragraph), is not greater than the sum, without duplication, of:

        (a) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first full fiscal quarter commencing after the date of the Indenture to the end of the Company’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus
 
        (b) 100% of the aggregate net proceeds (including the fair-market value of property other than cash, provided, that fair market value of property other than cash shall be determined in good faith by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee and such determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $15.0 million) received by the Company as a contribution to the Company’s capital or received by the Company from the issue or sale since the date of the Indenture (other than to a

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  Subsidiary of the Company) of Qualified Equity Interests or of Disqualified Stock or debt securities of the Company that have been converted into Qualified Equity Interests, plus
 
        (c) to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash or becomes an interest in a Restricted Subsidiary, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Restricted Investment, plus
 
        (d) if any Unrestricted Subsidiary (i) is redesignated as a Restricted Subsidiary of the Company, the fair market value of such redesignated Subsidiary (as determined in good faith by the Board of Directors) as of the date of its redesignation or (ii) pays any cash dividends or cash distributions to the Company or any of its Restricted Subsidiaries, 100% of any such cash dividends or cash distributions made after the date of the Indenture.

      The preceding provisions will not prohibit:

        (1) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture;
 
        (2) the redemption, repurchase, retirement, defeasance or other acquisition of any subordinated Indebtedness or Equity Interests of the Company or any of its Restricted Subsidiaries in exchange for, or out of the net cash proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Company) of, Qualified Equity Interests; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (3)(b) of the preceding paragraph;
 
        (3) the defeasance, redemption, repurchase, repayment or other acquisition of subordinated Indebtedness of the Company or any of its Restricted Subsidiaries with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
 
        (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis;
 
        (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company held by any member or former member of management or affiliated physician of the Company or any of its Restricted Subsidiaries pursuant to any management equity subscription agreement, stockholders agreement or stock option agreement or other similar agreement; provided, however, the aggregate price paid shall not exceed (a) $5.0 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years), plus (b) the aggregate cash proceeds received by the Company from any issuance or reissuance of Equity Interests to members of management or affiliated physicians of the Company and its Restricted Subsidiaries (provided that the amount of any such net cash proceeds utilized for such purpose shall be excluded from clause (3)(b) of the preceding paragraph) and the proceeds to the Company of any “key man” life insurance policies that have not been applied for payments pursuant to this clause (5)(b); provided that the cancellation of Indebtedness owing to the Company from members of management or affiliated physicians of the Company or any Restricted Subsidiary in connection with such repurchase of Equity Interests will not be deemed to be a Restricted Payment;
 
        (6) the declaration and payment of dividends on Designated Preferred Stock in accordance with the certificate of designations therefor; provided that at the time of issuance of such Designated Preferred Stock, the Company would, after giving pro forma effect thereto as if such issuance had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock;”

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        (7) repurchases of Equity Interests deemed to occur upon the exercise of stock options if such Equity Interests represent a portion of the exercise price thereof;
 
        (8) other Restricted Payments in an aggregate amount up to $20.0 million; and
 
        (9) at any time on or prior to the date which is 30 days after the Issue Date, the declaration and payment of dividends on the Company’s common stock and payment of Designated Option Payments in respect of such dividends in an aggregate amount of up to $30.0 million;

provided that, in the case of clause (5), (6), (8) or (9), no Default under clause (1) under “— Events of Default and Remedies” and no Event of Default has occurred and is continuing.

      The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be determined in good faith by the Board of Directors whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors’ determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if such fair market value exceeds $15.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.

     Incurrence of Indebtedness and Issuance of Preferred Stock

      The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt) and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company or any of its Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock or preferred stock if the Fixed Charge Coverage Ratio for the Company’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued would have been at least (i) if the incurrence or issuance occurs on or prior to the second anniversary of the Issue Date, 2.0 to 1.0 and (ii) if the incurrence or issuance occurs thereafter, 2.25 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four-quarter period.

      The first paragraph of this covenant will not prohibit the incurrence of any or the following items of Indebtedness (collectively, “Permitted Debt”):

        (1) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness and letters of credit pursuant to the Senior Credit Facilities; provided that the aggregate amount of all Indebtedness then classified as having been incurred in reliance upon this clause (1) that remains outstanding under the Senior Credit Facilities after giving effect to such incurrence does not exceed an amount equal to $330.0 million less, to the extent a permanent repayment and/or commitment reduction is required thereunder as a result of such application, the aggregate amount of Net Proceeds applied to repayments under the Senior Credit Facilities in accordance with the covenant described under “— Repurchase at the Option of Holders — Asset Sales”;
 
        (2) the incurrence by the Company and its Restricted Subsidiaries of Existing Indebtedness;
 
        (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes originally issued on the Issue Date and the Subsidiary Guarantees;

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        (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary (whether through the direct purchase of assets or the Capital Stock of any Person owning such Assets), and Permitted Refinancing Indebtedness in respect thereof, in an aggregate principal amount or accreted value, as applicable, not to exceed at any time outstanding the greater of $15.0 million and 2.5% of Total Assets at the time of any incurrence under this clause (4);
 
        (5) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in connection with the acquisition of assets or a new Restricted Subsidiary; provided that such Indebtedness was incurred by the prior owner of such assets or such Restricted Subsidiary prior to such acquisition by the Company or one of its Subsidiaries and was not incurred in connection with, or in contemplation of, such acquisition by the Company or one of its Subsidiaries; provided further that the principal amount (or accreted value, as applicable) of such Indebtedness, together with any other outstanding Indebtedness incurred pursuant to this clause (5), and Permitted Refinancing Indebtedness in respect thereof, does not exceed $20.0 million;
 
        (6) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness incurred pursuant to clause (2) (other than the Company’s 12% Senior Subordinated Notes due 2009) or (3) or this clause (6) or the proviso of the preceding paragraph;
 
        (7) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that:

        (a) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes, in the case of the Company, or the Subsidiary Guarantee of such Guarantor, in the case of a Guarantor; and
 
        (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary or (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, not permitted by this clause (7);

        (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging:

        (a) interest rate risk with respect to any Indebtedness that is permitted by the terms of this Indenture to be outstanding;
 
        (b) exchange rate risk with respect to any agreement or Indebtedness of such Person payable in a currency other than U.S. dollars; or
 
        (c) commodities risk relating to commodities agreements, entered into in the ordinary course of business, for the purchase of raw material used by the Company and its Restricted Subsidiaries;

        (9) the Guarantee by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this covenant;
 
        (10) the incurrence by the Company’s Unrestricted Subsidiaries of Non-Recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted

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  Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company;
 
        (11) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including without limitation to letters of credit in respect to workers’ compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence;
 
        (12) Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, asset or Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided that (a) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote or footnotes to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (a)) and (b) the maximum assumable liability in respect of such Indebtedness shall at no time exceed the gross proceeds including non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time received and without giving effect to any such subsequent changes in value) actually received by the Company and/or such Restricted Subsidiary in connection with such disposition;
 
        (13) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary in the ordinary course of business;
 
        (14) guarantees incurred in the ordinary course of business in an aggregate principal amount not to exceed $10.0 million at any time outstanding; and
 
        (15) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (15), not to exceed $25.0 million.

      For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (15) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will be permitted to classify such item of Indebtedness in any manner that complies with this covenant (except that Indebtedness incurred under the Senior Credit Facilities on the Issue Date shall be deemed to have been incurred pursuant to clause (1) above). In addition, the Company may, at any time, change the classification of an item of Indebtedness (or any portion thereof) to any other clause or to the first paragraph hereof; provided that the Company would be permitted to incur such item of Indebtedness (or portion thereof) pursuant to such other clause or the first paragraph hereof, as the case may be, at such time of reclassification. Accrual of interest, accretion or amortization of original issue discount and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this covenant.

     Liens

      The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness that

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does not constitute Senior Debt (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired unless:

        (1) in the case of Liens securing Indebtedness that is expressly subordinated or junior in right of payment to the Notes, the Notes are secured on a senior basis to the obligations so secured until such time as such obligations are no longer secured by a Lien; and
 
        (2) in all other cases, the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien.

     Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

      The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to:

        (1) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with respect to any other interest or participation in, or measured by, its profits;
 
        (2) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
 
        (3) make loans or advances to the Company or any of its Restricted Subsidiaries; or
 
        (4) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries.

      However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:

        (1) Existing Indebtedness as in effect on the date of the Indenture;
 
        (2) the Senior Credit Facilities as in effect as of the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings, thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are no more restrictive, taken as a whole (as determined in the good faith judgment of the Company’s Board of Directors), with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facilities as in effect on the date of the Indenture;
 
        (3) the Indenture and the Notes;
 
        (4) any applicable law, rule, regulation or order;
 
        (5) any instrument of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;
 
        (6) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices;
 
        (7) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (4) of the preceding paragraph;
 
        (8) Permitted Refinancing Indebtedness, provided that the material restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive, in the good faith judgment of the Company’s board of directors, taken as a whole, to the Holders of Notes than those contained in the agreements governing the Indebtedness being refinanced;

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        (9) customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
 
        (10) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and
 
        (11) other Indebtedness or Disqualified Stock of Restricted Subsidiaries permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock”; provided that any such encumbrances or restrictions are ordinary and customary with respect to the type of Indebtedness being incurred under the relevant circumstances and do not, in the good faith judgment of the Board of Directors of the Company, materially impair the Company’s ability to make payment on the Notes when due.

     Merger, Consolidation, or Sale of Assets

      The Company may not: (1) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to another Person unless:

        (1) either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation, limited liability company or limited partnership organized or existing under the laws of the United States, any State thereof or the District of Columbia;
 
        (2) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee;
 
        (3) immediately after such transaction no Default or Event of Default exists; and
 
        (4) the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition shall have been made:

        (a) will, after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock”; or
 
        (b) would (together with its Restricted Subsidiaries) have a higher Fixed Charge Coverage Ratio immediately after such transaction (after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period) than the Fixed Charge Coverage Ratio of the Company and its subsidiaries immediately prior to the transaction.

      The preceding clause (4) will not prohibit:

        (a) a merger between the Company and a Wholly Owned Subsidiary; or
 
        (b) a merger between the Company and an Affiliate incorporated solely for the purpose of reincorporating the Company in another state of the United States;

so long as, in each case, the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby.

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      In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This “Merger, Consolidation, or Sale of Assets” covenant will not be applicable to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Company and any of its Wholly Owned Restricted Subsidiaries.

     Transactions with Affiliates

      The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each, an “Affiliate Transaction”), unless:

        (1) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and
 
        (2) the Company delivers to the Trustee:

        (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $3.0 million, a resolution of the Board of Directors set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (1) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and
 
        (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.

      The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

        (1) customary directors’ fees, indemnification or similar arrangements or any employment agreement or other compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or such Restricted Subsidiary;
 
        (2) transactions between or among the Company and/or its Restricted Subsidiaries;
 
        (3) Permitted Investments and Restricted Payments that are permitted by the provisions of the Indenture described above under the caption “— Restricted Payments”;
 
        (4) customary loans, advances, fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any of its Restricted Subsidiaries;
 
        (5) transactions pursuant to any contract or agreement in effect on the date of the Indenture as the same may be amended, modified or replaced from time to time so long as any such amendment, modification or replacement is no less favorable to the Company and its Restricted Subsidiaries than the contract or agreement as in effect on the Issue Date;
 
        (6) transactions pursuant to management contracts with affiliated physicians entered into in the ordinary course of business consistent with past practice (or as such practice may be modified to comply with regulations governing the operations of the Company);
 
        (7) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person, so long as Affiliates of the Company

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  (other than a Restricted Subsidiary of the Company) own, in the aggregate, no more than 5% of the Equity Interests of such Person;
 
        (8) the issuance or sale of Qualified Equity Interests; and
 
        (9) transactions with customers, clients, suppliers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are on terms no less favorable than those that would have been obtained in a comparable transaction with an unrelated party or on terms that are approved by the Company’s Board of Directors, including a majority of the disinterested directors.

     Designation of Restricted and Unrestricted Subsidiaries

      The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default and the conditions set forth in the definition of “Unrestricted Subsidiary” are met. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, all outstanding Investments owned by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation (to the extent not designated a Permitted Investment) and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption “— Restricted Payments.” All such outstanding Investments will be valued at their fair market value at the time of such designation, as determined in good faith by the Board of Directors. That designation will only be permitted if such Restricted Payment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

     Anti-layering

      The Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is both:

        (1) subordinate or junior in right of payment to any Senior Debt; and
 
        (2) senior in any respect in right of payment to the Notes.

      No Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is both:

        (1) subordinate or junior in right of payment to any Senior Debt of such Guarantor; and
 
        (2) senior in any respect in right of payment to the Subsidiary Guarantees.

      Neither the existence or lack of a security interest nor the priority of any such security interest shall be deemed to affect the ranking or right of payment of any Indebtedness.

     Limitations on Issuances of Guarantees of Indebtedness

      The Company will not permit any Domestic Restricted Subsidiary, directly or indirectly, to incur Indebtedness, or Guarantee or pledge any assets to secure the payment of any other Indebtedness of the Company or any Restricted Subsidiary, unless either such Restricted Subsidiary (1) is a Subsidiary Guarantor or (2) simultaneously executes and delivers a supplemental indenture to the Indenture and becomes a Subsidiary Guarantor, which Guarantee shall (a) with respect to any Guarantee of Senior Debt, be subordinated in right of payment on the same terms as the Notes are subordinated to such Senior Debt and (b) with respect to any Guarantee of any other Indebtedness, be senior to or pari passu with such Restricted Subsidiary’s other Indebtedness or Guarantee of or pledge to secure such other Indebtedness.

      Notwithstanding the preceding paragraph, any such Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged upon any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the

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Company’s stock in, or all or substantially all the assets of, such Restricted Subsidiary, which sale, exchange or transfer is made in compliance with the applicable provisions of the Indenture.

     Business Activities

      The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Permitted Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole.

     Reports

      Whether or not required by the rules and regulations of the Commission, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes, within the time periods specified in the Commission’s rules and regulations:

        (1) all quarterly and annual information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by the Company’s certified independent accountants; and
 
        (2) all current reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports.

      In addition, following the consummation of the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the Commission, the Company will file a copy of all the information and reports referred to in clauses (1) and (2) above with the Commission for public availability within the time periods specified in the Commission’s rules and regulations (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the Company has agreed that, for so long as any Notes remain outstanding, it will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. The Company will at all times comply with Trust Indenture Act Section 314(a).

Events of Default and Remedies

      Each of the following is an Event of Default:

        (1) default for 30 days in the payment when due of interest on the Notes whether or not prohibited by the subordination provisions of the Indenture;
 
        (2) default in payment when due of the principal of or premium, if any, on the Notes, whether or not prohibited by the subordination provisions of the Indenture;
 
        (3) failure by the Company to comply with the provisions described under the caption “— Repurchase at the Option of Holders — Change of Control”;
 
        (4) failure by the Company for 30 days after notice from the Trustee or holders of at least 25% in principal amount of the Notes then outstanding to comply with the provisions described under the captions “— Repurchase at the Option of Holders — Asset Sales,” “— Restricted Payments” or “— Incurrence of Indebtedness and Issuance of Preferred Stock”;
 
        (5) failure by the Company for 60 days after notice from the Trustee or holders of at least 25% in principal amount of the Notes then outstanding voting as a single class to comply with any of its other agreements in the Indenture or the Notes;
 
        (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of

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  its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, if that default:

        (a) is caused by a failure to pay principal of or premium, if any, such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or
 
        (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more;

        (7) failure by the Company or any of its Subsidiaries to pay final non-appealable judgments not covered by undisputed insurance aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days;
 
        (8) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and
 
        (9) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that are Significant Subsidiaries.

      In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (6) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (6) of the preceding paragraph have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if:

        (1) the annulment of the acceleration of Notes would not conflict with any judgment or decree of a court of competent jurisdiction; and
 
        (2) all existing Events of Default, except nonpayment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.

      If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, that so long as any Indebtedness permitted to be incurred pursuant to the Senior Credit Facilities shall be outstanding, such acceleration shall not be effective until the earlier of:

        (1) an acceleration of any such indebtedness under the Senior Credit Facilities; or
 
        (2) five business days after receipt by the Company of written notice of such acceleration.

      Notwithstanding the preceding paragraph, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice.

      Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest.

      The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes.

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      The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

      No director, officer, employee, incorporator or stockholder of the Company, or any Guarantor, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture, the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Satisfaction and Discharge

      The Indenture will be discharged and will cease to be of further effect (except as to rights of the registration of transfer or exchange of Notes, which shall survive until all Notes have been canceled) as to all Notes issued thereunder, when:

        (1) either:

        (a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or
 
        (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and additional interest, if any, and accrued interest to the date of maturity or redemption;

        (2) no Default or Event of Default (other than one resulting solely from the borrowing of funds to provide such deposit) shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound;
 
        (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and
 
        (4) the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be.

      In addition, the Company must deliver an Officers’ Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

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Legal Defeasance and Covenant Defeasance

      The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Subsidiary Guarantees (“Legal Defeasance”) except for:

        (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust referred to below;
 
        (2) the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
 
        (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Company’s obligations in connection therewith; and
 
        (4) the Legal Defeasance provisions of the Indenture.

      In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Guarantors released with respect to certain covenants that are described in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “Events of Default” will no longer constitute an Event of Default with respect to the Notes.

      In order to exercise either Legal Defeasance or Covenant Defeasance:

        (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date;
 
        (2) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
 
        (3) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
 
        (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);

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        (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement (including the Senior Credit Facilities) or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound;
 
        (6) the Company must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company or others; and
 
        (7) the Company must deliver to the Trustee an Officers’ Certificate and an opinion of counsel, which opinion may be subject to customary assumptions and exclusions, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Amendment, Supplement and Waiver

      With the consent of the Holders of not less than a majority in principal amount of the Notes at the time outstanding, the Company and Trustee are permitted to amend or supplement the Indenture or any supplemental indenture or modify the rights of the Holders; provided that without the consent of each Holder affected, no amendment, supplement, modification or waiver may (with respect to any Notes held by a non-consenting Holder):

        (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
 
        (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption “— Repurchase at the Option of Holders”);
 
        (3) reduce the rate of or change the time for payment of interest on any Note;
 
        (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration);
 
        (5) make any Note payable in money other than that stated in the Notes;
 
        (6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes;
 
        (7) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption “— Repurchase at the Option of Holders”);
 
        (8) modify or change any provision of the Indenture or the related definitions affecting the subordination of the Notes or any Guarantee in a manner that materially adversely affects the Holders of Notes;
 
        (9) make any change in the preceding amendment and waiver provisions; or
 
        (10) release any guarantor from any of its obligations under its guarantee of the Notes or the Indenture, except in accordance with the terms of the Indenture.

      No amendment of, or supplement or waiver to, the Indenture shall adversely affect the rights of any holder of Senior Debt under the subordination provisions of the Indenture, without the consent of such holder or, in accordance with the terms of such Senior Debt, the consent of the agent or representative of such holder or the requisite holders of such Senior Debt or Designated Senior Debt.

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      Notwithstanding the preceding, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes:

        (1) to cure any ambiguity, defect or inconsistency;
 
        (2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
 
        (3) to provide for the assumption of the Company’s obligations to Holders of Notes in the case of a merger or consolidation or the sale of all or substantially all of the Company’s assets;
 
        (4) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not materially adversely affect the legal rights under the Indenture of any such Holder;
 
        (5) to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
 
        (6) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture; or
 
        (7) to allow any Subsidiary to guarantee the Notes.

Concerning the Trustee

      If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits the Trustee’s right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.

      The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Additional Information

      Anyone who receives this Offering Memorandum may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to Team Health, Inc., P.O. Box 30698, Knoxville, Tennessee 37919; Attention: Chief Financial Officer.

Certain Definitions

      Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.

      “Acquired Debt” means, with respect to any specified Person:

        (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of such specified Person, and
 
        (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

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      “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” shall have correlative meanings.

      “Asset Sale” means:

        (1) the sale, lease, conveyance or other disposition (a “Disposition”) of any assets or rights (including, without limitation, by way of a sale and leaseback) (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption “— Repurchase at the Option of Holders — Change of Control” and/or the provisions described above under the caption “— Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant); and
 
        (2) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company’s Restricted Subsidiaries, in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions:

        (a) that have a fair market value in excess of $1.0 million, or
 
        (b) for net proceeds in excess of $1.0 million.

      Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales:

        (1) a disposition of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary;
 
        (2) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary;
 
        (3) a Restricted Payment that is permitted by the covenant described above under the caption “— Restricted Payments”;
 
        (4) a disposition in the ordinary course of business;
 
        (5) any Liens permitted by the Indenture and foreclosures thereon;
 
        (6) any exchange of property pursuant to Section 1031 on the Internal Revenue Code of 1986, as amended, for use in a Permitted Business; and
 
        (7) the licensing of intellectual property.

      “Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP.

      “Capital Stock” means:

        (1) in the case of a corporation, corporate stock;
 
        (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
 
        (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
 
        (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

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      “Cash Equivalents” means:

        (1) United States dollars;
 
        (2) Government Securities having maturities of not more than twelve months from the date of acquisition;
 
        (3) certificates of deposit and eurodollar time deposits with maturities of twelve months or less from the date of acquisition, bankers’ acceptances with maturities of twelve months or less from the date of acquisition and overnight bank deposits, in each case with any lender party to the Senior Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500 million and a Thompson Bank Watch Rating of “B” or better;
 
        (4) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
 
        (5) commercial paper having the rating of “P-2” (or higher) from Moody’s Investors Service, Inc. or “A-2” (or higher) from Standard & Poor’s Corporation and in each case maturing within twelve months after the date of acquisition;
 
        (6) any fund investing substantially all its assets in investments that constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition; and
 
        (7) any investment which would constitute Cash Equivalents of the kinds described in clauses (2) through (6) of this definition if the maturity of such investment was twelve months or less; provided that (x) such investment is made with the purpose of satisfying future contingent obligations arising out of the Company’s self-insurance program and (y) the maturity of such investment is not more than twelve months later than the estimated date of payment of such contingent liabilities measured at the date of acquisition of such investment.

      “Change of Control” means the occurrence of any of the following:

        (1) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any “person” (as such term is used in Section 13(d)(3) of the Exchange Act) other than the Principals or a Related Party of any of the Principals;
 
        (2) the adoption of a plan relating to the liquidation or dissolution of the Company;
 
        (3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any “person” (as defined above), other than the Principals and their Related Parties, becomes the “beneficial owner” (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of 50% or more of the Voting Stock of the Company (measured by voting power rather than number of shares); or
 
        (4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors.

      “Consolidated Cash Flow” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period, plus, (minus) to the extent deducted (added) in computing such Consolidated Net Income:

        (1) provision for taxes based on income or profits of such Person and its Subsidiaries for such period; plus
 
        (2) consolidated interest expense of such Person and its Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any

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  deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net payments, if any, pursuant to Hedging Obligations); plus
 
        (3) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Subsidiaries for such period; plus
 
        (4) expenses and charges of the Company related to the Transactions which are paid, taken or otherwise accounted for within 90 days of the consummation of the Transactions, plus
 
        (5) any non-capitalized transaction costs incurred in connection with actual or proposed financings, acquisitions or divestitures (including, but not limited to, financing and refinancing fees and costs incurred in connection with the Transactions), plus
 
        (6) amounts paid pursuant to the Management Services Agreement.

      Notwithstanding the preceding, the provision for taxes on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of the referent Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that Net Income of such Subsidiary was included in calculating Consolidated Net Income of such Person.

      “Consolidated Interest Expense” means, with respect to any Person for any period, the sum of, without duplication:

        (1) the interest expense of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP (including amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net payments, if any, pursuant to Hedging Obligations; provided that in no event shall any amortization of deferred financing costs be included in Consolidated Interest Expense); plus
 
        (2) the consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued.

      Notwithstanding the preceding, the Consolidated Interest Expense with respect to any Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income.

      “Consolidated Net Income” means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that

        (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or (subject to clause (2) below) a Restricted Subsidiary thereof;
 
        (2) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders;

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        (3) the cumulative effect of a change in accounting principles shall be excluded; and
 
        (4) the Net Income of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Restricted Subsidiaries for purposes of the covenant described under the caption “Incurrence of Indebtedness and Issuance of Preferred Stock” and shall be included for purposes of the covenant described under the caption “Restricted Payments” only to the extent of the amount of dividends or distributions paid in cash to the Company or one of its Restricted Subsidiaries.

provided, further, that Consolidated Net Income shall be reduced by the product of (x) the amount of all dividends on Designated Preferred Stock (other than dividends paid in Qualified Equity Interests) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the Company, expressed as a decimal.

      “Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the Company who:

        (1) was a member of such Board of Directors on the date of the Indenture;
 
        (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election; or
 
        (3) was nominated by the Principals pursuant to the Stockholders Agreement.

      “Credit Agent” means Bank of America, N.A., in its capacity as Administrative Agent for the lenders party to the Senior Credit Facilities, or any successor thereto or any person otherwise appointed.

      “Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

      “Designated Noncash Consideration” means any non-cash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is designated as Designated Noncash Consideration pursuant to an Officers’ Certificate executed by the Chief Financial Officer of the Company. Such Officers’ Certificate shall state the basis of such valuation. A particular item of Designated Noncash Consideration shall no longer be considered to be outstanding to the extent it has been sold or liquidated for cash (but only to the extent of the cash received).

      “Designated Option Payment” means payments to holders of options, warrants or rights to acquire Capital Stock (whether through a bonus or otherwise) made in connection with the payment of a dividend to holders of the Company’s or any Restricted Subsidiary’s Capital Stock which payments are so designated as Designated Option Payments pursuant to an Officers’ Certificate.

      “Designated Preferred Stock” means preferred stock issued and sold for cash in a bona-fide financing transaction that is designated as Designated Preferred Stock pursuant to an Officers’ Certificate on the issuance date thereof, the net cash proceeds of which are excluded from the calculation set forth in clause (3) the first paragraph of the “— Restricted Payments” covenant and are not used for purposes of clause (2) of the second paragraph thereof.

      “Designated Senior Debt” means:

        (1) any Indebtedness outstanding under the Senior Credit Facilities; and
 
        (2) any other Senior Debt permitted under the Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as “Designated Senior Debt.”

      “Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of

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the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would not qualify as Disqualified Stock but for change of control or asset sale provisions shall not constitute Disqualified Stock if the provisions are not more favorable to the holders of such Capital Stock than the provisions described under “— Repurchase at the Option of Holders — Change of Control” and “Repurchase at the Option of Holders — Asset Sales,” respectively, and such Capital Stock specifically provide that the Company will not redeem or repurchase any such Capital Stock pursuant to such provisions prior to the Company’s purchase of the Notes as required pursuant to the provisions described under “— Repurchase at the Option of Holders — Change of Control” and “Repurchase at the Option of Holders — Asset Sales,” respectively.

      “Domestic Restricted Subsidiary” means, with respect to the Company, any Wholly Owned Restricted Subsidiary of the Company that was formed under the laws of the United States of America.

      “Earn-out Obligation” means any contingent consideration based on future operating performance of the acquired entity or assets payable following the consummation of an acquisition based on criteria set forth in the documentation governing or relating to such acquisition.

      “Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

      “Equity Offering” means an offering of the Qualified Equity Interests of the Company, or Equity Interests of the direct or indirect parent of the Company, generating net proceeds to the Company of at least $25.0 million; provided, however, that in the case of an issuance or sale of Equity Interests of the direct or indirect parent of the Company, cash proceeds therefrom equal to not less than 100% of the aggregate principal amount of any Notes to be redeemed are received by the Company as a capital contribution or consideration for the issuance and sale of Qualified Equity Interests immediately prior to such redemption.

      “Existing Indebtedness” means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Senior Credit Facilities) in existence on the date of the Indenture, until such amounts are repaid.

      “Fixed Charges” means, with respect to any Person for any period, the sum, without duplication, of:

        (1) the Consolidated Interest Expense of such Person for such period; plus
 
        (2) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
 
        (3) the product of (a) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Qualified Equity Interests, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

      “Fixed Charge Coverage Ratio” means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period.

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      In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

        (1) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be calculated to include the Consolidated Cash Flow of the acquired entities on a pro forma basis (to be calculated in accordance with Article 11-02 of Regulation S-X, as in effect on the Issue Date) after giving effect to Pro Forma Cost Savings, shall be deemed to have occurred on the first day of the four-quarter reference period;
 
        (2) the Consolidated Cash Flow attributable to operations or businesses disposed of prior to the Calculation Date shall be excluded; and
 
        (3) the Fixed Charges attributable to operations or businesses disposed of prior to the Calculation Date shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date.

      “Foreign Subsidiary” means any Subsidiary of the Company that is not organized under the laws of a state or territory of the United States or the District of Columbia.

      “GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture.

      “Global Notes” means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, issued in accordance with certain sections of the Indenture.

      “Government Securities” means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged.

      “Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, letters of credit and reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

      “Guarantors” means each Subsidiary of the Company that executes a Subsidiary Guarantee in accordance with the provisions of the Indenture, and their respective successors and assigns.

      “Hedging Obligations” means, with respect to any Person, the obligations of such Person under:

        (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; and
 
        (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices.

      “Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, in respect of:

        (1) borrowed money;
 
        (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
 
        (3) bankers’ acceptances;

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        (4) representing Capital Lease Obligations; or
 
        (5) the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable,

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person; provided that Indebtedness shall not include (i) the pledge by the Company of the Capital Stock of an Unrestricted Subsidiary of the Company to secure Non-Recourse Debt of such Unrestricted Subsidiary or (ii) any Earn-out Obligation.

      The amount of any Indebtedness outstanding as of any date shall be:

        (1) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest; and
 
        (2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

      “Insolvency or Liquidation Proceedings” means, with respect to any Person:

        (1) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to such Person or to the creditors of such Person, as such, or to the assets of such Person;
 
        (2) any liquidation, dissolution, reorganization or winding up of such Person, whether voluntary or involuntary, and involving insolvency or bankruptcy; or
 
        (3) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of such Person.

      “Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption “— Restricted Payments.” Notwithstanding the foregoing, purchases, redemptions or other acquisitions of Equity Interests of the Company or any direct or indirect parent of the Company shall not be deemed Investments.

      “Issue Date” means the date on which the initial $180.0 million in aggregate principal amount of the Notes is originally issued under the Indenture.

      “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or

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agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

      “Liquidated Damages” means the additional interest (if any) payable by the Company under the Registration Rights Agreement.

      “Management Services Agreement” means the Management Services Agreement dated March 12, 1999 between the Company and each of the Principals.

      “Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

        (1) for purposes of calculating Consolidated Cash Flow only, any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale or (b) the acquisition or disposition of any securities by such Person or any of its Restricted Subsidiaries;
 
        (2) any income or expense incurred in connection with the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries;
 
        (3) for purposes of calculating Consolidated Cash Flow only, any extraordinary or nonrecurring gain or loss, together with any related provision for taxes on such extraordinary or nonrecurring gain or loss;
 
        (4) any depreciation, amortization, non-cash impairment or other non-cash charges or expenses recorded as a result of the application of purchase accounting in accordance with Accounting Principles Board Opinion Nos. 16 and 17 or SFAS Nos. 141 and 142;
 
        (5) any gain, loss, income, expense or other charge recognized or incurred in connection with changes in value or dispositions of Investments made pursuant to clause (6) of the definition of Permitted Investments (it being understood that this clause (5) shall not apply to any expenses incurred in connection with the funding of contributions to any plan); and
 
        (6) any Designated Option Payments.

      “Net Proceeds” means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), the amounts required to be applied to the payment of Indebtedness (other than Indebtedness incurred pursuant to the Senior Credit Facilities) secured by a Lien on the asset or assets that were the subject of the Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.

      “Non-Recourse Debt” means Indebtedness:

        (1) as to which neither the Company nor any of its Restricted Subsidiaries:

        (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

        (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time

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  or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and
 
        (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock (other than stock of an Unrestricted Subsidiary pledged by the Company to secure debt of such Unrestricted Subsidiary) or assets of the Company or any of its Restricted Subsidiaries.

      “Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

      “Pari Passu Indebtedness” means any Indebtedness of the Company or any Guarantor that ranks pari passu in right of payment with the Notes or the Guarantees, as applicable.

      “Permitted Business” means any business in which the Company and its Restricted Subsidiaries are engaged on the date of the Indenture or any business reasonably related, incidental or ancillary thereto.

      “Permitted Investments” means:

        (1) any Investment in the Company or in a Restricted Subsidiary of the Company;
 
        (2) any Investment in Cash Equivalents;
 
        (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment:

        (a) such Person becomes a Restricted Subsidiary of the Company; or
 
        (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company;

        (4) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales”;
 
        (5) any acquisition of assets solely in exchange for the issuance of Qualified Equity Interests;
 
        (6) Investments made in connection with the funding of contributions under any non-qualified employee retirement plan or similar employee compensation plan in an amount not to exceed the amount of compensation expense recognized by the Company and its Restricted Subsidiaries in connection with such plans; and
 
        (7) other Investments made after the date of the Indenture in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (7) since the date of the Indenture, not to exceed $15.0 million.

      “Permitted Liens” means:

        (1) Liens securing Senior Debt (including, without limitation, Indebtedness under the Senior Credit Facilities) permitted by the terms of the Indenture to be incurred or other Indebtedness allowed to be incurred under clause (1) of the second paragraph of the covenant described above under the caption “— Incurrence of Indebtedness and Issuance of Preferred Stock”;
 
        (2) Liens in favor of the Company or any Restricted Subsidiary;
 
        (3) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company, provided that such

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  Liens were not incurred in contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or any Restricted Subsidiary;
 
        (4) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided such Liens were not incurred in contemplation of such acquisition;
 
        (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of, a like nature incurred in the ordinary course of business;
 
        (6) Liens existing on the date of the Indenture;
 
        (7) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
 
        (8) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled “Incurrence of Indebtedness and Issuance of Preferred Stock”;
 
        (9) Liens to secure Refinancing Indebtedness of Indebtedness secured by Liens referred to in the foregoing clauses (1), (3), (4), (6) and (8) and this clause (9); provided that in the case of Liens securing Permitted Refinancing Indebtedness of Indebtedness secured by Liens referred to in the foregoing clauses (3), (4), (6) and (8) and this clause (9), such Liens do not extend to any additional assets (other than improvements thereon and replacements thereof);
 
        (10) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $7.5 million at any one time outstanding and that: (a) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (b) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Company or such Restricted Subsidiary;
 
        (11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries;
 
        (12) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices;
 
        (13) any interest or title of a lessor under any Capital Lease Obligation;
 
        (14) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof;
 
        (15) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off;
 
        (16) Liens securing Hedging Obligations which Hedging Obligations relate to Indebtedness that is otherwise permitted under the Indenture;
 
        (17) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries; and

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        (18) Liens arising from filing Uniform Commercial Code financing statements regarding leases.

      “Permitted Refinancing Indebtedness” means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that:

        (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith);
 
        (2) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
 
        (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.

      “Principals” means Cornerstone Equity Investors, LLC, Madison Dearborn Partners, Inc. and Beecken Petty O’Keefe & Company L.L.C. and their respective Affiliates.

      “Pro Forma Cost Savings” means, with respect to any period, the reductions in costs (including, without limitation, such reductions resulting from employee terminations, facilities consolidations and closings, standardization of employee benefits and compensation policies, consolidation of property, casualty and other insurance coverage and policies, standardization of sales and distribution methods, reductions in taxes other than income taxes) that occurred during such period that are (1) directly attributable to an asset acquisition and calculated on a basis that is consistent with Article 11 of Regulation S-X under the Securities Act or (2) implemented, committed to be implemented, specifically identified to be implemented or the commencement of implementation of which has begun in good faith by the business that was the subject of any such asset acquisition within six months of the date of the asset acquisition and that are supportable and quantifiable by the underlying records of such business, as if, in the case of each of clauses (1) and (2), all such reductions in costs had been effected as of the beginning of such period, decreased by any incremental expenses incurred or to be incurred during such period in order to achieve such reduction in costs.

      “Qualified Equity Interests” means Equity Interests of the Company other than Disqualified Stock.

      “Registration Rights Agreement” means the Registration Rights Agreement, dated as of March 12, 2004, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act.

      “Related Party” with respect to any Principal means:

        (1) any controlling stockholder or partner, 80% (or more) owned Subsidiary, or spouse or immediate family member (in the case of an individual) of such Principal; or

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        (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a 51% or more controlling interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (1).

      “Reorganization Securities” means securities distributed to Holders of the Notes in an Insolvency or Liquidation Proceeding pursuant to a plan of reorganization consented to by each class of the Senior Debt, but only if all of the terms and conditions of such securities including, without limitation, term, tenor, interest, amortization, subordination, standstills, covenants and defaults are at least as favorable (and provide the same relative benefits) to the holders of Senior Debt and to the holders of any security distributed in such Insolvency or Liquidation Proceeding on account of any such Senior Debt as the terms and conditions of the Notes and the Indenture are, and provide to the holders of Senior Debt.

      “Representative” means the Trustee, agent or representative for any Senior Debt.

      “Restricted Investment” means an Investment other than a Permitted Investment.

      “Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

      “Rule 144A” means Rule 144A promulgated under the Securities Act.

      “Senior Credit Facilities” means the Credit Agreement dated the date of the Indenture among the Company, the guarantors party thereto, the Credit Agent and Banc of America Securities LLC and J.P. Morgan Securities LLC, as co-arrangers, and the other agents and lenders named therein, providing for revolving credit borrowings and term loans, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time including increases in principal amount.

      “Senior Debt” means:

        (1) all Indebtedness outstanding under the Senior Credit Facilities, including any Guarantees thereof and all Hedging Obligations with respect thereto;
 
        (2) any other Indebtedness permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes; and
 
        (3) all Obligations with respect to the preceding clauses (1) and (2) (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is allowed as a claim under applicable law).

      Notwithstanding anything to the contrary in the preceding, Senior Debt will not include:

  (1)  any Indebtedness that is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company or any Guarantor;

        (2) any liability for federal, state, local or other taxes owed or owing by the Company;
 
        (3) any Indebtedness of the Company to any of its Subsidiaries;
 
        (4) any trade payables;
 
        (5) any Earn-out Obligations; or
 
        (6) any Indebtedness that is incurred in violation of the Indenture.

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      “Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof.

      “Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

      “Subsidiary” means, with respect to any Person:

        (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
 
        (2) any partnership or limited liability company (a) the sole general partner or the managing general partner or managing member of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof).

      “Total Assets” means the total consolidated assets of the Company and its Restricted Subsidiaries, as would be shown on the Company’s consolidated balance sheet in accordance with GAAP on the date of determination.

      “Transactions” means the refinancing of certain of the Company’s indebtedness, in connection with which the Company will: (i) enter into the Senior Credit Facilities; (ii) redeem $162.8 million of its outstanding preferred stock; (iii) offer to purchase all of the Company’s 12% Senior Subordinated Notes due 2009 pursuant to a tender offer and consent solicitation and redeem any of the Company’s 12% Senior Subordinated Notes due 2009 not tendered in the tender offer; and (iv) fund up to a $30 million dividend to its existing stockholders.

      “Unrestricted Subsidiary” means with respect to any Person, any Subsidiary of such Person that is designated by the Board of Directors of such Person as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary:

        (1) has no Indebtedness other than Non-Recourse Debt;
 
        (2) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
 
        (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and
 
        (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries.

      Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption “Certain Covenants —

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Restricted Payments.” If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption “Incurrence of Indebtedness and Issuance of Preferred Stock,” the Company shall be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall be permitted only if: (1) such Indebtedness is permitted under the covenant described under the caption “Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock,” and (2) no Default or Event of Default would be in existence following such designation.

      “Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

      “Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

        (1) the sum of the products obtained by multiplying: (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by
 
        (2) the then outstanding principal amount of such Indebtedness.

      “Wholly Owned Subsidiary” of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors’ qualifying shares) shall at the time be owned by such Person and/or by one or more Wholly Owned Subsidiaries of such Person.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

      The following discussion (including the opinion of counsel described below) is based upon current provisions of the Internal Revenue Code of 1986, as amended, applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the “IRS”) will not take a contrary view, and no ruling from the IRS has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. We recommend that each holder consult such holder’s own tax advisor as to the particular tax consequences of exchanging such holder’s old notes for exchange notes, including the applicability and effect of any state, local or foreign tax laws.

      The exchange of the old notes for exchange notes pursuant to the exchange offer should not be treated as an “exchange” for U.S. federal income tax purposes because the exchange notes should not be considered to be a “significant modification” of the old notes. Rather, the exchange notes received by a holder should be treated as a continuation of the old notes in the hands of such holder. As a result, there should be no U.S. federal income tax consequences to holders exchanging the old notes for exchange notes pursuant to the exchange offer.

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PLAN OF DISTRIBUTION

      Each broker-dealer that receives new securities for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new securities received in exchange for outstanding securities where such securities were acquired as a result of market-making activities or other trading activities. We will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale provided a broker-dealer has notified us either in the letter of transmittal or otherwise within 30 days after consummation of the exchange offer that it holds new securities as a result of market-making or other trading activities.

      We will not receive any proceeds from any sale of new securities by brokers-dealers. New securities received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such new securities. Any broker-dealer that resells new securities that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new securities may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit of any such resale of new securities and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

      For a reasonable period after the expiration date of the exchange offer, we will send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the outstanding securities) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the outstanding securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.

      Prior to the exchange offer, there has not been any public market for the outstanding securities. The outstanding securities have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for new securities by holders who are entitled to participate in this exchange offer. The holders of outstanding securities, other than any holder that is our affiliate within the meaning of Rule 405 under the Securities Act, who are not eligible to participate in the exchange offer are entitled to certain registration rights, and we are required to file a shelf registration statement with respect to the outstanding securities. The new securities will constitute a new issue of securities with no established trading market. We do not intend to list the new securities on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the exchange offer and the pendency of the shelf registration statements. Accordingly, no assurance can be given that an active public or other market will develop for the new securities or as to the liquidity of the trading market for the new securities. If a trading market does not develop or is not maintained, holders of the new securities may experience difficulty in reselling the new securities or may be unable to sell them at all. If a market for the new securities develops, any such market may be discontinued at any time.

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LEGAL MATTERS

      Kirkland & Ellis LLP, New York, New York will give an opinion as to the validity of the exchange securities and certain other legal matters. Certain matters under Alabama law will be passed upon by Haskell Slaughter Young & Rediker, LLC. Certain matters under Florida law will be passed upon by Foley & Lardner LLP. Certain matters under Missouri law will be passed upon by Blackwell Sanders Peper Martin LLP. Certain matters under New Jersey law will be passed upon by Sherman, Silverstein, Kohl, Rose & Podolsky, PA. Certain matters under North Carolina law will be passed upon by Parker Poe Adams & Bernstein LLP. Certain matters under Ohio law will be passed upon by Ulmer & Berne LLP. Certain matters under Tennessee law will be passed upon by London & Amburn, PC. Certain matters under Utah law will be passed upon by Durham, Jones & Pinegar, PC. Certain matters under West Virginia law will be passed upon by Bowles Rice McDavid Graff & Love, LLP. Certain matters under Washington law will be passed upon by the Law Offices of Eisenhower & Carlson, PLLC.



EXPERTS

      The consolidated financial statements of Team Health, Inc. at December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, 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.



AVAILABLE INFORMATION

      We are subject to the periodic reporting and other informational requirements of the Exchange Act, as amended. Under the terms of the indenture, we agree that, whether or not required by the rules and regulations of the SEC, so long as any notes are outstanding, we will furnish to the trustee and the holders of the notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, if we were required to file such Forms, including a “Management’s discussion and analysis of financial condition and results of operations” that describes our financial condition and results of operations and our consolidated subsidiaries and, with respect to the annual information only, a report thereon by our certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, we will file a copy of all such information and reports with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. Information filed with the SEC may be read and copied by the public at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, we have agreed that, for so long as any notes remain outstanding, we will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

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INDEX TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
         
Page

    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-7  

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Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors

Team Health, Inc.

      We have audited the accompanying consolidated balance sheets of Team Health, Inc. as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and comprehensive earnings and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in Item 15(a). 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 auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Team Health, Inc. at December 31, 2003 and 2002, and the consolidated results of operations and cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. 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.

  ERNST & YOUNG LLP

Nashville, Tennessee

February 6, 2004

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TEAM HEALTH, INC.



CONSOLIDATED BALANCE SHEETS
                   
December 31,

2003 2002


(In thousands, except
per share data)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 100,964     $ 47,789  
 
Accounts receivable, less allowance for uncollectibles of $120,653 and $109,156 in 2003 and 2002, respectively
    167,957       156,449  
 
Prepaid expenses and other current assets
    4,243       9,956  
 
Receivables under insured programs
    62,527       66,968  
 
Income tax receivables
          1,074  
     
     
 
Total current assets
    335,691       282,236  
Property and equipment, net
    19,967       19,993  
Other Intangibles, net
    16,990       28,068  
Goodwill
    167,665       164,188  
Deferred income taxes
    96,881       64,282  
Receivables under insured programs
    60,697       96,175  
Other
    33,158       19,298  
     
     
 
    $ 731,049     $ 674,240  
     
     
 
 
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
               
 
Accounts payable
  $ 15,169     $ 13,895  
 
Accrued compensation and physician payable
    76,557       65,697  
 
Other accrued liabilities
    82,876       111,945  
 
Income taxes payable
    9,948        
 
Current maturities of long-term debt
    43,528       20,125  
 
Deferred income taxes
    20,884       411  
     
     
 
Total current liabilities
    248,962       212,073  
Long-term debt, less current maturities
    255,887       300,375  
Other non-current liabilities
    182,557       114,819  
Mandatory redeemable preferred stock
    158,846       144,405  
Commitments and Contingencies
               
Common Stock, $0.01 par value 12,000 shares authorized, 10,069 shares issued in 2003 and 10,068 shares issued in 2002
    101       101  
Additional paid in capital
    703       644  
Retained earnings (deficit)
    (113,813 )     (96,562 )
Less treasury shares at cost
    (1,045 )      
Accumulated other comprehensive loss
    (1,149 )     (1,615 )
     
     
 
    $ 731,049     $ 674,240  
     
     
 

See accompanying notes to the consolidated financial statements.

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TEAM HEALTH, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS
                             
Year ended December 31,

2003 2002 2001



(In thousands)
Net revenue
  $ 1,479,013     $ 1,230,703     $ 965,285  
Provision for uncollectibles
    479,267       396,605       336,218  
     
     
     
 
 
Net revenue less provision for uncollectibles
    999,746       834,098       629,067  
Cost of services rendered
                       
 
Professional service expenses
    746,409       635,573       493,380  
 
Professional liability costs
    115,970       36,992       29,774  
     
     
     
 
   
Gross profit
    137,367       161,533       105,913  
General and administrative expenses
    95,554       81,744       63,998  
Management fee and other expenses
    505       527       649  
Impairment of intangibles
    168       2,322       4,137  
Depreciation and amortization
    22,018       20,015       14,978  
Interest expense, net
    23,343       23,906       22,739  
Refinancing costs
          3,389        
     
     
     
 
 
Earnings (loss) before income taxes and cumulative effect of change in accounting principle
    (4,221 )     29,630       (588 )
Provision (benefit) for income taxes
    (1,410 )     13,198       871  
     
     
     
 
Earnings (loss) before cumulative effect of change in accounting principle
    (2,811 )     16,432       (1,459 )
Cumulative effect of change in accounting principle, net of income tax benefit of $209
          (294 )      
     
     
     
 
Net earnings (loss)
    (2,811 )     16,138       (1,459 )
Dividends on preferred stock
    14,440       13,129       11,889  
     
     
     
 
 
Net earnings (loss) attributable to common stockholders
  $ (17,251 )   $ 3,009     $ (13,348 )
     
     
     
 

See accompanying notes to the consolidated financial statements.

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TEAM HEALTH, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
AND COMPREHENSIVE EARNINGS
<
                                                                   
Accumulated
Common Stock Treasury Stock Additional Other


Paid in Retained Comprehensive
Shares Amount Shares Amount Capital Deficit Loss Total








(In thousands)
Balance at December 31, 2000
    10,000     $ 100           $     $     $ (86,223 )   $     $ (86,123