SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 2001

 [   ]          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to
                              ---------------------  -----------------

                    Commission file Number        333-16867
                                              -----------------

                           Outsourcing Solutions Inc.
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             (Exact name of registrant as specified in its charter)

            Delaware                                     58-2197161
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  (State or other jurisdiction of        (I.R.S. Employer Identification Number)
   incorporation or organization)

390 South Woods Mill Road, Suite 350
       Chesterfield, Missouri                              63017
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(Address of principal executive office)                  (Zip Code)

Registrant's telephone number, including area code:  (314) 576-0022

Securities registered pursuant to Section 12(b) of the Act:

      Title of each Class              Name of each exchange on which registered
-------------------------------        -----------------------------------------
            None                                         None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  Yes  X     No
                                       -----      -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant is not determinable, as the stock is not publicly traded.

APPLICABLE  ONLY TO CORPORATE  REGISTRANTS:  As of April 10, 2002, the following
shares of the Registrant's common stock were issued and outstanding:

  Senior common stock                                   489,795.93
  Voting common stock                                 6,088,479.30
  Non-voting common stock                               480,321.30
                                                     -------------
                                                      7,058,596.53
                                                     =============

DOCUMENTS INCORPORATED BY REFERENCE: None.

<PAGE>

PART I

ITEM 1.   BUSINESS

General

     Outsourcing Solutions Inc., a Delaware  corporation,  is one of the largest
providers of business  process  outsourcing  (BPO)  receivables  services in the
United  States  with 2001  revenues  of  approximately  $612.3  million.  Unless
otherwise  indicated by the context,  the "Company" means Outsourcing  Solutions
Inc.  only  and  "OSI"  means   Outsourcing   Solutions  Inc.  and  consolidated
subsidiaries.  The  Company  believes  that it  differentiates  itself  from its
competitors by using  best-in-class  people practices and business  practices to
deliver a comprehensive  range of accounts  receivable  management services on a
national  basis that  provide its  clients  the  opportunity  to  outsource  the
management  of the entire  credit-to-cash  cycle,  and thereby  achieve  maximum
recoveries,  net of costs,  or "net-back".  The breadth of services OSI provides
across all stages of the credit-to-cash  cycle allows it to cross-sell  services
to existing  clients as well as to expand its client base by providing  specific
services to potential clients in targeted industries. These BPO services include
1) first-party  outsourcing  services,  2) portfolio  purchasing services and 3)
recovery  services,  which accounted for approximately  53%, 15% and 32% of 2001
revenues,  46%,  16% and  38% of  2000  revenues  and  41%,  16% and 43% of 1999
revenues, respectively.

o    Outsourcing  services include contract  management of accounts  receivable,
     billing,  teleservicing,  letter  series  programs,  banking and  financial
     services transaction processing and other services.

o    Portfolio  purchasing services involve acquiring  portfolios of charged-off
     consumer  receivables from credit grantors or other owners,  servicing such
     portfolios and retaining all amounts  collected and servicing  client owned
     portfolios for an agreed upon servicing fee.

o    Recovery  services involve  collecting  delinquent or charged-off  consumer
     accounts for a fixed percentage of realized  collections or a fixed fee per
     account.

     OSI manages the marketing and execution of services  within the four stages
of the  credit-to-cash  cycle.  In the first  stage of the cycle,  OSI  provides
clients with the ability to outsource functions including credit  authorization,
usage   management  and  client   service.   Dedicated   call  centers   provide
"first-party"  services for its clients performing all operations in their name.
The  second  stage  of the  cycle is the  management  of  pre-uncollectable,  or
charge-off,   delinquency  situations.  OSI  provides  clients  with  fixed  fee
early-out  programs  based on either a letter  series  or  calling  program  for
accounts that are  generally  less than 180 days past due. In the third stage of
the cycle, OSI offers traditional  contingent collection services for delinquent
and charged-off receivables.  In the fourth and final stage of the credit cycle,
OSI  acts as a  principal  and  purchases  both new and  delinquent  charged-off
receivables from credit grantors or other owners.

     The  accounts  receivable  management  industry is highly  fragmented.  The
American Collectors Association estimates there are approximately 6,000 accounts
receivable firms in the United States,  with the 10 largest agencies  accounting
for  approximately  33% of industry  revenues.  Competition  is based largely on
recovery  rates  and  service  fees,   industry   experience   and   reputation.
Large-volume  credit grantors typically employ more than one accounts receivable
management  firm at a time,  and often compare  performance  rates and rebalance
account placements towards higher-performing servicers.

     The  client  base  for  the  accounts  receivable  management  industry  is
generally  concentrated by credit grantors in four  end-markets:  banks,  health
care,  utilities and  telecommunications.  Other significant  sources of account
placements include retail,  student loan and governmental  agencies. The Company
believes that the ongoing  consolidation in the banking,  health care, utilities
and telecommunication  industries,  combined with continued growth in the demand
for business  process  outsourcing  services will create larger national clients
seeking to place  business with  national  rather than  local/regional  accounts
receivable services companies; as well as, companies that want to focus on their
core competencies and outsource essential but non-core functions.  OSI's clients
include a full range of local,  regional and  national  credit  grantors.  OSI's
largest client accounted for approximately 9% of 2001 consolidated  revenues, 8%
of 2000 consolidated revenues and 5% of 1999 consolidated revenues.

     The Company was formed in 1995 to acquire Account  Portfolios  L.P., one of
the largest  purchasers  and servicers of  non-performing  accounts  receivables
portfolios.  Since its  formation,  the  Company  has  completed  10  additional
acquisitions and has established itself as a leading industry consolidator.  OSI
has experienced  significant  growth in its business  through  acquisitions  and
internal  growth,  with its revenues  increasing  from $29.6  million in 1995 to
$612.3 million in 2001.

Restatement of Financial Results

     See Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations regarding the restated consolidated  financial results for
all periods impacted by the restatement included herein.
<PAGE>
Industry

     The accounts  receivable  management  industry has experienced  significant
growth over the past 15 years.  The rapid growth of outstanding  consumer credit
and the corresponding increase in delinquencies and charge-offs have resulted in
credit  grantors  increasingly  looking to  outsourcing  companies to manage the
accounts receivable process across the credit-to-cash  cycle. The contingent fee
collection  industry  is  estimated  to be a  $7.5  billion  market  growing  at
approximately  8% to 10%  per  annum.  OSI's  other  business  services  such as
portfolio purchasing and outsourcing  services are estimated,  in the aggregate,
to  be  approximately  a  $5.1  billion  market.  The  outsourcing   segment  is
experiencing  rapid growth with the overall business  outsourcing market growing
by 25%  annually.  Annual  revenues  in the  outsourcing  market  amount to $1.5
billion.  The Company  believes the following are the key trends in the business
process outsourcing of accounts receivable management industry:

o    Increase in  Consumer  Debt and  Delinquencies.  Consumer  debt,  a leading
     indicator of current and future business for accounts receivable management
     companies, rose to $7.5 trillion in 2000 and continues to grow at an annual
     rate of 14.6%. The percentage of household debt,  including  mortgages,  to
     disposable  income  increased  almost 25% from 1990 to 2000. And toward the
     end of 2000,  3.6% of  consumer  loans were  delinquent.  As a result,  the
     amount of delinquent consumer debt placed for collection increased 85% from
     1990 to 2000,  when it  reached  $135  billion.  Overall,  U.S.  levels  of
     consumer debt and consumer debt placed for  collection are at record levels
     and are expected to increase in coming years.

o    Increase in Commercial Debt and  Delinquencies.  Commercial debt climbed to
     its highest level to date - $1.1 trillion in 2000, a 52% increase over 1995
     and an  83%  increase  over  1975  debt  levels.  As  with  consumer  debt,
     commercial  debt is  expected  to  continue  to rise over the next  several
     years.

o    Industry  Consolidation.  The  number of  companies  in the  United  States
     participating in contingent fee collection has declined  significantly  the
     past decade;  and moreover,  the revenue of the top 10 companies within the
     industry  climbed to $2.4  billion in 2000 from $910  million in 1990.  OSI
     believes  that the  industry  will  continue to  experience  consolidation,
     reflecting   financial  and  competitive   constraints   including  limited
     liquidity  options  facing  the  smaller  companies.  Companies  that offer
     national capabilities with a "full service" approach to accounts receivable
     management are increasingly displacing local and regional competitors.

o    Client  Consolidation.  The largest credit granting  industries,  including
     banking, utilities,  telecommunications and health care, account for 80% of
     business placed with accounts  receivables firms and are experiencing rapid
     consolidation.  This  consolidation  has forced  companies to focus on core
     business activities and to outsource ancillary functions, including some or
     all aspects of the accounts  receivable  management  process.  As a result,
     many  regional  clients are  becoming  national  in scope and are  shifting
     business to accounts receivable management companies,  which allows clients
     to focus on their  core  business  while at the same time  benefiting  from
     leading best business  practices in receivables  management without capital
     investment  costs.   Additionally,   clients   outsourcing  their  accounts
     receivables  functions gain  flexibility  and scalability to cover peaks in
     demand.  OSI  has  established   relationships  with  many  of  the  target
     industries'  largest  consolidators,   thereby  improving  its  ability  to
     capitalize on this consolidation trend.

o    Growth in Portfolio  Sales. As a leading  provider of portfolio  purchasing
     services,  OSI has  participated in the rapid and consistent  industry-wide
     increase in the amount of charged-off  consumer  receivables sold by credit
     grantors. Portfolio sales offer the credit grantor many benefits, including
     increased   predictability  of  cash  flow,  reduction  in  monitoring  and
     administrative  expenses and reallocation of assets from non-core  business
     functions to core business functions. It is estimated that $28.1 billion of
     charged-off  receivables were acquired by portfolio  purchasers in 1999 and
     more than $30 billion in 2001.

o    Accelerated Trend Toward  Outsourcing.  Outsourcing in the U.S. is expected
     to continue to grow at approximately 25% annually. In an effort to focus on
     core  business  activities  and to take  advantage  of  economies of scale,
     leading best  practices,  better  performance  and the lower cost structure
     offered by accounts  receivables  services companies,  many credit grantors
     are  choosing  to  outsource  an  increasing  number of  components  in the
     accounts   receivable   management   process.   Instead  of  waiting  until
     receivables  are 90 to 180 days past due (or  later) to pursue  collection,
     credit grantors are now involving  collection accounts receivable companies
     much earlier in the process.  Increasingly,  credit grantors are looking to
     accounts  receivable  management  providers for assistance  with the entire
     credit-to-cash cycle, including the outsourcing of billing,  client service
     and complete call center functions.

o    Technological  Sophistication.   Leading  companies  in  the  industry  are
     increasingly  using technology to improve their results.  These initiatives
     include   investments   in   data   warehousing,   proprietary   databases,
     computerized   calling  systems,   debtor  location  databases,   web-based
     reporting,  and scoring  and  segmentation  of  receivables  portfolios  to
     identify customized treatments and to maximize recoveries.
<PAGE>
Competitive Advantages

     OSI believes its strong  market  position,  national  presence,  breadth of
services and industry best  practices  distinguish  it as a leading  provider of
accounts  receivable  management services in the United States. OSI believes its
competitive advantages include:

o    Significant  Benefits  of  Scale.  The  benefits  of scale in the  accounts
     receivable  industry are significant.  OSI's size enables it to compete for
     larger blocks of revenue,  deliver more  services  over a wider  geographic
     base and  leverage its fixed costs over a broader  client base.  As clients
     consolidate  geographically  and seek to reduce  suppliers,  OSI's national
     presence is also attractive.

o    Singular Focus on Managing the Complete  Credit-to-Cash  Cycle. By focusing
     on strategic receivables management, OSI offers a comprehensive spectrum of
     services  across the  credit-to-cash  cycle.  Services  range  from  client
     acquisition  to  recovery  of  charge-offs  to  portfolio  acquisition.  By
     integrating these services, OSI aims to provide for its clients accelerated
     cash flow, lower operating costs and increased revenue.

o    Industry  Specialization.  OSI provides services to some of the largest and
     fastest  growing  credit  grantors in a wide range of  industries.  OSI has
     carved out  recognizable  market  niches  including  bankcard,  commercial,
     communications,  education,  financial services,  government and utilities.
     This  level  of  specialization  allows  the  company  to  have a  detailed
     understanding  of its clients,  and not merely the language of the accounts
     receivables  management  business.  Regardless of the industry served, each
     program is  customized.  OSI's broad  client base  diversifies  its revenue
     stream.  OSI also has long standing  relationships with many of its clients
     which  provides a strong base of  recurring  revenues and provides OSI with
     significant opportunities to cross-sell services.

o    Ongoing  Investment in  Technology.  OSI has made,  and intends to continue
     making,  investments in technology and know-how to enhance its  competitive
     advantage.   OSI  believes  that  its   proprietary   software,   including
     debtor-scoring models, computerized calling and debtor databases,  provides
     a  competitive  advantage  in  pricing  portfolios,   offering  outsourcing
     services and collecting  delinquent accounts.  OSI's systems interface with
     those of its clients to receive new  account  placements  daily and provide
     frequent  updates to clients on the status of  collections.  OSI has become
     increasingly integrated with its clients' systems,  resulting in efficiency
     and lower costs.  o Commitment  to the Best People and the Best  Practices.
     OSI is committed  to  nurturing a culture of best people and best  business
     practices.  From day one, associates are taught OSI's core values:  respect
     for individuals,  client focus and team orientation.  Associates' education
     includes training on collection skills,  compliance and work standards, and
     specialized  leadership  programs--all  of which lead to better results for
     clients.  Performance  analysis and coaching programs also are in place. In
     addition to its associate training, a wide range of best business practices
     provides   invaluable   assistance   to  successful   accounts   receivable
     management.  This range includes a scoring and segmentation account ranking
     system that enables clients to assess the likelihood of delinquent accounts
     to on-line management of consumer accounts.

Growth Strategies

     OSI's   strategy   focuses  on  expanding   its   business  and   enhancing
profitability through the following initiatives:

o    Cross-Selling  Services  to  Existing  Clients.  OSI offers  its  clients a
     comprehensive  array of services  across the  credit-to-cash  cycle.  These
     services  include:  client  acquisition/care,   billing/client  management,
     delinquency  management and recovery.  This range of services allows OSI to
     cross-sell  offerings  within its  existing  client  base and to  potential
     clients in specifically targeted industries.

o    Expansion of Client Base.

     o    Existing  Target  End-Markets.  Increasingly,  credit  grantors in the
          public and private  sectors which have typically  maintained  accounts
          receivable  departments  within their  organizations  are  outsourcing
          their accounts receivables  functions.  In addition,  consolidation in
          the  banking,  retail,  utilities,   student  loan,  health  care  and
          telecommunications  industries has created  national  clients that are
          outsourcing  more components of their accounts  receivable  management
          needs  to  national  providers.   Healthcare  and   telecommunications
          represent  nearly  50%  of  the  outsourcing   market,   estimated  at
          approximately  $1.5  billion.  Both of these  industries  continue  to
          undergo consolidation.

     o    New Target Industries.  OSI intends to capitalize on its expertise and
          reputation to penetrate  new  end-markets.  For example,  OSI plans to
          continue  to  focus  on  increasing  its  business   activities   with
          governmental  agencies at the federal,  state and local levels,  which
          have begun to outsource tax, child support collection and student loan
          accounts receivable functions to private companies.  In addition,  OSI
          plans  to  focus  on the  commercial  market  segment  (collection  of
          delinquent accounts owed by businesses to other businesses) and health
          care segment of the industry. The Company believes that the commercial
          market  traditionally  has been  under-served  by accounts  receivable
          services firms,  given the need for tailored  collection methods which
          differ  from  those  used  in  the  consumer   market.   In  addition,
          significant  changes  and cost  reductions  in the health  care market
          require specialized skills in the collection of past due accounts.

o    Disciplined Acquisitions. The Company has built its position as an industry
     leader  through  strategic  acquisitions  of  leading  accounts  receivable
     outsourcing   service   providers.   By  successfully   integrating   these
     businesses, its management has demonstrated an ability to evaluate, execute
     and  integrate  acquisitions.  With more  than  6,000  accounts  receivable
     companies in the United States, OSI plans to pursue additional acquisitions
     that  complement  its  existing  services  or expand its client  base.  The
     Company is continually reviewing acquisition opportunities.

o    Cost  Reductions.  OSI's  management has adopted an aggressive  approach to
     cost  management.  OSI plans to continue  reducing  its  overall  costs and
     improving operational efficiencies.

Acquisition and Integration History

     In  September  1995,  OSI was formed  and  acquired  Atlanta-based  Account
Portfolios,  one of the  largest  purchasers  and  servicers  of  non-performing
accounts receivable portfolios.

     In  January  1996,  OSI  acquired   Continental   Credit   Services,   Inc.
("Continental")  and A.M. Miller  Associates,  two industry leaders in providing
contingent fee services.  Continental,  which was  headquartered  in Seattle and
operated in eight western  states,  provided  contingent  fee services to a wide
range of end-markets  with particular  emphasis on public utilities and regional
telecommunications.  A.M. Miller, based in Minneapolis,  provided contingent fee
services to the student loan and bank credit card end markets.

     In November 1996, the Company  acquired  Payco  American  Corporation  with
corporate offices in Brookfield,  Wisconsin.  Originally founded as a contingent
fee service company,  Payco diversified into other outsourcing  services such as
student loan billing,  health care accounts  receivable  billing and management,
contract management of accounts receivable, and teleservicing.

     In October 1997, OSI acquired the assets of North Shore Agency, Inc., a fee
service company headquartered in Westbury,  New York. North Shore specialized in
"letter series" collection  services for direct marketers targeted at collecting
small balance debts.  The majority of North Shore's revenues were generated from
traditional contingent collections utilizing letters with the remaining revenues
derived from fixed fee letter services.

     In  November  1997,  OSI  acquired  the  assets  of  Accelerated  Bureau of
Collections,  Inc., a Denver-based  national fee service company. It specialized
in credit card  collection  and derived  approximately  25% of its revenues from
pre-charge-off programs with the remaining 75% of revenues derived from standard
contingent fee collections.

     In March 1998,  OSI  completed  the  acquisition  of The Union  Corporation
("Union").  Union was originally a conglomerate  involved in businesses  ranging
from  electronic and industrial  components to financial  services.  Union was a
leading  provider  of a range of  outsourcing  services  to both large and small
clients.  Union provided  contingent and fixed fee collection services and other
related outsourcing services.  Union provided fee services through the following
wholly-owned subsidiaries: Allied Bond & Collection Agency, Inc., Capital Credit
Corporation,  and Transworld  Systems,  Inc.  Allied,  headquartered in Trevose,
Pennsylvania,  provided  contingent and fixed fee collection  services for large
clients across a broad spectrum of industries.  Capital Credit, headquartered in
Jacksonville, Florida also provided contingent and fixed fee collection services
for large national clients primarily  serving the bankcard,  telecommunications,
travel and entertainment,  and government sectors. Transworld,  headquartered in
Rohnert Park, California,  is one of the largest prepaid, fixed fee providers of
delinquent  account  management  services  in the  United  States.  Transworld's
clients are primarily  small  companies  with low balance  delinquent  accounts.
Union provided related outsourcing services through its Interactive Performance,
Inc. and High Performance Services,  Inc. subsidiaries.  Interactive Performance
headquartered in North  Charleston,  South Carolina,  provided a range of credit
and  receivables  management  outsourcing  services  primarily  in the  form  of
teleservicing.  Interactive  Performance  services included inbound and outbound
calling programs for credit authorization,  client service, usage management and
receivable management. High Performance Services, headquartered in Jacksonville,
Florida, provided services similar to Interactive Performance for clients in the
financial services industry.

     In 1999, as part of a strategy to increase the efficiency of its operations
by  aligning  OSI along  business  services  and  establishing  call  centers of
excellence by industry  specialization and in order to market its services under
one OSI  brand,  the  Company  reorganized  many of its  acquired  subsidiaries.
Account  Portfolios  changed  its name to OSI  Portfolio  Services,  Inc.  Payco
American  Corporation's  largest debt collection  subsidiary changed its name to
OSI Collection Services, Inc. and Continental,  A.M. Miller,  Accelerated Bureau
of Collections,  Allied Bond & Collection  Agency and Capital Credit merged into
OSI  Collection  Services.  Interactive  Performance  changed  its  name  to OSI
Outsourcing Services, Inc., and the Interactive Performance and High Performance
Services  subsidiaries  merged into OSI Outsourcing  Services.  OSI now provides
specialized  services for the  following  industries:  health care,  government,
education, telecommunications/utilities, commercial, financial services and bank
card.

     As part of its strategy to expand its  outsourcing  services,  in September
2000,  the  Company  through  a newly  formed  limited  liability  company,  RWC
Consulting Group,  LLC, acquired certain assets and assumed certain  liabilities
of RWC  Consulting  Group,  Inc.,  a service  company  providing  highly-skilled
consultants  to banks to assist in their back office  functions.  In March 2001,
the Company  through a newly formed limited  liability  company,  Coast to Coast
Consulting,  LLC,  acquired  certain assets and assumed  certain  liabilities of
Coast to Coast  Consulting,  Inc., a service  company  providing  highly skilled
experts  to health  care  clients  to assist  with their  on-site,  back  office
functions  such as billing,  collections,  reimbursement,  special  projects and
other areas. In April 2001, the Company through a newly formed limited liability
company,  Pacific  Software  Consulting,  LLC,  acquired (i) certain  assets and
assumed  certain  liabilities of Pacific  Software  Consulting,  Inc., a service
company  providing  highly skilled  consultants to banks to assist in their bank
office functions, and (ii) associated patentable property.

Recapitalization

     On December  10,  1999,  pursuant to a Stock  Subscription  and  Redemption
Agreement,  dated as of  October  8, 1999,  as  amended  (the  "Recapitalization
Agreement"),  by and among Madison Dearborn Capital Partners III, L.P. (together
with  its  affiliates,  "MDP"),  the  Company,  and  certain  of  the  Company's
stockholders,   optionholders   and   warrantholders:   (i)  the  Company   sold
5,323,561.08  shares of its common stock,  par value $.01 per share,  to certain
purchasers for an aggregate  purchase price of $199.5 million;  (ii) the Company
sold 100,000  shares of its Senior  Mandatorily  Redeemable  Preferred  Stock to
certain  purchasers for an aggregate  purchase price of $100 million;  (iii) the
Company  redeemed  4,792,307.20  shares of the Company's common stock (including
voting common  stock,  par value $.01 per share,  Class A Convertible  Nonvoting
Common Stock,  par value $.01 per share,  Class B Convertible  Nonvoting  Common
Stock, par value $.01 per share, Class C Convertible Nonvoting Common Stock, par
value $.01 per share and  1,114,319.33  shares of its  preferred  stock,  no par
value) for an  aggregate  of $221.35  million  (such  transactions  collectively
referred   to  herein  as  the   "Recapitalization").   Immediately   after  the
Recapitalization,  MDP owned approximately 70.3% of the outstanding common stock
(75.9% of the  outstanding  voting  common  stock) of the Company.  Prior to the
Recapitalization,  the Company was  controlled by McCown  DeLeeuw & Co., Inc., a
private equity investment firm.

     The  stockholders   and   optionholders  of  the  Company  entered  into  a
stockholders   agreement  (the  "Stockholders   Agreement").   The  Stockholders
Agreement  provides for the election of individuals to the Board of Directors of
the Company and includes  restrictions on the transfer of capital stock, and the
provision of registration,  preemptive,  tag along and drag along rights granted
to the parties thereto.

     In conjunction with the  Recapitalization,  the Company also entered into a
Credit Agreement among the Company,  DLJ Capital  Funding,  Inc., as Syndication
Agent, Harris Trust & Savings Bank, as Documentation Agent, Fleet National Bank,
N.A., as  Administrative  Agent and other  Lenders who are parties  thereto (the
"Credit Agreement").  The Credit Agreement provides for: (i) a $150 million Term
A Loan  Facility;  (ii) a $250  million  Term B Loan  Facility;  and (iii) a $75
million Revolving Loan Facility. Borrowings under the Credit Agreement were used
to refinance  the  Company's  existing  credit  agreement and have been and will
continue  to be  used  for  other  working  capital,  acquisitions  and  general
corporate purposes.

Services and Operations

     OSI is one of the largest  providers of business process  outsourcing (BPO)
receivables  services  in the  United  States.  Through  its  subsidiaries,  the
Company's  BPO  services  include  outsourcing  services,  portfolio  purchasing
services and recovery services.

Outsourcing Services

     As  the  volume  of  consumer  credit  has  expanded  across  a  number  of
industries,  credit  grantors have begun  demanding a wider range of outsourcing
services.  In response,  OSI has developed a number of other accounts receivable
management services.  OSI leverages its call and data management  technology and
operational expertise by offering the following services:

     o    Contract  management,   whereby  OSI  performs  a  range  of  accounts
     receivable management services at the client's or OSI's location,

     o    Student loan billing, whereby OSI provides billing,  due diligence and
     client services,

     o    A series  of  letters whereby  OSI  mails  letters  for collection  of
     delinquent  or  charged-off  consumer  accounts,  o  Health  care  accounts
     receivable  management,  whereby OSI assumes  responsibility  for  managing
     third-party billing,  patient pay resolution,  inbound and outbound patient
     communication services and cash application functions, and

     o    Teleservicing   whereby  OSI  offers  inbound  and   outbound  calling
     programs, client retention programs, market research and client service.

     In  addition,   OSI  offers  banking  and  financial  services  transaction
processing.  The services provided assist OSI's clients in back-office functions
such as research and adjustment,  reconcilement,  charge-off  recovery and other
areas.

     For each  client  relationship,  OSI works  with the  client to  develop an
outsourcing  strategy and  customize  services to meet the client's  objectives,
which may include  decreased  expenses and more  stabilized  cash flows.  Client
service and billing  inquiry  activities are ideal  candidates  for  outsourcing
relationships for a number of reasons, including: (i) the need for technological
investments in automated call management  systems,  (ii) the activities that are
labor  intensive,  and (iii) the  activity  volumes are subject to  fluctuations
which  make  it  difficult  to  maintain  stable   employment  levels  and  high
utilization of the required  equipment.  By offering  outsourcing  services to a
variety of clients,  OSI is able to leverage its productive resources to greater
efficiency  levels.  In addition,  OSI will continue to develop its expertise in
outsourcing  service  delivery,  enhancing its creativity and  effectiveness  in
managing  various inbound  programs that a captive  operation does not generally
have.  This can translate  into higher  response rates and returns on investment
for the client.

Portfolio Purchasing Services

     While  contingent  fee  servicing  remains  the most  widely used method by
credit grantors in recovering non-performing accounts,  portfolio purchasing has
increasingly  become  a  popular  alternative.  Beginning  in  the  1980's,  the
Resolution  Trust  Corporation  and the Federal Deposit  Insurance  Corporation,
under  government  mandate,  began to sell portfolios of  non-performing  loans.
Spurred on by the success of these  organizations in selling  charged-off  debt,
other creditors  likewise began to sell portfolios of  non-performing  debt. OSI
estimates that the total principal  value of purchased  portfolios was more than
$30 billion in 2001. The majority of purchased  portfolios  originated  from the
bank card receivable and retail markets. Such portfolios are typically purchased
at a deep discount from the aggregate  principal value of the accounts,  with an
inverse correlation  between purchase price and age of the delinquent  accounts.
Once purchased, traditional collection techniques are employed to obtain payment
of non-performing accounts.

     OSI offers  portfolio  purchasing  services  to a wide  range of  financial
institutions,  telecommunications and retailers. OSI purchases large and diverse
portfolios  of  charged-off   consumer   receivables  both  on  an  individually
negotiated  basis as well as through  "forward flow"  agreements.  Under forward
flow agreements,  OSI agrees, subject to due diligence,  to purchase charged-off
receivables  on a monthly  basis.  Credit  grantors  selling  portfolios  to OSI
realize a number of benefits  including  increased  predictability of cash flow,
reduction in monitoring and administrative  expenses, and reallocation of assets
from non-core business functions to core business functions.

     OSI's purchased  portfolios  consist primarily of consumer loans and credit
card receivables, student loan receivables and health club receivables including
portfolios purchased under forward flow agreements.  OSI's most recent portfolio
acquisitions  have  been  primarily  health  club and bank card  purchases.  OSI
continues to pursue  acquisitions  of portfolios in various  industries for both
individually negotiated and forward flow purchases.

     In order to fund an  increased  level of portfolio  purchasing,  in October
1998 the Company  established  a financing  conduit,  in  association  with MBIA
Insurance Corporation. The conduit is expected to provide OSI with significantly
increased  purchasing  capacity  necessary  to expand its  portfolio  purchasing
activities  at a lower  aggregate  cost of capital.  The  transaction  structure
involves  off-balance  sheet treatment for a significant  portion of prospective
portfolio  purchases  and the related  financing,  while  providing a consistent
servicing revenue stream. Although OSI places most of its portfolio purchases in
the conduit, in some cases OSI continues to place certain portfolio purchases on
its balance  sheet.  The revenue  from owned  portfolios  is derived  from gross
collections  and  offset  by  collection  costs  and  portfolio   amortizations.
Conversely,  the off-balance sheet accounting treatment for portfolios sold into
the  conduit  creates  service  fee  revenues  which  is a  percentage  of gross
collections,  offset by collection costs but with no portfolio amortization.  In
addition,   from  time  to  time,  OSI  may  receive  income  from  the  conduit
representing  excess  collections  above  the  original  cost  to  purchase  the
portfolio and related financing fees.

     In 1999, OSI  established  its own portfolio  purchasing  valuation unit to
replace services previously provided by an independent portfolio valuation firm.

Recovery  Services

     OSI is one of the largest  providers of  collection  services in the United
States.  OSI offers a full  range of  contingent  fee  (percentage  of  realized
collections)  services,  including  pre-charge-off  programs,  to most  consumer
credit end-markets.  OSI utilizes  sophisticated  management information systems
and vast  experience  with  locating,  contacting  and  effecting  payment  from
delinquent  account holders in providing its core contingent fee services.  With
35 call centers in 23 states and  approximately  2,200 account  representatives,
OSI has the  ability  to  service  a large  volume  of  accounts  with  national
coverage.  In addition to  traditional  contingent  fee services  involving  the
placement of accounts, creditors have begun to demand services in which accounts
are outsourced  earlier in the collection cycle. OSI has responded to this trend
by developing  "early-out"  programs,  whereby OSI receives placed accounts that
are often  less than 180 days past due and earn a fixed fee per  placed  account
rather than a  percentage  of realized  collections.  These  programs  require a
greater degree of technological integration between OSI and its clients, leading
to higher  switching costs for OSI's clients.  OSI primarily  services  consumer
creditors,  although  it  also  has a  presence  in  the  commercial  collection
business, offering contingent fee services to commercial creditors.

     Contingent  fee  services  are the  traditional  services  provided  in the
accounts  receivable  management  industry.   Credit  grantors  typically  place
non-performing accounts after they have been deemed non-collectible,  usually 90
to 180 days past due, depending on the specific credit grantor policy,  agreeing
to pay the servicer a commission  level  calculated on the amount of collections
actually made. At this point,  the  receivables  are usually still valued on the
customer's  balance sheet,  albeit in a form at least partially reserved against
for possible noncollection. Clients typically use multiple agencies on any given
placement category, enabling them to benchmark each agency's performance against
other agencies.  Placement is usually for a fixed time frame,  typically a year,
at the end of which  the  agency  returns  the  uncollected  receivables  to the
customer, which may then place them with an alternative agency.

     The commission  rate for contingent fee services is generally  based on the
collectability  of the asset in terms of the  costs  which  the  contingent  fee
servicer must incur to effect  repayment.  The earlier the placement  (i.e., the
less elapsed time  between the past due date of the  receivable  and the date on
which the debt is placed  with the  contingent  fee  servicer),  the  higher the
probability of recovering the debt and, therefore, the lower the cost to collect
and  the  commission  rate.   Creditors   typically  assign  their   charged-off
receivables to contingent fee servicers for a six month cycle, and then reassign
the  receivables  to other  servicers as the accounts  become  further past due.
There are three main types of placements in the  contingent  fee business,  each
representing  a  different  stage in the cycle of  account  collection.  Primary
placements are accounts,  usually 90 to 270 days past due, that are being placed
with  agencies  for the first time and usually  receive  the lowest  commission.
Secondary placements,  typically accounts 270 to 360 days past due, have already
been  recalled  from  a  primary  collection  agency.  Tertiary  placements  are
typically  accounts  over 360 days past due which have been recalled from one or
more  collection  agencies.  Due to the difficulty to collect  accounts that are
more past due,  commission  rates for tertiary  placements are generally  higher
than secondary  placements,  which are usually higher than commission  rates for
primary placements.

     Once the account has been placed with OSI, the fee service process consists
of (i) locating and contacting the debtor through mail, telephone,  or both, and
(ii)  persuading  the  debtor to settle  his or her  outstanding  balance.  Work
standards,  or the method  and order in which  accounts  are worked by OSI,  are
specified by the customer,  and  contractually  bind OSI. Some accounts may have
different  work  standards  than others based on criteria such as account age or
balance.  In  addition,  OSI must comply with the federal  Fair Debt  Collection
Practices Act and comparable state statutes,  which restrict the methods it uses
to collect consumer debt.

     OSI  attempts to  estimate  the  collectability  of most  placements  using
sophisticated  recovery  score models that estimate both  probability of payment
and resulting amount of that payment.  The objective is to maximize revenues and
minimize  expenses by matching  the  appropriate  work effort with the  expected
yield of each individual account.

Financial Information about Industry and Geographic Segments

     For detailed  information  concerning the Company's industry and geographic
segments,  reference  is made to Note 19 of the  Financial  Statements  included
elsewhere in this Annual Report on Form 10-K.

Sales and Marketing

     OSI has a sales force of approximately 90 sales  representatives  providing
comprehensive  geographic coverage of the United States on a local, regional and
national basis, and, to a much lesser extent in, Puerto Rico, Canada and Mexico.
OSI, except its Transworld Systems subsidiary, maintains a sales force and has a
marketing  strategy  closely  tailored to the  credit-granting  markets  that it
serves. OSI's primary sales and marketing objective is to expand its client base
in those client industries in which it has a particular  expertise and to target
new clients in high growth  end-markets.  OSI emphasizes its industry experience
and  reputation  - two key factors  considered  by creditors  when  selecting an
accounts receivable management provider. OSI believes it will increasingly focus
on cross-selling its full range of services to its existing clients and will use
its  product  breadth as a key  selling  point in  creating  new  business.  The
Company's  overall  sales  and  marketing  strategies  are  coordinated  at  its
principal executive offices in Chesterfield, Missouri.

     The marketing  force is responsible  both for  identifying  and cultivating
potential clients, as well as retaining or increasing market share with existing
clients.  The marketing force is generally  organized around specific industries
and is also trained to market the overall benefits of its services,  providing a
cross-selling  function for all its business units.  Compensation  plans for the
marketing force are incentive based, with professionals  receiving a base salary
and  incremental  compensation  based on performance.  The Company's  Transworld
Systems  subsidiary has a sales force of over 700 independent  contractors based
in 135 offices.  Transworld  Systems is the leading  provider of profit recovery
services,  targeting  the small and medium size business  segment.  Their profit
recovery  services  offer a two  phase  process  - a  letter  series  and  phone
recovery.

Clients

     OSI's  client base  includes a broad range of local,  regional and national
credit  grantors.  OSI's largest client  accounted for  approximately 9% of 2001
consolidated  revenues,  8%  of  2000  consolidated  revenues  and  5%  of  1999
consolidated revenues.

Employees

     OSI  employs  approximately  9,000  associates,  of which 6,600 are account
representatives,    90   are   sales   representatives   and   2,310   work   in
corporate/supervisory  and administrative functions. None of OSI's employees are
unionized, and OSI believes its relations with employees are satisfactory.

     OSI is strongly committed to providing  continuous training and performance
improvement  plans to increase the productivity of its account  representatives.
Account  representatives  receive extensive training, in a classroom environment
for several  days;  training  is on OSI's  procedures,  information  systems and
regulations  regarding contact with consumers.  The training includes  technical
topics,  such  as use of  on-line  recovery  systems  and  computerized  calling
techniques,  as well as  instruction  regarding  OSI's  approach to the recovery
process and listening,  negotiation and problem-solving skills, all of which are
essential to efficient and effective collections.  OSI has developed proprietary
operations processes on which most account representatives are trained.

     Account  representatives are assigned to work groups for a training period.
Initially, the trainees only screen incoming calls. This allows less experienced
account  representatives  to communicate in a less  confrontational  environment
than may be  experienced  with outgoing  calls.  Additionally,  the trainees are
assigned accounts, which based upon scoring by OSI's information systems, have a
higher  likelihood  of  collection.  After  the  training  period,  the  account
representatives begin working accounts directly.

Competition

     The  accounts  receivable  management  industry  is highly  fragmented  and
competitive.  OSI estimates there are  approximately  6,000 accounts  receivable
firms  in the  United  States,  with  the 10  largest  agencies  accounting  for
approximately  33% of industry  revenues.  Within the collection and outsourcing
services of OSI's business,  large volume credit grantors  typically employ more
than one accounts receivable management company. Competition is based largely on
recovery rates,  industry  experience and reputation,  and service fees.  Within
this  market,  the  Company's  largest  competitors  include  G.C.  Services LP,
IntelliRisk  Management  Corp., NCO Group Inc.,  Nationwide Credit Inc. and Risk
Management Alternatives Inc.

     The bidding process associated with the acquisition of purchased portfolios
has become more  competitive as the number of  participants in this business has
increased.  OSI's largest  competitors in this market  include Asset  Acceptance
Corp.,  ASTA  Funding,  Inc.,  Arrow  Financial  Services,  L.L.C.  and  Calvary
Investments, L.L.C.

Environmental, Health & Safety Matters

     Current  operations  of the  Company  and its  subsidiaries  do not involve
activities materially affecting the environment. However, The Union Corporation,
a  subsidiary  of  the  Company,  is  party  to  several  pending  environmental
proceedings involving the United States Environmental Protection Agency, or EPA,
and comparable state environmental agencies in Indiana, Maryland, Massachusetts,
New Jersey,  Ohio,  Pennsylvania,  South  Carolina  and  Virginia.  All of these
matters relate to discontinued operations of former divisions or subsidiaries of
Union for which it has potential continuing  responsibility.  Upon completion of
the acquisition of Union, the Company,  in consultation  with both legal counsel
and  environmental  consultants,  established  reserves that it believes will be
adequate for the ultimate settlement of these environmental proceedings.

     One group of Union's known  environmental  proceedings relates to Superfund
or other  sites  where  liability  of Union or one or more of its  subisidairies
arises from arranging for the disposal of allegedly hazardous  substances in the
ordinary  course  of prior  business  operations.  In most of these  "generator"
liability  cases,  involvement  by  Union or one or more of its  subsidaries  is
considered to be de minimus (i.e.,  a volumetric  share of  approximately  1% or
less) and in each of these  cases  Union or one or more of its  subsidiaries  is
only one of many potentially responsible parties. From the information currently
available,   there  are  a  sufficient  number  of  other  economically   viable
participating parties so that the projected liability of Union or one or more of
its subsidiaries, although potentially joint and several, is consistent with its
allocable  share  of  liability.  At one  "generator"  liability  site,  Union's
involvement  is  potentially  more  significant  because  of the volume of waste
contributed  in past  years by a  currently  inactive  subsidiary.  Insufficient
information  is  available  regarding  the need for or  extent  and scope of any
remedial  actions which may be required.  Union has recorded what it believes to
be  a  reasonable  estimate  of  its  ultimate   liability,   based  on  current
information, for this site.

     The second group of matters relates to  environmental  issues on properties
currently or formerly  owned or operated by a  subsidiary  or division of Union.
These cases generally involve matters for which Union or an inactive  subsidiary
is the sole or primary  responsible  party.  In one case, the Metal Bank Cottman
Avenue site, the EPA issued a record of decision on February 6, 1998.  According
to the record of decision,  the cost to perform the remediation  selected by the
EPA for the site is estimated by the EPA to be approximately $17.3 million.  The
aggregate  amount  reserved  by Union  for this site was  $18.2  million,  which
represented Union's best estimate of the ultimate potential legal and consulting
costs for defending its legal and technical positions  regarding  remediation of
this  site  and  its  portion  of the  potential  remediation  costs  that  will
ultimately be incurred by it, based on current information.  However,  Union may
be exposed  to  additional  substantial  liability  for this site as  additional
information  becomes  available over the  long-term.  Actual  remediation  costs
cannot be computed  until such remedial  action is completed.  Some of the other
sites  involving  Union  or an  inactive  subsidiary  are at a  state  where  an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

     It is Union's  policy to comply fully with all laws  regulating  activities
affecting  the  environment  and to meet its  obligations  in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on Union's  likely  allocated  share among viable  parties.  Where
insufficient  information is available  regarding projected remedial actions for
these  "generator"  liability  cases,  Union has recorded what it believes to be
reasonable  estimates of its potential  liabilities.  Reserves for liability for
sites on which former  operations  were conducted are based on cost estimates of
remedial actions  projected for these sites. OSI periodically  reviews all known
environmental  claims,  where  information is available,  to provide  reasonable
assurance that reserves are adequate.

Governmental Regulatory Matters

     Certain  of  OSI's  operations  are  subject  to the Fair  Debt  Collection
Practices Act, or FDCPA, and comparable statutes existing in many states.  Under
the FDCPA, a third-party  collection agency is restricted in the methods it uses
to collect consumer debt. For example,  a third-party  collection  agency (1) is
limited  in  communicating  with  persons  other  than the  consumer  about  the
consumer's  debt,  (2) may not  telephone at  inconvenient  hours,  and (3) must
provide  verification of the debt at the consumer's request.  Requirements under
state collection agency statutes vary, with most requiring compliance similar to
that  required   under  the  FDCPA.   In  addition,   most  states  and  certain
municipalities  require collection  agencies to be licensed with the appropriate
authorities before collecting debts from debtors within those jurisdictions.  It
is OSI's policy to comply with the  provisions  of the FDCPA,  comparable  state
statutes and applicable licensing requirements. OSI has established policies and
procedures to reduce the likelihood of violations of the FDCPA and related state
statutes.  For example, all of OSI's account  representatives  receive extensive
training on these  policies and must pass a test on the FDCPA,  and OSI's agents
work in an open  environment  which allows managers to monitor  interaction with
debtors.

     From time to time, certain of the Company's  subsidiaries have been subject
to consent decrees with various governmental  agencies,  none of which currently
has a material effect on the Company's  consolidated  financial condition,  cash
flows or results of operations.


ITEM 2.   PROPERTIES

     As of December 31, 2001,  OSI operated  approximately  70 facilities in the
U.S., all of which are leased,  except for three  administrative  and collection
offices operated by Transworld Systems,  which are owned. OSI believes that such
facilities  are suitable and adequate for its  business.  OSI's  facilities  are
strategically  located  across  the  U.S.  to give  effective  broad  geographic
coverage for clients and access to a number of labor markets.


ITEM 3.   LEGAL PROCEEDINGS

     At December 31, 2001, OSI was involved in a number of legal proceedings and
claims that were in the normal  course of business  and routine to the nature of
OSI's business,  none of which are currently  expected to have a material effect
on the  Company's  consolidated  financial  condition,  cash flows or results of
operations.  In addition, one of the Company's subsidiaries,  Union, is party to
several pending environmental  proceedings discussed elsewhere herein. While the
results of  litigation  cannot be  predicted  with  certainty,  the  Company has
provided for the  estimated  uninsured  amounts and costs to resolve the pending
suits and management, in consultation with legal counsel, believes that reserves
established  for the ultimate  settlement of such suits are adequate at December
31, 2001.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.



<PAGE>


PART II.

ITEM 5.   MARKET  FOR THE  REGISTRANT'S  COMMON  STOCK AND  RELATED  STOCKHOLDER
          MATTERS

     No public market  currently  exists for the Company's  Senior Common Stock,
Voting Common Stock and Nonvoting Common Stock.

     As of April 10, 2002, there were  approximately 45 holders of record of the
Senior Common Stock, Voting Common Stock and Nonvoting Common Stock.

     The Company has not declared any cash  dividends on any of its common stock
since  the  Company's   formation  in  September   1995.   The  Indenture   (the
"Indenture"),  dated as of  November  6,  1996,  by and among the  Company,  the
Guarantors (as defined therein) and Wilmington Trust Company,  as Trustee,  with
respect  to the  Company's  11%  Series B  Senior  Subordinated  Notes  due 2006
contains  restrictions  on the Company's  ability to declare or pay dividends on
its capital stock.  Additionally,  the Credit Agreement dated as of November 30,
1999 among the Company,  the Lenders listed therein,  Credit Suisse First Boston
(as  successor in interest of DLJ Capital  Funding,  Inc.),  as the  Syndication
Agent,  Harris Trust and Savings Bank,  as the  Documentation  Agent,  and Fleet
National Bank, as the  Administrative  Agent (the "Credit  Agreement")  contains
certain restrictions on the Company's ability to declare or pay dividends on its
capital  stock.  The  Indenture,  the Credit  Agreement and the  Certificate  of
Designation of the powers and preferences and relative  participating,  optional
and other special rights of Class A 14% Senior Mandatorily  Redeemable Preferred
Stock, Series A, and Class B 14% Senior Mandatorily  Redeemable Preferred Stock,
Series A, and qualifications  and limitations and restrictions  thereof prohibit
the  declaration  or payment of any Common Stock  dividends or the making of any
distribution  by  the  Company  or  any  subsidiary  (other  than  dividends  or
distributions  payable  in  stock  of  the  Company)  other  than  dividends  or
distributions payable to the Company.


ITEM 6.   SELECTED FINANCIAL DATA

     The following selected historical  financial data set forth below have been
derived  from,  and are  qualified  by  reference  to the  audited  Consolidated
Financial  Statements of the Company for, and as of, each of the fiscal years in
the five year period ended  December 31, 2001.  The selected  financial data set
forth below should be read in  conjunction  with, and are qualified by reference
to, "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated  Financial  Statements and  accompanying  notes
thereto of the Company included elsewhere herein.
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                                                                   2000
                                                    1997          1998            1999         as Restated      2001
                                                    ----          ----            ----         -----------      ----
<S>                                                 <C>           <C>             <C>          <C>              <C>

                                                                             ($ In thousands)
Statement of Operations Data:
Operating revenue..............................   $271,683      $479,400        $504,425        $541,076      $612,346
Salaries and benefits..........................    133,364       230,114         244,157         264,293       294,509
Other operating expenses (a)...................    156,738       221,598         224,616         237,434       267,610
Compensation expense related to redemption
     of stock options..........................          -             -               -             187             -
Change in control bonuses, stock option
     redemption and other bonuses..............          -             -          10,487               -             -
Conversion, realignment and
     relocation expenses.......................          -             -           5,063           2,742         3,564
Recapitalization related costs.................          -             -           6,827               -             -
                                                  --------      --------        --------
Operating income (loss)........................    (18,419)       27,688          13,275          36,420        46,663
Interest expense, net..........................     28,791        50,627          52,265          60,934        59,449
                                                  --------      --------        --------        --------      --------
Loss before taxes..............................    (47,210)      (22,939)        (38,990)        (24,514)      (12,786)
Provision for income taxes (benefit)...........     11,127           830             759             594           569
Minority interest..............................          -           572               -               -             -
                                                  --------      --------        --------        ---------     --------
Loss before extraordinary item.................   $(58,337)     $(24,341)       $(39,749)       $(25,108)     $(13,355)
Extraordinary loss.............................          -             -           4,208               -             -
                                                  --------      --------        --------        --------      --------
Net loss  .....................................   $(58,337)     $(24,341)       $(43,957)       $(25,108)     $(13,355)
                                                  ========      ========        ========        ========      ========

Balance Sheet Data (at end of year):
Total assets...................................   $381,690      $618,491        $624,712        $632,647      $640,210
Total debt.....................................    324,966       528,148         518,307         539,463       539,020
Mandatorily redeemable preferred stock.........          -             -          85,716 (c)     103,455       123,482
Stockholders' deficit..........................     (5,478)      (30,032)        (93,948)(c)    (134,412)     (154,075)

Other Financial Data:
Amortization of purchased portfolios...........    $52,042(d)    $50,703(e)      $38,722         $28,092       $26,930
Other depreciation and amortization............     33,574        30,007          31,095          31,885        30,976
Cash capital expenditures......................      9,489        13,480          18,437          18,398        14,159
On-balance sheet portfolio purchases...........     46,494        43,186          23,176          12,835        19,717
Cash flows from:
     Operating activities and portfolio
         purchasing............................    (13,669)       12,066          (3,652)         24,792        16,927
     Investing activities......................    (73,005)     (184,619)        (21,549)        (36,714)      (38,837)
     Financing activities......................     75,394       178,150          22,446          16,136        21,172
EBITDA (b).....................................     67,197       108,398          83,092          96,397       104,569
Adjusted EBITDA (b)............................     67,197       108,398         105,469          99,326       108,874

</TABLE>

(a)  Other operating expenses include telephone,  postage,  supplies,  occupancy
     costs, data processing costs, depreciation,  amortization and miscellaneous
     operating expenses.

(b)  EBITDA is defined as income from  continuing  operations  before  interest,
     taxes,  depreciation and  amortization.  Adjusted EBITDA reflects EBITDA as
     defined  above  adjusted  for the change in control  bonuses,  stock option
     redemption  and other bonuses;  nonrecurring  conversion,  realignment  and
     relocation  expenses;  and  recapitalization  related  expenses of $10,487,
     $5,063 and $6,827,  respectively,  in the year ended December 31, 1999; the
     compensation  expense  related  to  redemption  of  stock  options  and the
     nonrecurring realignment expenses of $187 and $2,742, respectively,  in the
     year ended December 31, 2000; and the non-cash compensation expense related
     to variable stock options of $741 and nonrecurring conversion,  realignment
     and  relocation  expenses at $3,564 in the year ended  December  31,  2001.
     EBITDA and Adjusted EBITDA are presented here, as management  believes they
     provide  useful  information  regarding  the  Company's  ability to service
     and/or incur debt.  EBITDA and Adjusted  EBITDA should not be considered in
     isolation  or as  substitutes  for net income,  cash flows from  continuing
     operations,  or other  consolidated  income or cash flow data  prepared  in
     accordance with generally accepted accounting  principles or as measures of
     a company's profitability or liquidity.  EBITDA and Adjusted EBITDA may not
     be comparable to other companies.

(c)  In  conjunction  with the  Company's  Recapitalization  in  1999,  which is
     discussed elsewhere herein, the Company issued 100,000 shares of its Senior
     Mandatorily  Redeemable  Preferred  Stock.  See Note 3 to the  consolidated
     financial statements.

(d)  In the fourth quarter of 1997, the Company  completed an in-depth  analysis
     of the carrying  value of the purchased  portfolios  acquired and valued in
     conjunction  with the  Company's  September  1995  acquisition  of  Account
     Portfolios.  As a result of this analysis,  the Company recorded $10,000 of
     additional  amortization  related to these  purchased  portfolios to reduce
     their carrying value to their estimated net realizable  value.  This amount
     includes the $10,000 of additional amortization.

(e)  In the fourth  quarter of 1998,  the Company wrote down its investment in a
     limited  liability company (the "LLC") by $3,000 resulting from an analysis
     of the carrying  value of the purchased  portfolios  owned by the LLC. This
     amount includes the $3,000.


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Results of Operations

Restatement of Financial Results

     During the finalization of the Company's  consolidated financial statements
as of and for the year ended  December  31,  2001,  it was  determined  that the
consolidated  results reported in the Company's Form 10-K as of and for the year
ended December 31, 2000, as well as the unaudited consolidated quarterly results
reported  in the  Company's  Report on Form 10-Q for the quarter  September  30,
2001,  would need to be restated  because of inaccurate  financial  reporting of
certain transactions at one of the Company's  subsidiaries,  North Shore Agency,
Inc.  ("NSA").  The Board of  Directors  authorized  the  Audit  and  Compliance
Committee (the  "Committee") to conduct an independent  investigation,  with the
assistance of special counsel retained by the Committee,  to identify the causes
of these  discrepancies and to make  recommendations to ensure similar issues do
not recur in the  future.  The  Committee  retained  Bryan  Cave LLP as  special
counsel, and Bryan Cave LLP engaged an independent  accounting firm to assist in
the  investigation.  As a result of the  investigation,  it was determined  that
certain  assets  were  overstated  (primarily  accounts  receivable  and prepaid
postage) and trade accounts payable was understated at NSA due to the inaccurate
financial reporting of certain transactions.

     As a result, the consolidated  financial  statements as of and for the year
ended December 31, 2000, as well as the unaudited consolidated quarterly results
as of and for the quarter September 30, 2001 have been restated.  Comparisons of
previously  reported  and restated  consolidated  financial  statements  for all
periods impacted by the restatement,  including  annual  consolidated  financial
statements and unaudited quarterly financial data, are set forth in Notes 22 and
23 to the consolidated financial statements included herein.

     For the year ended December 31, 2000, the previously reported  consolidated
financial statements included an overstatement of revenues by approximately $1.6
million  and an  understatement  of  operating  expenses by  approximately  $4.1
million.   The  impact  of  the  inaccurate   financial   reporting  of  certain
transactions  on  previously  reported  operating  results  for the  year  ended
December  31,  2000 was to  overstate  operating  income by  approximately  $5.7
million  and  understate  net  loss  and net  loss  to  common  stockholders  by
approximately $5.7 million.

     The Company  expects to file an amended  quarterly  report on Form 10-Q for
the quarter ended September 30, 2001 as soon as practicable.

Consolidated  Operations - Year Ended  December 31, 2001  Compared to Year Ended
December 31, 2000 (Restated)

Revenues for the year ended  December 31, 2001 were $612.3  million  compared to
$541.1 million for the year ended December 31, 2000 - an increase of 13.2%.  The
revenue increase of $71.2 million was due to increased outsourcing and portfolio
services  revenues  offset by lower recovery  services  revenues.  Revenues from
outsourcing  services  increased  32.1% to  $323.8  million  for the year  ended
December 31, 2001 from $245.2  million for the  comparable  period in 2000.  The
increased  outsourcing  services revenues of $78.6 million were due primarily to
new and  increased  existing  business,  increased  collection  letter  products
business and the  acquisitions of RWC Consulting  Group ("RWC"),  Coast to Coast
Consulting ("CCC"),  and Pacific Software Consulting ("PSC") which were acquired
in  September  2000,  March 2001 and April  2001,  respectively.  Revenues  from
portfolio  services of $90.0 million compared  favorably to $87.5 million due to
increased  servicing fees as a result of increased  collections  from the higher
levels of off-balance sheet purchased loans and accounts  receivable  portfolios
during 1999, 2000 and 2001 offset partially by the continued  negative effect on
revenues  resulting from the shift to off-balance  sheet  purchased  portfolios.
During the year ended  December 31, 2001,  the Company  recorded  servicing fees
from OSI Funding LLC ("FINCO"),  the Company's off-balance sheet special purpose
finance  company,  of $37.0 million  compared to servicing fees of $26.8 million
for 2000.  Revenues from recovery services  decreased 4.8% to $198.5 million for
the year ended  December  31, 2001 from $208.4  million in 2000.  The  decreased
revenues   were  due   primarily   to  lower   bank  card,   student   loan  and
telecommunications  business offset partially by increased  government business.
The Company  believes  that its  revenues and  operating  income for each of its
business  segments were negatively  affected by the September 11, 2001 terrorist
attacks.

     Operating  expenses,  inclusive of salaries and benefits,  service fees and
other operating and  administrative  expenses,  were $504.2 million for the year
ended December 31, 2001 and $441.8 million for 2000 - an increase of 14.1%.  The
increase in these operating  expenses  resulted  primarily from the RWC, CCC and
PSC acquisitions,  higher postage expense and the increased expenses  associated
with the new and increased existing revenues of outsourcing services.  Operating
expenses for the year ended  December 31, 2001  included  non-cash  compensation
expense related to variable stock options of approximately $0.7 million. For the
year ended December 31, 2001,  amortization  and  depreciation  charges of $57.9
million were lower than the $60.0  million for 2000 by $2.1  million.  The lower
amortization  and depreciation  charges resulted  primarily from lower portfolio
amortization  as a result  of the  shift  towards  off-balance  sheet  purchased
portfolios  and lower  depreciation  resulting  from lower  current year capital
expenditures and mix of current and prior years' capital expenditures.

     For the year ended December 31, 2001, the Company  incurred $3.6 million of
nonrecurring consolidation,  realignment and relocation expenses. These expenses
include costs from  consolidation of certain call centers,  excess leased space,
closure  of  certain  call  centers,  severance  associated  with  these  office
closures, asset write-offs and certain other one-time costs.

     Earnings before interest  expense,  taxes,  depreciation  and  amortization
(EBITDA)  for the year ended  December 31, 2001 was $104.6  million  compared to
$96.4 million for 2000. The increase was primarily  attributable  to the effects
of  the  three  acquisitions  noted  above  and  the  higher  new  and  existing
outsourcing  services  revenues  offset  partially  by a change in  revenue  mix
relating to its  collection  letter  products from higher margin  contingent fee
services to lower margin fixed fee services and higher postage  expense.  Adding
back the  non-cash  stock  compensation  expense and the  nonrecurring  charges,
adjusted EBITDA was $108.9 million for the year ended December 31, 2001 compared
to $99.3  million  after  adding back the  additional  compensation  expense and
nonrecurring charges for 2000.

     As a result of the above,  the Company's  operating income of $46.7 million
for the year ended December 31, 2001 compared favorably to the $36.4 million for
2000 - an increase of 28.3%.

     Net interest  expense for the year ended December 31, 2001 of $59.4 million
compared  favorably to $60.9  million in 2000 due  primarily  to lower  interest
rates  offset  partially  by  additional  interest  expense of $3.1 million as a
result of the Company's interest rate hedges' ineffectiveness.

     The  provision  for income  taxes of $0.6  million was provided for certain
state and  foreign  income  tax  obligations.  The net  deferred  tax  assets at
December 31, 2001 are fully offset by a valuation allowance.  For the year ended
December 31,  2001,  the net  deferred  tax assets and the  valuation  allowance
increased by $6.1 million.  The increase was caused by an increase of deductible
temporary  differences  and an additional  taxable net operating  loss generated
during the current period.  The Company  generated a net taxable  operating loss
for federal and certain  state income tax  purposes  for which a full  valuation
allowance was provided against the related deferred tax asset.

     Due to the factors  stated  above,  the Company had a net loss for the year
ended  December 31, 2001 of $13.4  million which  compared  favorably to the net
loss of $25.1 million for the year ended December 31, 2000.

Consolidated  Operations - Year Ended December 31, 2000  (Restated)  Compared to
Year Ended December 31, 1999

Revenues for the year ended  December 31, 2000 were $541.1  million  compared to
$504.4  million for the year ended  December 31, 1999 - an increase of 7.3%. The
revenue increase of $36.7 million was due to increased outsourcing and portfolio
services  revenues offset by lower recovery services  revenues.  The outsourcing
services revenue of $245.2 million compared  favorably to $205.8 million in 1999
due to  increased  revenue  of $18.3  million  from new and  existing  business,
increased  collection letter products business of $15.4 million and $5.7 million
from RWC, which was acquired in September 2000. Revenues from portfolio services
increased  to $87.5  million  for the year ended  December  31,  2000 from $80.4
million  for 1999.  The  increased  revenues  were due to higher  servicing  fee
revenues for the off-balance  sheet  collections of FINCO  portfolios  partially
offset by lower revenues from  on-balance  sheet  portfolios  resulting from the
shift from on-balance sheet ownership of purchased loans and accounts receivable
portfolios to  off-balance  sheet.  During the year ended December 31, 2000, the
Company  recorded revenue from FINCO servicing fees of $26.8 million compared to
servicing  fees of $15.2 million for 1999.  Revenues  from recovery  services of
$208.4  million for the year ended  December 31, 2000  compared  unfavorably  to
$218.2 million in 1999 due to primarily to lower telecommunications business and
the  continued  weakness in the bank card market  offset  partially by increased
government business.

     Operating  expenses,  inclusive of salaries and benefits,  service fees and
other operating and  administrative  expenses,  were $441.8 million for the year
ended December 31, 2000 and $398.9 million for 1999 - an increase of 10.8%.  The
increase in these operating  expenses resulted  primarily from higher collection
expenses, higher postage expenses,  increased collection-related expenses due to
the increased revenues of outsourcing services and increased collection expenses
associated  with  the  increase  in  collections  of on  and  off-balance  sheet
purchased portfolios partially offset by lower consulting expenses. For the year
ended December 31, 2000, operating expenses included  approximately $0.2 million
of additional compensation expense resulting from the redemption of vested stock
options.  For the year ended December 31, 2000,  amortization  and  depreciation
charges of $60.0  million were lower than $69.8 million for 1999 - a decrease of
14.0%. The lower  amortization and depreciation  charges resulted primarily from
lower portfolio  amortization as a result of the shift towards off-balance sheet
purchased loans and accounts receivable portfolios.

     In continuing with the strategy,  adopted in early 1999, to align OSI along
business   services  and  establish  call  centers  of  excellence  by  industry
specialization,  the Company incurred nonrecurring  realignment expenses of $2.7
million  which  includes  cost for closures of certain call  centers,  severance
associated with these office  closures and certain other one-time  costs.  These
costs were recognized as incurred in 2000.

     During  the  fourth  quarter  of 1998 and the first  quarter  of 1999,  OSI
evaluated  its  business  strategy  for  its  operations.  After  the  Company's
formation and seven  acquisitions,  the Company  adopted a strategy to align OSI
along  business  services and  establish  call centers of excellence by industry
specialization. As a result, nonrecurring conversion, realignment and relocation
expenses  include costs resulting from the temporary  duplication of operations,
closure of certain  call centers  along with  relocation  of certain  employees,
hiring and training of new  employees,  costs  resulting  from the conversion of
multiple  collection  operating systems to a one industry  operating system, and
other one-time and redundant costs,  which will be eliminated as the realignment
and integration plans are completed. These costs of $5.1 million were recognized
as incurred during 1999.

     In connection with the Recapitalization, the Company incurred $10.5 million
of additional  compensation expense in 1999. This compensation expense consisted
primarily of expense  relating to payment of cash for vested  stock  options and
the payment of change in control bonuses to certain  officers in accordance with
terms of their  employment  agreements.  In addition,  the Company incurred $6.8
million  of  Recapitalization  related  costs in  1999.  These  costs  consisted
primarily of professional and advisory fees, and other expenses.

     Earnings before interest  expenses,  taxes,  depreciation  and amortization
("EBITDA") for the year ended  December 31, 2000 was $96.4 million.  Adding back
the  nonrecurring  charges and the  additional  compensation  expense,  adjusted
EBITDA was $99.3 million for the year ended December 31, 2000 compared to $105.5
million after adding back the nonrecurring and Recapitalization related expenses
for 1999.  The  decrease  of $6.2  million  was  primarily  attributable  to the
increased  collection  expenses in relation  to the  revenue  reported  from the
collections of purchased portfolios and higher postage expenses partially offset
by the  contribution  from  increased  outsourcing  services  revenues and lower
consulting expenses.

     While EBITDA was down due primarily to the  off-balance  sheet ownership of
the  portfolios,  depreciation  and  amortization  also  declined  resulting  in
operating income of $36.4 million.  Adding back the nonrecurring charges of $2.7
million and the additional  compensation  expense of approximately $0.2 million,
operating income was $39.3 million for the year ended December 31, 2000 compared
to  $35.7   million   for  1999  after   adding   back  the   nonrecurring   and
Recapitalization related expenses.

     Net interest  expense for the year ended December 31, 2000 of $60.9 million
compared  unfavorably to $52.3 million in 1999 due primarily to higher  interest
rates and higher amortization of deferred financing fees.

     The  provision  for income  taxes of $0.6  million was provided for certain
state and foreign income tax obligations.  The Company generated a net operating
loss for federal and certain state income tax purposes in 2000, for which a full
valuation allowance was provided against the related deferred tax asset.

     The extraordinary loss of $4.2 million in 1999, the write-off of previously
capitalized  financing  costs,  resulted  from  the  extinguishment  of the then
existing credit  facility in conjunction  with the  establishment  of a new bank
credit facility in the fourth quarter of 1999.

     The net loss for the year ended December 31, 2000 of $25.1 million compared
favorably  to the net  loss of $44.0  million  for  1999  due  primarily  to the
nonrecurring and Recapitalization related expenses and the extraordinary item in
1999.

Segment Operations

     The following results of segment  operations do not include the elimination
of  intercompany  revenue and the allocation of corporate and shared  expenses.
See Note 19 in the Company's financial statements included herein for additional
information.

Outsourcing Services

Outsourcing  services  revenues of $339.3 million in 2001  increased  32.9% from
$255.3  million in 2000 (as  restated)  reflecting  new and  increased  existing
business,  increased collection letter products business and the acquisitions of
RWC,  CCC and PSC.  In 2000 (as  restated),  outsourcing  revenues  were  $255.3
million  representing a 20.4% increase over 1999 revenues of $212.0 million. The
increased  revenue in 2000 (as restated)  was due to new and existing  business,
increased  collection letter products  business and the RWC acquisition.  EBITDA
before corporate and shared expenses,  but after amortization of purchased loans
and  accounts  receivable  portfolios  ("Adjusted  Operating  EBITDA")  of $46.4
million in 2001  increased  from  $40.4  million  in 2000 (as  restated)  due to
effects of the three  acquisitions and the new and increased  existing  business
offset  partially by a change in revenue mix relating to its  collection  letter
products  from higher margin  contingent  fee services to lower margin fixed fee
services and higher postage expense.  Adjusted Operating EBITDA of $40.4 million
in 2000 (as restated)  increased  14.1% from $35.4 million in 1999. The increase
was due to the increased revenues and the RWC acquisition.

Portfolio Purchasing Services

     Portfolio  purchasing services reported a 3.4% increase in 2001 on revenues
of  $96.0  million   compared  to  $92.8  million  in  2000.  The  increase  was
attributable  to increased  servicing fees as a result of increased  collections
from the  increased  level of  off-balance  sheet  purchased  loans and accounts
receivable  portfolios  during  1999,  2000 and  2001  offset  partially  by the
continued  negative  effect on revenues  resulting from the shift to off-balance
sheet  purchased  portfolios.  Revenues  rose 8.2% in 2000 from $85.8 million in
1999 to $92.8 million,  largely as a result of higher servicing fee revenues for
the off-balance  sheet  collections  partially  offset by lower revenues from on
balance-sheet portfolios,  again, resulting from the shift from on-balance sheet
ownership of purchased loans and accounts  receivable  portfolios to off-balance
sheet.  Adjusted  Operating EBITDA increased to $16.7 million in 2001 from $13.4
million in 2000.  The 24.6%  increase  was due to the  increased  servicing  fee
revenues  and lower  portfolio  amortization  as a result  of the shift  towards
off-balance sheet purchased portfolios.  For 2000, Adjusted Operating EBITDA was
$13.4 million  compared to $10.2 million in 1999, an increase of 31.4% resulting
from the higher servicing fee revenues and lower portfolio amortization.

Recovery Services

     Recovery  services  revenues  decreased  4.8% in 2001 on  revenue of $198.5
million  compared to $208.4 million in 2000 and decreased 4.5% in 2000 to $208.4
million from $218.2 million in 1999.  The decreases were primarily  attributable
to  lower  bank  card,  student  loan  and  telecommunications  business  offset
partially by  increased  government  business.  Largely as a result of the lower
revenues,  Adjusted  Operating  EBITDA  decreased  from $53.2 million in 1999 to
$47.2  million in 2000 to $43.8 million in 2001 - a decrease of 7.2% in 2001 and
11.3% in 2000.

     The Company  believes  that its revenues and Adjusted  Operating  EBITDA of
each  business  segment  were  negatively  affected  by the  September  11, 2001
terrorist attacks.

Liquidity and Capital Resources

     At December 31,  2001,  the Company had cash and cash  equivalents  of $9.5
million.  The  Company's  bank  credit  facility  provides  for a $75.0  million
revolving  credit  facility,  which  allows the  Company  to borrow for  working
capital,  general  corporate  purposes  and  acquisitions,  subject  to  certain
conditions.  As of December 31, 2001, the Company had outstanding  $46.0 million
under the revolving  credit facility  leaving $20.4 million,  after  outstanding
letters of credit, available under the revolving credit facility.

     Cash and cash equivalents decreased from $10.3 million at December 31, 2000
to $9.5 million at December 31, 2001  primarily due to cash utilized for the CCC
and PSC  acquisitions  of $21.7 million,  debt  repayments of $14.7 million,  an
earnout payment of $3.0 million and capital expenditures of $14.2 million offset
by cash from  operating  activities  and portfolio  purchasing of $16.9 million,
borrowings  under the credit facility of $14.0 million and net proceeds from the
issuance of Senior  Common Stock of $22.0  million.  The Company also held $25.9
million of cash for clients in restricted trust accounts at December 31, 2001.

     Cash and cash equivalents  increased from $6.1 million at December 31, 1999
to $10.3  million at December 31, 2000  principally  due to cash from  operating
activities  and portfolio  purchasing  of $24.8 million and cash from  financing
activities of $16.1 million primarily from the increase in the revolver of $19.0
million  offset  by the use of cash  of  $36.7  million  primarily  for  capital
expenditures  of $18.4 million and $16.7 million for the  acquisition of certain
assets of RWC. In addition to the cash  consideration  for RWC of $16.7 million,
the purchase  price  included  Voting Common Stock worth $2.0 million and a $5.0
million 18%  unsecured,  subordinated  note  (interest  compounded  annually and
principal and interest due  September 29, 2003) along with a contingent  payment
obligation  due in three years.  The Company also held $22.0 million of cash for
clients in restricted trust accounts at December 31, 2000.

     Purchased  Loans and Accounts  Receivable  Portfolios  decreased from $24.7
million at December  31, 2000 to $17.5  million at December  31, 2001 due to the
amortization  of purchased  portfolios of $26.9 million offset by new on-balance
sheet portfolio purchases of $19.7 million. In addition,  the Company purchased,
and sold to FINCO, loans and accounts receivable portfolios of $63.4 million and
$86.9 million during the year ended December 31, 2001 and 2000, respectively.

     The purchased loans and accounts receivable portfolios consist primarily of
consumer  loans and credit card  receivables,  commercial  loans,  student  loan
receivables  and health club  receivables.  Consumer loans  purchased  primarily
consist of  unsecured  term  debt.  A summary of  purchased  loans and  accounts
receivable  portfolios  at December  31, 2001 and  December  31, 2000 by type of
receivable is shown below:

                        December 31, 2001                December 31, 2000
                 ------------------------------   ------------------------------
                 Original Gross  Recorded Net     Original Gross    Recorded Net
                 Principal Value  Book Value      Principal Value    Book Value
                 --------------- --------------   ---------------  -------------
                  (In millions) (In thousands)      (In millions) (In thousands)

Consumer loans...    $ 4,823        $ 6,829            $ 4,525       $  9,477
Student loans....        343            439                343            653
Credit cards.....      2,147          4,966              1,515          9,292
Health clubs.....      1,735          4,330              1,661          5,118
Commercial.......        668            913                129            150
                     -------        -------            -------        -------
                     $ 9,716        $17,477            $ 8,173        $24,690
                     =======        =======            =======        =======


     Net  deferred  tax assets were zero at December  31, 2001 and 2000 due to a
valuation  allowance  of $100.7  million and $94.6  million,  respectively.  The
Company's  deferred tax assets at December 31, 2001 and December 31, 2000 relate
principally  to  net  operating  loss   carryforwards   and  future   deductible
differences.  The  realization  of  these  assets  is  dependent  on  generating
sufficient taxable income prior to expiration of the loss carryforwards in years
through  2021.  At December  31, 2001,  the Company has a  cumulative  valuation
allowance of $100.7  million to reflect  management's  assessment,  based on the
weight of the available  evidence of current and  projected  future book taxable
income, that there is significant  uncertainty that any of the benefits from the
deferred  tax assets  will be  realized.  For all  federal  tax years  since the
Company's  formation in September  1995,  the Company has incurred net operating
losses.  Since the Company has a history of generating net operating  losses and
is expected to continue to incur significant  interest expense,  management does
not expect the  Company to generate  taxable  income in the  foreseeable  future
sufficient to realize tax benefits from the net operating loss  carryforwards or
the future reversal of the net deductible temporary  differences.  The amount of
the  deferred  tax  assets  considered   realizable,   however,  is  subject  to
reassessment  in future years if estimates of future  taxable  income during the
carryforward period change.

     The  Company's  current debt  structure  at December  31, 2001  consists of
$433.5 million  indebtedness under the bank credit facility,  $100.0 million 11%
Senior  Subordinated Notes (the "Notes") and other indebtedness of $5.5 million.
See Note 6 of the  Consolidated  Financial  Statements  of the Company  included
elsewhere herein for a description of the bank credit facility.

     The Notes and the bank credit  facility  contain  financial  and  operating
covenants and restrictions on the ability of the Company to incur  indebtedness,
make  investments  and take certain other  corporate  actions.  The debt service
requirements  associated  with the  borrowings  under the facility and the Notes
significantly impact the Company's liquidity requirements.  Additionally, future
portfolio purchases may require significant financing or investment. The Company
anticipates  that its operating cash flow together with  availability  under the
bank credit facility will be sufficient to fund its anticipated future operating
expenses and to meet its debt service  requirements as they become due. However,
actual capital requirements may change, particularly as a result of acquisitions
the  Company  may make.  The  ability of the  Company  to meet its debt  service
obligations  and  reduce  its total debt will be  dependent,  however,  upon the
future  performance of the Company and its subsidiaries  which, in turn, will be
subject to general  economic  conditions  and to  financial,  business and other
factors including factors beyond the Company's control.

     The Company's  contractual  obligations at December 31, 2001 are summarized
as follows (in thousands):

                                    Less than     1-3        4-5       After 5
                            Total     1 year     years      years       years
                          --------  ---------   --------   --------   ---------

Long-Term Debt            $538,590  $  17,590   $279,250   $241,750   $       -

Capital Lease Obligations      478        238        240          -           -

Operating Leases            91,170     20,149     46,832     12,164      12,025
                          --------  ---------   --------   --------   ---------
Total Contractual Cash
Obligations               $630,238  $  37,977   $326,322   $253,914   $  12,025
                          ========  =========   ========   ========   =========


A subsidiary of the Company has several Portfolio Flow Purchase  Agreements,  no
longer  than one  year,  whereby  the  subsidiary  has a monthly  commitment  to
purchase  nonperforming  loans meeting certain criteria for an agreed upon price
subject to due diligence. The monthly obligations cannot be determined, however,
the  bank  credit  facility  limits  total  annual  on-balance  sheet  portfolio
purchases to $20.0 million.

     In October of 1998, a special-purpose  finance company,  OSI Funding Corp.,
formed by the Company,  entered into a revolving warehouse financing arrangement
("Warehouse  Facility")  for up to $100.0  million of funding  capacity  for the
purchase of loans and accounts receivable over its five year term. In connection
with the  Recapitalization,  OSI Funding Corp.  converted to a limited liability
company  and  is  now  OSI  Funding  LLC   ("FINCO"),   a   bankruptcy   remote,
non-consolidated   subsidiary   of  the   Company,   with  the  Company   owning
approximately  29% of the voting  rights.  An  unrelated  third  party holds the
majority voting rights of FINCO and has  decision-making  authority over FINCO's
operations.  The Company believes this arrangement will provide it with expanded
portfolio purchasing capability in a very opportunistic buying market at a lower
cost of capital.  Sales of purchased loans and accounts receivable portfolios by
the Company to FINCO were in the same  amount and  occurred  shortly  after such
portfolios  were  acquired by the Company from  various  unrelated  sellers.  At
December 31, 2001 and 2000,  FINCO had purchased  loans and accounts  receivable
portfolios of $75.9  million and $76.9  million,  respectively.  At December 31,
2001 and 2000,  FINCO  had  outstanding  commercial  paper  borrowings  of $66.4
million and $67.6 million,  respectively.  These borrowings are without recourse
to the Company.

     As noted above,  FINCO is a special  purpose and  bankruptcy  remote entity
that is not consolidated by the Company. The Company accounts for its investment
in FINCO under the equity method of accounting. The Company does not consolidate
FINCO  because the  unrelated  third party  investor in FINCO holds the majority
voting rights of FINCO,  has  decision-making  authority  over the operations of
FINCO,  including  the  authority to make all  decisions and to take all actions
with  respect to the  retention  or removal of OSI as a provider  of  collection
services for FINCO's  portfolios,  and maintains a substantial equity investment
in FINCO. The FASB is currently  reviewing the rules surrounding special purpose
entities.  The FASB has issued a preliminary  draft of proposed rules  regarding
the consolidation of special purpose entities. The FASB expects to finalize this
project  by August of 2002.  If the  Company  were  required  to adopt the rules
prescribed  in the current  FASB  project,  it would be required to  consolidate
FINCO.  If required to  consolidate  FINCO,  the  Company  could  possibly be in
violation of its debt  covenants and would be required to seek a waiver or amend
its debt agreements.  The following  provides summary financial  information for
the  Company  assuming  FINCO was  consolidated,  and  compares  that to similar
information currently reported by the Company with FINCO accounted for under the
equity method, at the end of each period presented:


                                   2001                      2000 (As Restated)
                      ----------------------------    --------------------------
                        Equity     Consolidation        Equity     Consolidation
                        Method        Method            Method        Method
                      ----------  ----------------    ----------   -------------

(In thousands)
Revenues              $612,346      $678,868          $541,076      $590,827
Operating income        46,663        51,673            36,420        40,783
Net loss               (13,355)      (11,955)          (25,108)      (24,406)
EBITDA                 104,569       171,091            96,397       146,148

Receivables             17,477        93,398            24,690       101,598
Total assets           640,210       708,388           632,647       701,040
Total debt             539,020       605,411           539,463       607,099
Stockholders'
  (deficit)           (154,075)     (148,747)         (134,412)     (130,475)

As a result of the  restatement  of financial  results as discussed in Note 2 of
the Company's financial statements included herein, the Company was in breach of
certain  covenants,  representations  and  warranties in each of its bank credit
facility and the Warehouse Facility. In response, the Company and the lenders to
the bank credit  facility  amended the facility  effective  April 10, 2002.  The
amendment  to the bank  credit  facility  includes  provisions  that  amend  the
financial  covenants,  waive certain existing defaults of covenants and breaches
in  representations  and  warranties,  increase the interest  rate on borrowings
pursuant to the facility (as  discussed  below),  and,  during 2002,  reduce the
Company's  availability under its bank credit facility by $5 million,  and limit
capital  expenditures,  investments  and  acquisitions.  In connection  with the
amendment, the Company also issued 4,150 shares of its Series B Junior Preferred
Stock with attached  warrants to acquire  42,347 shares of the Company's  Senior
Common Stock to Madison Dearborn Capital Partners III, L.P. and Madison Dearborn
Special  Equity III,  L.P.  for a total  purchase  price of $4.15  million.  The
proceeds of this sale were used to repay the Revolving Facility in the amount of
$2.075 million and the balance  pro-rata to the Term A and B loans,  as provided
in the bank credit facility.  From April 10, 2002 until such time as the Company
delivers to the lenders a compliance  certificate  for the period ended December
31, 2002,  borrowings under the Revolving Facility and Term A Loan of the Credit
Facility will bear interest,  at the Company's option, at (a) the lender's prime
rate,  plus 2.75% or (b) the Eurodollar  rate plus 3.75%.  Borrowings  under the
Term B Loan will bear  interest,  at the Company's  option,  at (a) the lenders'
prime rate plus 3.50% or (b) the Eurodollar  rate plus 4.50%.  The  amortization
and  maturity  were not amended.  Following  this  amendment,  the Company is in
compliance  with the Credit  Facility  and,  subject to the  Warehouse  Facility
issues discussed below, expects to be in compliance throughout 2002.

The  Company  has also  received a waiver  from the lender  under the  Warehouse
Facility for certain breaches of covenants,  representations and warranties with
respect to periods  through  year-end  2001.  Since the  Company,  on an ongoing
basis,  will  continue  to  be  in  breach  of  certain   financial   covenants,
representations  and warranties,  it has initiated  discussions  with the lender
under the  Warehouse  Facility for the purpose of seeking to amend such facility
to cure such breaches, although there can be no assurances that the Company will
be successful in negotiating  such an amendment.  If the Company is unsuccessful
in  negotiating  such an amendment,  notwithstanding  the waiver  received,  the
Company may again breach certain  covenants,  representations  and warranties in
the  Warehouse  Facility  and there can be no  assurances  that the lender  will
extend the waiver to cover such breaches.  On an ongoing basis,  the Company has
also been  engaged  in  discussions  with  certain  other  providers  of similar
warehouse  facilities.  While there can be no assurances,  the Company  believes
that other  warehouse  facilities  would be available  on economic  terms and in
amounts  comparable to the Company's  existing  Warehouse  Facility  which would
allow the Company to continue its business of  purchasing  of loans and accounts
receivable.  In the event the Company is unable to amend the  current  Warehouse
Facility and it is  terminated  and the Company is unable to enter a replacement
warehouse facility, the Company would be in default of its Credit Facility.

     Capital  expenditures  for the year  ended  December  31,  2001 were  $14.2
million.  The Company  expects to spend  approximately  $10.0 million on capital
expenditures  (exclusive of any expenditures in connection with acquisitions) in
2002. Historical expenditures have been, and future expenditures are anticipated
to be primarily for replacement and/or upgrading of telecommunications  and data
processing  equipment,  leasehold  improvements  and continued  expansion of the
Company's   information  services  systems.   Subject  to  compliance  with  the
provisions of its debt agreements, the Company expects to finance future capital
expenditures with cash flow from operations,  borrowings and capital leases. The
Company will reduce its future capital  expenditures  to the extent it is unable
to fund its capital plan. The Company  believes that its facilities will provide
sufficient  capacity  for  increased  revenues  and  will not  require  material
additional capital expenditures in the next several years.

Inflation

     The Company  believes that  inflation has not had a material  impact on its
results of operations for the years ended December 31, 2001, 2000 and 1999.

Critical Accounting Policies

     The results of operations  of the Company are prepared in  accordance  with
generally accepted  accounting  principles in the United States. The preparation
of  these  financial  statements  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
on-going  basis,  management  evaluates its estimates and  judgments,  including
those related to bad debts, supplies  inventories,  purchased loans and accounts
receivable portfolios,  intangible assets, income taxes, environmental exposures
and other  contingencies  and  litigation.  Management  bases its assumptions on
historical  experience  and on various  other  factors  that are  believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

     Management  believes  the  following  critical  accounting  policies  among
others,  affect  its  more  significant  judgments  and  estimates  used  in the
preparation of its consolidated financial statements.

o    The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of its customers to make required payments. If
     the financial  condition of the Company's  customers  were to  deteriorate,
     resulting  in  impairment  in their  ability to make  payments,  additional
     allowances may be required.

o    The Company records a valuation allowance to reduce its deferred tax assets
     to the amount that it  believes  is more  likely  than not to be  realized.
     Since the  Company  has a  history  of  generating  net  operating  losses,
     management  does not expect the Company to generate  taxable  income in the
     foreseeable  future  sufficient  to  realize  tax  benefits  from  the  net
     operating loss  carryforwards  or the future reversal of the net deductible
     temporary  differences.  The amount of the deferred  tax assets  considered
     realizable,  however,  is  subject  to  reassessment  in  future  years  if
     estimates of future taxable income during the  carryforward  period change.
     Should the Company  determine that it would be able to realize its deferred
     tax  assets  in the  future  in  excess  of its  net  recorded  amount,  an
     adjustment to the deferred tax assets would  increase  income in the period
     such  determination  was made.  To the extent the  valuation  allowance for
     deferred tax assets is  attributable  to net  operating  losses  related to
     acquisitions,  realization of these deferred tax assets would result in the
     reduction of goodwill recorded in connection with the acquisitions.

o    The Company  records  purchased  loans and accounts  receivable  portfolios
     ("Receivables") in the normal course of business at cost. These Receivables
     are  reflected in the Company's  consolidated  balance  sheet.  The Company
     periodically reviews all Receivables to assess recoverability.  Impairments
     are recognized as increased  amortization expense if the expected aggregate
     discounted future net operating cash flows derived from the Receivables are
     less  than the  aggregate  carrying  value.  This  requires  management  to
     estimate the future  operating cash flows that are expected to be generated
     from the  Receivables  and to discount the future cash flows.  The discount
     rate is determined at the time of purchase as the calculated  internal rate
     of return used in determining the Receivables purchase price. To the extent
     actual cash flows  differ  from these  projections,  the  Company  could be
     required to record additional impairment charges in future periods.

o    The Company  amortizes  on an  individual  portfolio  basis the cost of the
     Receivables  based on the ratio of current  collections  for a portfolio to
     current and anticipated future collections including any estimated terminal
     value for that portfolio.  This requires management to estimate both future
     collections  and terminal values for individual  portfolios.  To the extent
     actual collections differ from those projections,  amortization of the cost
     of the Receivables is affected. To the extent future collections, including
     estimated terminal value, are less than anticipated, increased amortization
     will occur in future periods.  To the extent future collections are greater
     than anticipated, decreased amortization will occur in future periods.

o    The Company  annually  reviews  goodwill  and other  intangibles  to assess
     recoverability. Impairment charges are recognized in operations if the fair
     value of the  goodwill is less than its carrying  value.  The fair value of
     the goodwill could change in the future,  primarily based on the results of
     the  Company's  operations.  This  could  result in  impairment  charges to
     operations  in future  periods.  See also the  following  discussion of the
     impact of a new  accounting  standard  adopted by the Company on January 1,
     2002, SFAS No. 142, "Goodwill and Other Intangible Assets."

o    Certain  subsidiaries  of  the  Company  are  parties  to  several  pending
     environmental  proceedings as a result of its  acquisition of Union.  These
     proceedings  involve the  Environmental  Protection  Agency and  comparable
     state  environmental  agencies.  In addition,  the Company is involved in a
     number of legal  proceedings  and claims that occur in the normal course of
     business  and are  routine to the  nature of the  Company's  business.  The
     results of the  environmental  and legal  proceedings  and claims cannot be
     predicted  with  certainty.  However,  the  Company  has  provided  for the
     estimated  uninsured  amounts and costs  associated  with  proceedings  and
     claims and, in  consultation  with legal  counsel,  believe  that  reserves
     established  for the  ultimate  resolution  of these mattes are adequate at
     December 31, 2001.  However,  OSI may be exposed to additional  substantial
     liability  for  these  proceedings  and  claims as  additional  information
     becomes available in the future. This could result in charges to operations
     in future periods.

Accounting Pronouncements

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  141,  Business
Combinations.  SFAS No. 141 requires  that the purchase  method of accounting be
used for all business combinations initiated after June 30, 2001 and establishes
specific criteria for recognition of intangible assets separately from goodwill.
For  business  combinations  initiated  after June 30,  2001,  SFAS No. 141 also
requires that  unallocated  negative  goodwill be written off  immediately as an
extraordinary gain. In addition,  SFAS No. 141 requires  reclassifying  existing
intangible  assets that have been reported as part of goodwill,  and  accounting
for them separately  upon adoption of SFAS No. 142 if certain  criteria are met.
The  adoption of SFAS No. 141 will not have a material  impact on the  Company's
consolidated  financial  statements  as the Company has no negative  goodwill or
intangible assets that have been reported as part of goodwill.

     In July 2001, the FASB issued SFAS No. 142,  Goodwill and Other  Intangible
Assets.  SFAS No. 142  eliminates  the  amortization  of  goodwill  and  instead
requires  goodwill to be tested for  impairment  annually at the reporting  unit
level.  Also,  specifically  identifiable  intangible  assets are required to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 144,  Accounting for the  Impairment or Disposal of Long-Lived  Assets.
Under SFAS No. 142, if the intangible asset has an indefinite useful life, it is
not amortized until its life is determined to be finite. The Company is required
to adopt SFAS No. 142 on January  1,  2002.  SFAS No. 142  provides a  staggered
timeline  for  completing   transitional  impairment  testing  of  goodwill  and
indefinite-lived   intangible   assets.   The   Company   does   not   have  any
indefinite-lived intangible assets. The Company will be required to reassess the
useful lives of intangible  assets by the end of the first quarter of 2002.  The
Company will be required to complete the first step of the transitional goodwill
impairment  test by the end of the second  quarter  of 2002.  If this first step
indicates  transitional  goodwill  impairment may exist,  the second step, which
results  in a final  determination  of  goodwill  impairment,  if  any,  must be
completed no later than December 31, 2002.  The Company is currently  evaluating
the  impact  of SFAS  No.  142 on its  financial  statements.  Goodwill,  net of
amortization,  was $421.9  million and $417.1  million at December  31, 2001 and
2000,  respectively.  Goodwill amortization recorded for the year ended December
31, 2001 and 2000 was $16.6 million and $15.5 million, respectively. However, as
previously noted, goodwill amortization will cease as of January 1, 2002.

     In  October  2001,  the  FASB  issued  SFAS  No.  144,  Accounting  for the
Impairment or Disposal of Long-Lived  Assets.  SFAS No. 144 addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets,
and as  required,  was adopted,  by the Company on January 1, 2002.  The Company
does  not  expect  SFAS  No.  144 to have a  material  impact  on the  Company's
consolidated financial statements.

Forward-Looking Statements

     The  following  statements  in this entire  document are or may  constitute
forward-looking  statements made in reliance upon the safe harbor of the Private
Securities  Litigation  Reform  Act  of  1995:  (1)  statements  concerning  the
anticipated   costs  and  outcome  of  legal   proceedings   and   environmental
liabilities,  (2)  statements  regarding  anticipated  changes  in the  accounts
receivable  management  industry,  including  but not  limited  to debt  levels,
delinquencies,  industry  consolidation,  customer consolidation and outsourcing
trends,  (3)  statements   regarding   anticipated   changes  in  the  Company's
opportunities in its industry,  including but not limited to  acquisitions,  (4)
statements regarding the Company's plans to reduce costs and improve operational
efficiencies,  (5) statements regarding the Company's ability to fund its future
operating  expenses and meet its debt service  requirements  as they become due,
(6)  statements  regarding  the  Company's  expected  capital  expenditures  and
facilities, (7) any statements preceded by, followed by or that include the word
"believes," "expects,"  "anticipates,"  "plans",  "intends," "should," "may," or
similar  expressions;  and (8) other  statements  contained or  incorporated  by
reference in this document regarding matters that are not historical facts.

     Because  such  statements  are subject to risks and  uncertainties,  actual
results  may  differ   materially  from  those  expressed  or  implied  by  such
forward-looking  statements.  Factors that could cause actual  results to differ
materially  include,  but are not limited  to: (1) the demand for the  Company's
services, (2) the demand for accounts receivable management and the availability
of  portfolios  to purchase  generally,  (3) general  economic  conditions,  (4)
changes in interest rates, (5) competition, including but not limited to pricing
pressures, (6) changes in governmental regulations including, but not limited to
the federal Fair Debt  Collection  Practices Act and comparable  state statutes,
(7) legal  proceedings,  (8) environmental  investigations and clean up efforts,
(9)  expected  synergies,  economies  of scale  and  cost  savings  from  recent
acquisitions  by the  Company not being  fully  realized or realized  within the
expected time frames, (10) costs of operational difficulties,  including but not
limited to those related to  integrating  the  operations  of recently  acquired
companies  with the  Company's  operations  being  greater than  expected,  (11)
unanticipated  realignment  costs,  (12) the Company's  ability to generate cash
flow or obtain  financing to fund its operations,  service its  indebtedness and
continue its growth and expand successfully into new markets and services either
through acquisitions or internal growth, (13) the Company's ability to amend its
Warehouse  Facility  to cure  breaches  and  defaults  thereunder  or to  obtain
replacements thereof on acceptable economic terms, (14) changes in circumstances
or the  effects of new  accounting  standards  which may  require the Company to
consolidate FINCO into its financial statements, and (15) factors discussed from
time to time in the Company's public filings.

     These forward-looking  statements speak only as of the date they were made.
These cautionary  statements should be considered in connection with any written
or oral forward-looking statements that the Company may issue in the future. The
Company does not undertake any  obligation to release  publicly any revisions to
such  forward-looking  statements to reflect later events or circumstances or to
reflect the occurrence of unanticipated events.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The  Company is subject to the risk of  fluctuating  interest  rates in the
normal  course of business.  From time to time and as required by the  Company's
bank credit facility,  the Company will employ derivative financial  instruments
as part of its risk  management  program.  The Company's  objective is to manage
risks and exposures of its debt and not to trade such  instruments for profit or
loss.

     The Company uses interest rate swap and collared swap  agreements to manage
the interest rate  characteristics  of its outstanding  debt to a more desirable
fixed or  variable  rate  basis or to limit  the  Company's  exposure  to rising
interest rates.

     The following  table  provides  information  about the Company's  financial
instruments   that  are  sensitive  to  changes  in  interest  rates.  For  debt
obligations,   the  table   presents   principal  and  cash  flows  and  related
weighted-average  interest rates by expected  maturity dates.  For interest rate
swap and collared  swap  agreements,  the table  presents  notional  amounts and
weighted-average interest rates.

                            Interest Rate Sensitivity
                Principal (Notional) Amount by Expected Maturity
                              Average Interest Rate
                              (Dollars in millions)
<TABLE>
<CAPTION>
                                                                                                                   Fair
                                  2002       2003       2004       2005       2006      Thereafter      Total      Value
                                  ----       ----       ----       ----       ----      ----------      -----      -----
<S>                               <C>        <C>        <C>        <C>        <C>       <C>             <C>        <C>

Liabilities
Long-term debt
     Fixed rate                    -          -          -          -       $100.0          -          $100.0      $80.0
     Average interest rate        11.0%      11.0%      11.0%      11.0%      11.0%

     Variable rate               $17.5      $32.5      $40.0     $201.8     $141.7          -          $433.5     $433.5
     Average interest rate        (1)        (1)        (1)        (1)        (1)


Interest Rate Derivative Financial Instruments Related to Debt

Interest Rate Swap
     Notional amount               -          -          -          -        $75.0          -           $75.0       $0.2 (2)
     Average pay rate             (3)        (3)        (3)        (3)        (3)
     Average receive rate         11.0%      11.0%      11.0%      11.0%      11.0%

Interest Rate Collared Swap
     Notional amount               -       $150.0        -          -          -            -          $150.0      $(9.4)(2)
     Strike cap rate               8.5%       8.5%       -          -          -            -
     Strike floor rate             5.9%       5.9%       -          -          -            -
     Strike swap rate              7.0%       7.0%       -          -          -            -
     Forward rate                 (4)        (4)         -          -          -            -

Interest Rate Collared Swap
     Notional amount               -          -          -          -        $75.0          -           $75.0      $(2.6)(2)
     Strike cap rate               6.75%      6.75%      6.75%      6.75%      6.75%
     Strike floor rate            (5)        (5)        (5)        (5)        (5)
     Strike swap rate              5.5%       5.5%       5.5%       5.5%       5.5%
     Forward rate                 (4)        (4)        (4)        (4)        (4)
</TABLE>

(1)  Three-month LIBOR (1.9% at December 31, 2001)  plus weighted average margin
     of 3.7%.
(2)  Represents the fair value of the interest rate swap agreement  based on the
     receivable (payment) to exit the agreement at December 31, 2001.
(3)  Three-month LIBOR plus margin of 5.5%.
(4)  Three-month LIBOR.
(5)  2.5% from November 1, 2001 through  April 30, 2002,  2.85% from May 1, 2002
     through April 30, 2003 and 4.1% from May 1, 2003 through maturity.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Reference is made to the Financial  Statements and  Supplementary  Schedule
contained in Part IV hereof.


ITEM 9.   CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

     None.

<PAGE>


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Directors of the Company are elected  annually by its shareholders to serve
during the ensuing  year or until a  successor  is duly  elected and  qualified.
Executive  officers of the Company are duly elected by its Board of Directors to
serve until their respective successors are elected and qualified. The following
table sets forth certain information with respect to the directors and executive
officers of the Company.

             Name           Age                    Position or Office
----------------------      ---         ----------------------------------------
Timothy G. Beffa            51          Director, President and
                                              Chief Executive Officer
William B. Hewitt           63          Director
Timothy M. Hurd             32          Director and Vice President
Scott P. Marks, Jr.         56          Director
Jeff L. Ott                 39          Director
Richard L. Thomas           71          Director
Paul R. Wood                48          Director and Vice President
Michael A. DiMarco          44          Executive Vice President -
                                              President of Specialty Business
Bryan K. Faliero            36          Executive Vice President Operations
Michael B. Staed            55          Executive Vice President Sales -
                                              Chief Sales and Marketing Officer
Gary L. Weller              41          Executive Vice President and
                                              Chief Financial Officer

Timothy G. Beffa  (51),  President,  Chief  Executive  Officer  and  Director of
Outsourcing  Solutions  Inc.  since August  1996.  From August 1995 until August
1996,  Mr.  Beffa  served as  President  and Chief  Operating  Officer  of DIMAC
Corporation  ("DIMAC") and DIMAC DIRECT Inc. ("DDI") and a director of DDI. From
1989 until  August 1995,  Mr.  Beffa served as a Vice  President of DIMAC and as
Senior  Vice  President  and Chief  Financial  Officer of DDI.  Prior to joining
DIMAC,  Mr. Beffa was Vice  President of  Administration  and Controller for the
International  Division  of Pet  Incorporated,  a  food  and  consumer  products
company, where he previously had been Manager of Financial Analysis.

William B. Hewitt (63),  Director of the Company since February 1998. Mr. Hewitt
has served as President and Chief  Executive  Officer of Sirius  Ventures,  Inc.
since  February  1998.  From July 1997 to January  1998,  Mr.  Hewitt  served as
President and Chief  Executive  Officer of The Union  Corporation  ("Union") and
prior to that he served as President and Chief Operating  Officer of Union since
May 1995. Prior to the Company's acquisition of Union, Mr. Hewitt also served as
Chairman  and Chief  Executive  Officer  of  Capital  Credit  Corporation  since
September 1991, Chairman and Chief Executive Officer of Interactive Performance,
Inc.  since  November  1995 and  Chairman  and Chief  Executive  Officer of High
Performance   Services,   Inc.  since  May  1996.  Capital  Credit  Corporation,
Interactive   Performance,   Inc.  and  High  Performance  Services,  Inc.  were
subsidiaries of Union. He currently serves as a director of ZIBEX, Inc.

Timothy M. Hurd (32),  Director and Vice President of the Company since December
1999.  Mr. Hurd is a director  of Madison  Dearborn  Partners.  Prior to joining
Madison  Dearborn  Partners in 1995,  Mr. Hurd was with Goldman Sachs & Co. from
1992 to 1994. He currently serves as a director of CapitalSource  Holdings, LLC,
Pax Holding Corporation and PayPal, Inc.

Scott P. Marks, Jr. (56),  Director of the Company since January 2000. Mr. Marks
is a private  investor in Chicago,  IL. Mr. Marks resigned from his post as Vice
Chairman and a member of the Board of Directors of First Chicago NBD Corporation
in December  1997, a post he had held since  December  1995.  Previously  he was
Executive Vice President of First Chicago  Corporation  and managed their credit
card business for  approximately 10 years. Mr. Marks serves as a director of ADA
Business   Enterprises,   the  for-profit  subsidiary  of  the  American  Dental
Association and Clark Polk Land LLC.

Jeff L. Ott (39), Director of the Company since April 2002. Mr. Ott is a general
partner  of Gryphon  GenPar II,  LLC.  Prior to joining  Gryphon,  Mr. Ott was a
managing director with DB Capital Partners, Inc. from April 1996 to May 2001.

Richard L. Thomas (71),  Director of the Company since January 2000.  Mr. Thomas
has been  retired  since May  1996.  Prior to  retiring,  Mr.  Thomas  served as
Chairman of First Chicago NBD Corporation  from December 1995 to May 1996. Prior
to that he served as Chairman of First Chicago Corporation from December 1991 to
December 1995. He currently serves as a director of Exelon, IMC Global Inc., The
PMI Group Inc., The Sabre Holding Corp. and Sara Lee Corporation.

Paul R. Wood (48),  Director and Vice  President of the Company  since  December
1999. Mr. Wood is a managing  director of Madison  Dearborn  Partners.  Prior to
co-founding  Madison Dearborn  Partners in 1993, Mr. Wood was with First Chicago
Venture  Capital for nine years in various  leadership  positions.  He currently
serves as a director of Hines  Horticulture,  Inc., Pax Holding  Corporation and
CapitalSource Holdings, LLC.

Michael A.  DiMarco  (44),  Executive  Vice  President - President  of Specialty
Business since January 2001;  Executive Vice President and President  Collection
Services of the Company from September 1998 until December 2000. From 1991 until
September  1998,  Mr.  DiMarco  was  with  Paging  Network,   Inc.,  a  wireless
communications  provider,  serving in  various  leadership  positions  including
Senior Vice President of Operations and Executive Vice President of Sales. Prior
to that, he served in various senior  leadership  positions with the City of New
York, Hertz  Rent-A-Car,  Inc., ARA Services,  Inc. and Capital Source Holdings,
LLC.

Bryan K. Faliero (36),  Executive Vice President  Operations since January 2001;
President  Portfolio  Services of the Company from  October 1997 until  December
2001.  From June 1997 to September  1997, Mr. Faliero served as Vice  President,
Business  Analysis  for the  Company.  Prior to joining the  Company,  he was an
associate with Booz Allen & Hamilton,  a strategic  consulting  company based in
Chicago, concentrating on operations strategy and network rationalization.

Michael  B.  Staed  (55),  Executive  Vice  President  Sales - Chief  Sales  and
Marketing  Officer  since  January  2001;  Senior Vice  President  and President
Outsourcing Services of the Company from July 1999 until December 2000. From May
1998 to June  1999,  Mr.  Staed  served  as  Senior  Vice  President  Marketing,
Outsourcing  for the  Company.  Prior to  joining  the  Company,  he served as a
partner in the consulting  division of Ernst & Young LLP for four years focusing
on the global telecommunications practice.

Gary L. Weller (41), Executive Vice President and Chief Financial Officer of the
Company  since July 1999.  From January 1998 to June 1999,  Mr. Weller served as
Senior Vice  President  and Chief  Financial  Officer of Harbour  Group Ltd., an
investment  firm based in St. Louis.  From June 1993 to December 1997, he served
as  Executive  Vice  President  and  Chief   Financial   Officer  of  Greenfield
Industries, Inc.


ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth information concerning the compensation paid
or accrued for by the Company on behalf of the Company's Chief Executive Officer
and the four other most  highly  compensated  executive  officers of the Company
(collectively, the "Named Officers") for the years ended December 31, 2001, 2000
and 1999.
                           Summary Compensation Table
<TABLE>
<CAPTION>
                                                                                          Long Term
                                                                     Other Annual        Compensation         All Other
                                            Salary        Bonus      Compensation           Awards          Compensation
Name and                                                                              ------------------
Principal Position            Year            ($)          ($)            ($)             Options (#)           ($)(1)
------------------            -----         -------      ------   ------------------  ------------------  -----------------
<S>                           <C>           <C>          <C>      <C>                 <C>                 <C>

Timothy G. Beffa             2001           437,500            -                                                   3,400
President and CEO            2000           371,250      375,000                             30,000                3,400
                             1999           370,836      365,000                                                   2,617

Michael A. DiMarco           2001           342,915            -                                                   3,400
Executive Vice               2000           319,370      105,000                              3,000                3,400
   President - President     1999           325,000      100,000        42,373(2)            50,000            1,373,017
   of Specialty Business

Bryan K. Faliero             2001           269,304            -                                                   3,400
Executive Vice               2000           241,673      105,000                             31,250                3,400
   President Operations      1999           195,206       90,000                                                  480,337

Mike B. Staed                2001           265,818            -                                                   2,473
Executive Vice               2000           245,519       70,000                             19,663                3,400
President Sales -            1999           228,337       70,000                             16,000              947,505
   Chief Sales an
   Marketing Officer

Gary L. Weller               2001           292,508            -                                                   3,400
Executive Vice               2000           269,884      120,000
   President and CFO         1999(3)        134,512      310,000                             50,000               10,459
</TABLE>

(1)  Amounts for 2001 and 2000  represent  the  Company's  portion of the 401(k)
     Plan  contribution.  In connection with the  Recapitalization  in 1999, Mr.
     DiMarco,  Mr. Faliero and Mr. Staed received change in control  payments of
     $1,356,875, $475,627 and $937,500, respectively.  Remaining amounts in 1999
     represent  split dollar life  insurance and long-term  disability  premiums
     paid by the  Company  along with the  Company's  portion of the 401(k) Plan
     contribution.
(2)  Payment of taxes by the Company for includable W-2 relocation expenses.
(3)  1999  compensation  based on an annual  salary of $275,000.  Mr. Weller was
     hired in July 1999.

     During the year ended December 31, 2001,  there were no stock option grants
or exercises by the Named Officers.  The following table sets forth options held
by the Named Officers at December 31, 2001.

                           AGGREGATED OPTION VALUES ON
                                DECEMBER 31, 2001

                         Number of Securities           Value of Unexercised
                        Underlying Unexercised          In-the-Money Options
                     Options at December 31, 2001      at December 31, 2001(1)
                      ---------------------------    ---------------------------
       Name           Exercisable  Unexercisable     Exercisable   Unexercisable
------------------    -----------  -------------     ------------  -------------

Timothy G. Beffa          77,675        22,500      $2,647,863       $259,425

Michael A. DiMarco        50,750         2,250        $458,648        $25,943

Bryan K. Faliero        26,562.5      23,437.5        $540,078       $270,234

Michael B. Staed       29,915.75     14,747.25        $281,679       $170,036

Gary L. Weller            50,000             0        $450,000              0

(1)  Based on a price per share of $49.00,  the last price at which the  Company
     sold its common stock

Employment Agreements

     OSI has entered into employment agreements with certain officers, including
each of the Named Officers.  The employment  agreements provide for initial base
salaries  for Messrs.  Beffa,  DiMarco,  Faliero,  Staed and Weller of $375,000,
$325,000,  $210,000,  $250,000 and  $275,000,  respectively.  Base  salaries are
adjusted  annually by the Compensation  Committee of the Board of Directors.  In
addition,  the agreements provide that Mr. Beffa is eligible for an annual bonus
of up to 150% of his annual base salary and Messrs. DiMarco,  Faliero, Staed and
Weller  are  eligible  for  target  annual  bonuses  of 67%,  50%,  50% and 67%,
respectively.

     On  December  31 of each year,  the term of each  employment  agreement  is
automatically  extended for an additional year unless the Company or the officer
gives 30 days advance  termination  notice.  If (i) the Company  terminates  the
officer's  employment without "cause" (as defined in the employment  agreement),
(ii) the  Company  does not agree to extend the  employment  agreement  upon the
expiration  thereof,  (iii) the officer  terminates his  employment  because the
Company  reduces  his  responsibilities  or  compensation  in a manner  which is
tantamount to termination of the officer's employment,  or (iv) within two years
following a sale of the company (as defined in the  employment  agreement),  the
officer resigns for "good reason" (as defined in the employment agreement),  the
officer  would  be  entitled  to  receive  an  amount  equal to his  total  cash
compensation (base salary plus bonus, excluding,  however, any change of control
bonus  described  below) for the preceding year and continue to receive  medical
and  dental  health  benefits  for one  year.  If the  officer's  employment  is
terminated  by the  Company  "for  cause",  the  officer is not be  entitled  to
severance compensation.

     The employment  agreements for Messrs.  DiMarco,  Faliero and Staed provide
that upon  consummation  of a sale of the Company (as defined in the  employment
agreement), if the officer is employed by the Company immediately prior thereto,
he will be entitled to receive a payment  from the Company in the amount of 250%
of his (i) then current base salary plus (ii) target  annual  bonus,  reduced by
any gain for all of the  options to  purchase  capital  stock of the  Company or
other equity compensation awards previously granted to the officer.  Pursuant to
this provision,  Messrs.  DiMarco,  Faliero and Staed received change in control
bonuses in 1999 upon consummation of the Recapitalization. The change in control
bonuses paid in 1999 and any future  bonuses paid pursuant to this  provision of
the employment agreements will be paid only if such bonus is previously approved
by a vote of more than  seventy-five  percent  (75%) of the voting  power of the
Company's outstanding stock immediately before any sale of the Company.

Director Compensation

     Messrs.  Hewitt,  Marks and Thomas receive  $2,000 per regularly  scheduled
meeting of the Board of Directors. Effective May 31, 2000, Messrs. Hewitt, Marks
and Thomas each purchased 2,669 shares of the Company's  voting common stock for
fair value, $37.47 per share. In conjunction with this stock purchase,  each was
granted an option to purchase an additional 2,669 shares of the Company's voting
common stock at an exercise price of $37.47 per share.  These options  time-vest
over a  three-year  period and expire on the earlier of May 31, 2010 or the date
the director ceases to be a member of the Company's Board of Directors.

     All directors receive  reimbursement for travel and out-of-pocket  expenses
incurred in connection with attendance at all such meetings. Except as described
above,  no  director  of OSI  receives  any  other  compensation  from  OSI  for
performance of services as a director of OSI or a member of any committee of the
Board of Directors.

Option Plans

     The  Company  maintains  the 1995 Stock  Option and Stock Award Plan ("1995
Plan") and Outsourcing  Solutions Inc. 2000 Equity  Incentive Plan ("2000 Plan")
(collectively,   the  "Stock  Option   Plans").   The  Stock  Option  Plans  are
administered  by the  Compensation  Committee  of the Board of  Directors of the
Company.  Under the Stock Option Plans, the Compensation  Committee may grant or
award (i)  options to purchase  stock of the  Company,  (ii) stock  appreciation
rights granted in conjunction  with stock options,  (iii)  restricted  stock, or
(iv)  bonuses  payable  in stock,  to key  salaried  employees  of the  Company,
including officers,  independent contractors of the Company and directors of the
Company.  Options  granted  under the 1995 Plan may  either be  incentive  stock
options ("ISOs"), within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended, or stock options other than ISOs ("NQSOs"),  but all grants
under the 1995 Plan were NQSOs.  The 2000 Plan  authorizes  the issuance of only
NQSOs.

     A total of 1,150,000 shares of common stock of the Company are reserved for
issuance under the Stock Option Plans. As of March 28, 2002, options to purchase
up to 751,345  shares of the Company's  common stock are  outstanding  under the
Stock Option Plans, which 475,447 shares are vested and exercisable.

Compensation Committee Interlocks and Insider Participation

     Mr. Hurd serves as a member of the Company's  Compensation Committee and as
a Vice President of the Company.  Mr. Hurd is not,  however,  an employee of the
Company.

Board of Directors' Report on Executive Compensation

     The Compensation  Committee  recommends  compensation  arrangements for the
Company's  executive  officers and administers the Company's Stock Option Plans.
The Company's compensation program was designed to be competitive with companies
similar in structure and business to the Company.

     The Company's  executive  compensation  program was  structured to help the
Company achieve its business objectives by:

o    Setting  levels of  compensation  designed to attract  and retain  superior
     executives in a highly competitive environment.

o    Designing equity-related and other performance-based incentive compensation
     programs to align the interests of management with the ongoing interests of
     shareholders; and

o    Providing  incentive  compensation  that varies  directly with both Company
     financial performance and individual contributions to that performance.

     The Company has used a combination  of salary and  incentive  compensation,
including cash bonuses and  equity-based  incentives to achieve its compensation
goals. In accordance with the 2001 Management Incentive Plan, effective in April
2001,  the  Company  selected  executives  and  certain  managers  and other key
personnel to  participate in the annual bonus  program.  It  established  target
awards  for  each  participant,  as a  percent  of his or her  base  salary.  In
addition, corporate and individual business unit objectives were established for
revenue  and  adjusted  earnings  before  interest,   taxes,   depreciation  and
amortization  ("EBITDA") and corporate leverage.  These financial factors, along
with a  component  for  accomplishment  of  individual  goals,  were  assigned a
weighting  for each  participant,  depending on his or her  position  within the
Company.

     In February 2002, the head of each functional  unit  recommended the amount
of  payout  for   individual   performance   based  on  an  evaluation  of  each
participant's   performance   in  2001.   Recommendations   for  the  individual
performance  component  were  reviewed  and in some cases  adjusted by the Chief
Executive Officer. Payout for revenue, EBITDA and leverage were determined based
on the Company's  financial  results for the year ended  December 31, 2001.  The
total amount of bonus payouts and  individual  payouts for each of the Company's
senior executives were presented to and approved by the Compensation  Committee.
Based on the Company's  revenue and EBITDA  performance  and year-end  leverage,
none of the Named Officers received a bonus for 2001.

     In June 1999, the Company  entered into an amended and restated  employment
agreement  with  Timothy  G.  Beffa to serve as  President  and Chief  Executive
Officer of the Company.  Under the  employment  agreement,  Mr.  Beffa's  target
potential is 150% of his base salary. In March 2001, the Compensation  Committee
increased Mr.  Beffa's base salary from $390,000 to $450,000 and thus his target
potential  to  $675,000.  These  amounts were  established  by the  Compensation
Committee after  consideration of compensation paid to Chief Executive  Officers
of comparative  companies and the  relationship of his compensation to that paid
to other Company senior  executives.  For 2001, Mr. Beffa's bonus was determined
based upon the following  three factors,  which were weighted as indicated:  the
Company's  performance against  pre-established  revenue and EBITDA goals (70%),
leverage goals (15%) and Mr. Beffa's attainment of  pre-established  objectives,
based on  specific  strategic  initiatives  to both  build a  suitable  business
infrastructure  and deliver on strategic growth  initiatives (15%). Based on the
Company's revenue and EBITDA  performance and year-end  leverage,  Mr. Beffa did
not receive a bonus for 2001.

                             Compensation Committee
                                 Timothy M. Hurd
                                  Paul R. Wood

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     As of April 10, 2002, the authorized  capital stock of the Company consists
of (i) 900,000 shares of Senior Common Stock, par value $.01 per share, of which
489,795.93 are issued and outstanding,  (ii) 15,000,000  shares of Voting Common
Stock,  par  value  $.01  per  share,  of  which  6,088,479.30  are  issued  and
outstanding,  (iii) 2,000,000 shares of Non-Voting  Common Stock, par value $.01
per share, of which 480,321.30 are issued and  outstanding,  (iv) 200,000 shares
of 14% Mandatorily  Redeemable  Senior  Preferred  Stock, no par value, of which
100,000 are issued and  outstanding  and (v) 50,000  shares of Junior  Preferred
Stock, no par value, of which 11,150 are issued and outstanding.

     The following  table sets forth the number and percentage of shares of each
class of the Company's capital stock  beneficially owned as of April 10, 2002 by
(i) each person known to the Company to be the beneficial  owner of more than 5%
of any  class  of the  Company's  voting  equity  securities,  (ii)  each of the
Company's directors and nominees, (iii) each of the Named Officers, and (iv) all
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                                                                   Amount and
                                                                                    Nature of
                                                                                   Beneficial          Percent of
    Title of Class                 Name and Address Beneficial Owner                Ownership          Class (1)
------------------------    ------------------------------------------------     ----------------     -------------
<S>                         <C>                                                  <C>                  <C>

Senior Common Stock         Gryphon Partners II, L.P. (2)                            800,320.13           90.7%
                            Gryphon Partners II-A, L.P. (2)                          800,320.13           90.7%
                            Jeff L. Ott (2)                                          800,320.13           90.7%
                            Madison Dearborn Capital Partners III, L.P. (3)           17,346.94            3.6%
                            Madison Dearborn Special Equity III, L.P. (3)             17,346.94            3.6%
                            All directors and executive officers as a group          425,510.21           86.9%

Voting Common Stock         Madison Dearborn Capital Partners III, L.P.(3)         4,536,367.84           74.5%
                            Madison Dearborn Special Equity III, L.P. (3)          4,536,367.84           74.5%
                            Special Advisors Fund I, L.L.C. (3)                    4,536,367.84           74.5%
                            Timothy M. Hurd (3)                                    4,536,367.84           74.5%
                            Paul R. Wood (3)                                       4,536,367.84           74.5%
                            Timothy G. Beffa (4)                                     104,363.02            1.7%
                            Michael A. DiMarco (4)                                    57,750.00            *
                            Bryan K. Faliero (4)                                      36,570.00            *
                            Michael B. Staed (4)                                      35,253.35            *
                            Gary L. Weller (4)                                        63,344.01            1.0%
                            All directors and executive officers as a group        4,833,648.22           76.4%

Junior Preferred Stock      Timothy G. Beffa                                              81.65            1.2%
                            Bryan K. Faliero                                               2.48            *
                            All directors and executive officers as a group               84.13            1.2%

Series B Junior             Madison Dearborn Capital Partners III, L.P.(3)             4,150.00          100.0%
Preferred Stock             Madison Dearborn Special Equity III, L.P. (3)              4,150.00          100.0%
</TABLE>

*    Represents less than one percent.

(1)  The information as to beneficial ownership is based on statements furnished
     to the Company by the beneficial owners. As used in this table, "beneficial
     ownership"  means the sole or shared power to vote, or direct the voting of
     a  security,  or the sole or shared  investment  power  with  respect  to a
     security  (i.e.,  the power to dispose of, or direct the  disposition  of a
     security). A person is deemed as of any date to have "beneficial ownership"
     of any  security  that such person has the right to acquire  within 60 days
     after such date.  For purposes of computing the  percentage of  outstanding
     shares held by each person named above,  any security  that such person has
     the right to acquire within 60 days of the date of calculation is deemed to
     be  outstanding,  but is not  deemed  to be  outstanding  for  purposes  of
     computing the percentage ownership of any other person.
(2)  Includes 381,340.41 shares owned by Gryphon Partners II, L.P. (""GPII") and
     26,822.86 shares owned by Gryphon Partners II-A, L.P. ("GPII-A and together
     with  GPII,  "Gryphon")  with each  entity  managed by or  affiliated  with
     Gryphon GenPar II, LLC. Mr. Ott is a general  partner of Gryphon GenPar II,
     LLC, general partner of GPII and GPII-A.  Gryphon has the right but not the
     obligation  to purchase  from the Company up to an aggregate of  392,156.86
     shares of Senior  common stock  anytime  prior to April 16,  2002.  Gryphon
     Partners II, L.P. and Gryphon Partners II-A, L.P. have pledged their shares
     of the  Company's  common  stock as  security  under the  Company's  Credit
     Agreement.  In addition,  Gryphon  Partners  II, L.P. and Gryphon  Partners
     II-A,  L.P.  are parties to Amended and  Restated  Stockholders  Agreement,
     dated as of April 16, 2001, among the Company and  substantially all of the
     Company's stockholders,  under which Madison Dearborn Capital Partners III,
     L.P.,  as  principal  investor,  may  designate  individuals  to  serve  as
     directors of the Company. The Amended and Restated  Stockholders  Agreement
     also includes  restrictions on the transfer of capital stock,  and provides
     for  registration,  preemptive,  tag along and drag along rights granted to
     the parties thereto, including Gryphon.  Furthermore,  the Company, Madison
     Dearborn  Capital  Partners  III,  L.P. and Gryphon are parties to a Voting
     Agreement  pursuant to which  Gryphon may  designate  one  individual to be
     elected to the  Company's  Board of  Directors.  The address of the Gryphon
     entities is c/o Gryphon GenPar II, LLC, One Embarcadero Center, Suite 2750,
     San Francisco, CA 94111.
(3)  Includes (i) 16,970.13 shares of Senior Common Stock,  4,433,913.11  shares
     of Voting  Common  Stock and 4,059.85  shares of Series B Junior  Preferred
     Stock owned by Madison  Dearborn  Capital  Partners III, L.P.,  (ii) 376.81
     shares of Senior Common Stock,  98,452.05 shares of Voting Common Stock and
     90.15 shares of Series B Junior  Preferred Stock owned by Madison  Dearborn
     Special Equity III, L.P., and (iii) 4,002.68  shares of Voting Common Stock
     owned by Special  Advisors  Fund I, L.L.C.  with each entity  managed by or
     affiliated with Madison Dearborn Partners,  LLC. Messrs.  Hurd and Wood are
     managing  directors of Madison  Dearborn  Partners,  LLC.  Madison Dearborn
     Capital  Partners III, L.P.,  Madison Dearborn Special Equity III, L.P. and
     Special Advisors Fund I, L.L.C.  have pledged their shares of the Company's
     common stock as security under the Company's Credit Agreement. In addition,
     under the Amended and Restated  Stockholders  Agreement,  dated as of April
     16,  2001,  among  the  Company  and  substantially  all of  the  Company's
     stockholders,  Madison  Dearborn  Capital  Partners III, L.P., as principal
     investor,  may designate  individuals to serve as directors of the Company.
     The Amended and Restated Stockholders  Agreement also includes restrictions
     on  the  transfer  of  capital  stock,   and  provides  for   registration,
     preemptive, tag along and drag along rights granted to the parties thereto,
     including  Madison  Dearborn  Capital Partners III, L.P. and certain of its
     affiliates.  The address of all the above-mentioned entities is c/o Madison
     Dearborn  Partners,  LLC, 3 First National Plaza, Suite 3800,  Chicago,  IL
     60602.
(4)  Includes  vested  options to acquire the following  number of shares of the
     Company's common stock: Mr. Beffa 77,675;  Mr. DiMarco 50,750;  Mr. Faliero
     26,562.5; Mr. Staed 29,915.75 and Mr. Weller 50,000. The address of Messrs.
     Beffa,  DiMarco,  Faliero,  Staed and Weller is c/o  Outsourcing  Solutions
     Inc., 390 South Woods Mill Rd., Suite 350, Chesterfield, MO 63017.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Advisory Services Agreement

     On  September  21,  1995 the  Company  entered  into an  Advisory  Services
Agreement (the "Advisory  Services  Agreement") with MDC Management Company III,
L.P.  ("MDC  Management"),  then  an  affiliate.  Under  the  Advisory  Services
Agreement, the Company received consulting,  financial, and managerial functions
for a $300,000  annual  fee. On  December  10,  1999,  in  conjunction  with the
Recapitalization,  the Advisory  Services  Agreement was amended and assigned to
Madison Dearborn Partners,  Inc. ("MDP").  As amended,  the annual fee under the
Advisory Services Agreement is $500,000. The Advisory Services Agreement expires
September 21, 2005 and is renewable  annually  thereafter,  unless terminated by
the Company.  The Company may terminate the Advisory  Services  Agreement at any
time for  cause  by  written  notice  to MDP  authorized  by a  majority  of the
directors  other than those who are partners,  principals or employees of MDP or
any of its affiliates. The Advisory Services Agreement may be amended by written
agreement of MDP and the  Company.  The Company  believes  that the terms of and
fees paid for the  professional  services  rendered are at least as favorable to
the Company as those which could be negotiated  with a third party. In 2001, the
Company  paid  $500,000  under  the  Advisory   Services   Agreement  for  MDP's
professional services.

Consulting Agreements

     On January  26,  1998,  the  Company  entered  into a  one-year  Consulting
Agreement with William B. Hewitt, a director of the Company.  Under the original
Consulting Agreement, Mr. Hewitt provided consulting assistance with the growing
outsourcing services of the Company at 80% of normal working hours. In addition,
Mr.  Hewitt  received  options to purchase  10,000 shares of common stock of the
Company,  which  options  in  accordance  with  their  terms  became  vested and
exercisable upon consummation of the Recapitalization.  On January 25, 1999, the
Consulting  Agreement  was extended  through March 31, 1999 and at the same time
the Consulting  Agreement was renewed for the period April 1, 1999 through March
31,  2000,  with  the  consulting  services  reduced  to a  maximum  of 50  days
(approximately 20% of normal working hours). Beginning April 1, 2000, Mr. Hewitt
agreed to perform consulting  services as mutually agreed from time to time. For
the year ended  December 31,  2001,  Mr.  Hewitt did not perform any  consulting
services under this arrangement.

Indebtedness of Management

     During 2000, the Company issued  26,688.02,  10,008 and 13,344.01 shares of
its voting  common  stock at fair value to Messrs.  Beffa,  Faliero  and Weller,
respectively  in exchange for cash and  interest  bearing  notes  secured by the
shares along with certain personal assets. At December 31, 2001, the outstanding
indebtedness  under  the  notes  for  Messrs.  Beffa,  Faliero  and  Weller  was
approximately $1,114,000,  $401,000 and $446,000,  respectively,  which includes
the outstanding principal balance and interest. The interest rate on Mr. Beffa's
and Mr. Weller's note is 6.71% per annum and on Mr. Faliero's note, the interest
rate is 6.01% per annum.

PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.   Financial Statements

          See  index  on  page  50  for  a  listing  of  consolidated  financial
          statements filed with this report.

     2.   Financial Statement Schedule

          See  index  on  page  50  for  a  listing  of  consolidated  financial
          statements schedule required to be filed by Item 8 of this Form 10-K.

     3.   Exhibits


Exhibit No.

2.1     StockSubscription and Redemption Agreement by and among Madison Dearborn
          Capital  Partners  III,  L.P.,  the Company and certain  stockholders,
          optionholders and  warrantholders of the Company,  dated as of October
          8, 1999, as amended  (incorporated herein by reference to Exhibit 2 of
          the Company's Current Report on Form 8-K filed on December 23, 1999).

2.2     StockSubscription Agreement  by and  among  Gryphon Partners  II,  L.P.,
          Gryphon  Partners  II-A,  L.P.,  Outsourcing  Solutions  Inc., and the
          additional  investors,  dated  April 3, 2001  (incorporated  herein by
          reference  to Exhibit  2.2 of the  Company's  Form 10-Q for the period
          ended June 30, 2001).

2.3     Assignment and Stock Purchase  Agreement dated  as of  December 10, 1999
          by and among  Outsourcing  Solutions Inc.,  Madison  Dearborn  Capital
          Partners III,  L.P., and certain other parties  thereto  (incorporated
          herein by reference to Exhibit 2.5 of the Company's  Form 10-K for the
          period ended December 31, 1999).

2.4     Purchase  Agreement  dated   as of  December  10,  1999,   by and  among
          Outsourcing   Solutions   Inc.  and  certain  other  parties   thereto
          (incorporated herein by reference to Exhibit 2.6 of the Company's Form
          10-K for the period ended December 31, 1999).

2.5     Junior  Preferred Stock Purchase  Agreement,  dated  as of  December 10,
          1999,  by and among  Outsourcing  Solutions  Inc.  and  certain  other
          parties  thereto  (incorporated  herein by reference to Exhibit 2.7 of
          the Company's Form 10-K for the period ended December 31, 1999).

2.6     Unit Purchase Agreement,  dated  as of April 10, 2002,  by and among the
          Company and certain other parties thereto.

2.7     Consent  Solicitation  Statement,  dated  November 9, 1999,  relating to
          the  Company's  11% Senior  Subordinated  Notes due  November  1, 2006
          (incorporated herein by reference to Exhibit 2.8 of the Company's Form
          10-K for the period ended December 31, 1999).

2.8     Asset  Purchase  Agreement  dated   September  26,  2000   by and  among
          Outsourcing  Solutions Inc., RWC Consulting Group, LLC, RWC Consulting
          Group,  Inc.,  and  Robert  W.  Curtis,  Jr.  (incorporated  herein by
          reference to Exhibit 2 of the Company's Form 10-Q for the period ended
          September 30, 2000).

2.9     Asset Purchase Agreement dated  March 12, 2001  by and among Outsourcing
          Solutions  Inc.,  Coast to Coast  Consulting,  LLC, PAE Leasing,  LLC,
          Coast to Cost  Consulting,  Incorporated,  Pioneer  Auto  Enterprises,
          Inc., C2C Management, LTD., and Robert Fraiser (incorporated herein by
          reference to Exhibit 2 of the Company's Form 10-Q for the period ended
          March 31, 2001).

2.10    Asset Purchase  Agreement  and Patentable   Property Purchase  Agreement
          dated April 30, 2001 by and among Outsourcing  Solutions Inc., Pacific
          Software  Consulting,  LLC,  Pacific  Software  Consulting,  Inc., and
          Edward F. Lambert  (incorporated herein by reference to Exhibit 2.1 of
          the Company's Form 10-Q for the period ended June 30, 2001).

3.1     Fourth  Amended  and  Restated   Certificate  of  Incorporation   of the
          Company, as of April 16, 2001.

3.2     By-laws  of the Company  (incorporated  herein by  reference  to Exhibit
          3.2 of the  Company's  Form 10-K for the  period  ended  December  31,
          2000).

4.1     Indenture  dated  as of November 6, 1996  by and among the Company,  the
          Guarantors   and   Wilmington   Trust   Company   (the    "Indenture")
          (incorporated  herein by  reference  to Exhibit  4.1 of the  Company's
          Registration Statement on Form S-4 filed on November 26, 1996).

4.2     Specimen   Certificate  of  11%   Senior  Subordinated  Note   due  2006
          (included in Exhibit 4.1 hereto)  (incorporated herein by reference to
          Exhibit 4.2 of the Company's  Registration Statement on Form S-4 filed
          on November 26, 1996).

4.3     Specimen Certificate of  11% Series B Senior Subordinated Note  due 2006
          (the "New  Notes")  (included  in Exhibit  4.1  hereto)  (incorporated
          herein by  reference  to  Exhibit  4.3 of the  Company's  Registration
          Statement on Form S-4 filed on November 26, 1996).

4.4     Form of  Guarantee   of  securities  issued  pursuant  to the  Indenture
          (included in Exhibit 4.1 hereto)  (incorporated herein by reference to
          Exhibit 4.4 of the Company's  Registration Statement on Form S-4 filed
          on November 26, 1996).

4.5     First  Supplemental  Indenture  dated as of March 31, 1998  by and among
          the Company,  the Additional  Guarantors and Wilmington  Trust Company
          (incorporated herein by reference to Exhibit 4.5 of the Company's Form
          10-K for the year ended December 31, 1998).

4.6     Second  Supplemental  Indenture  dated  as of July 16, 2000 by and among
          the Company,  the Additional  Guarantors and Wilmington Trust Company,
          as trustee  (incorporated  herein by  reference  to Exhibit 4.1 of the
          Company's Form 10-Q for the period ended September 30, 2000).

4.7     Third  Supplemental  Indenture  dated  as of September  29, 2000  by and
          among the Company,  the Additional  Guarantors  and  Wilmington  Trust
          Company, as trustee  (incorporated  herein by reference to Exhibit 4.2
          of the Company's Form 10-Q for the period ended September 30, 2000).

4.8     Fourth Supplemental  Indenture dated  as of March 12, 2001 by  and among
          the Company,  the Additional  Guarantors and Wilmington Trust Company,
          as  trustee  (incorporated  herein by  reference  to  Exhibit 4 of the
          Company's Form 10-Q for the period ended March 31, 2001).

4.9     Fifth  Supplemental  Indenture dated  as of April 30, 2001  by and among
          the Company, the Additional Guarantor and Wilmington Trust Company, as
          trustee  (incorporated  herein  by  reference  to  Exhibit  4  of  the
          Company's Form 10-Q for the period ended June 30, 2001).

4.10    Release  of  Subsidiary  Guarantee  of   OSI  Education  Services,  Inc.
          (incorporated herein by reference to Exhibit 4.3 of the Company's Form
          10-Q for the period ended September 30, 2000).

10.1    Amended and Restated Stockholders Agreement  dated as of  April 16, 2001
          by and among the Company and various stockholders of the Company.

10.2    Advisory  Services  Agreement  dated  September  21, 1995   between  the
          Company and Madison  Dearborn  Partners,  Inc.,  as assignee  from MDC
          Management Company III, L.P. as amended by Assignment  Agreement dated
          as of  December  10, 1999 by and between  Madison  Dearborn  Partners,
          Inc., the Company and MDC Management  Company III, L.P.  (incorporated
          herein by reference to Exhibit 10.2 of the Company's Form 10-K for the
          period ended December 31, 1999).

10.3    Amended  and Restated  Registration  Rights  Agreement  dated  April 16,
          2001,  by and  among  Outsourcing  Solutions  Inc.,  Madison  Dearborn
          Partners III, L.P. and certain other parties thereto.

10.4    Registration  Rights  Agreement  dated  December 10, 1999,  by and among
          the Company and certain other parties thereto  (incorporated herein by
          reference  to Exhibit 10.4 of the  Company's  Form 10-K for the period
          ended December 31, 1999).

10.5    Voting Agreement.

10.6    Amended and  Restated  Employment  Agreement  dated  as of  June 4, 1999
          between  the  Company  and  Timothy G. Beffa  (incorporated  herein by
          reference  to Exhibit 10.5 of the  Company's  Form 10-K for the period
          ended December 31, 1999).

10.7    Amended and  Restated  Employment  Agreement  dated  as of  June 4, 1999
          between the Company and  Michael A.  DiMarco  (incorporated  herein by
          reference  to Exhibit 10.6 of the  Company's  Form 10-K for the period
          ended December 31, 1999).

10.8    Employment  Agreement dated  as of June 4, 1999  between the Company and
          Bryan K. Faliero  (incorporated herein by reference to Exhibit 10.7 of
          the Company's Form 10-K for the period ended December 31, 1999).

10.9    Amended and  Restated  Employment  Agreement  dated  as of  June 4, 1999
          between  the  Company  and  Michael B. Staed  (incorporated  herein by
          reference  to Exhibit 10.8 of the  Company's  Form 10-K for the period
          ended December 31, 1999).

10.10   Employment  Agreement  dated July 5, 1999  between the  Company and Gary
          L. Weller  (incorporated  herein by  reference  to Exhibit 10.9 of the
          Company's Form 10-K for the period ended December 31, 1999).

10.11   Consulting  Agreement dated  as of February 6, 1998  between the Company
          and William B. Hewitt as amended January 25, 1999 (incorporated herein
          by reference to Exhibit 10.6 of the  Company's  Form 10-K for the year
          ended December 31, 1998).

10.12   1995 Stock  Option and Stock Award Plan  of the  Company   (incorporated
          herein by reference  to Exhibit  10.31 of the  Company's  Registration
          Statement on Form S-4 filed on November 26, 1996).

10.13   First  Amendment  to 1995  Stock  Option  and Stock  Award  Plan  of the
          Company  (incorporated  herein by  reference  to Exhibit  10.13 of the
          Company's Form 10-K for the year ended December 31, 1997).

10.14   Form of  Non-Qualified  Stock Option Award  Agreement   [B],  as amended
          (incorporated  herein by reference to Exhibit  10.14 of the  Company's
          Form 10-K for the period ended December 31, 1999).

10.15   Form of Non-Qualified  Stock Option Award Agreement  [E]   (incorporated
          herein by reference to Exhibit  10.15 of the  Company's  Form 10-K for
          the period ended December 31, 1999).

10.16   Outsourcing  Solutions Inc. 2000  Equity  Incentive Plan   (incorporated
          herein by reference to Exhibit  10.16 of the  Company's  Form 10-K for
          the period ended December 31, 2000).

10.17   Form of  Non-Qualified  Stock Purchase  and Option Award  Agreement  [F]
          (incorporated  herein by reference  to Exhibit  10.4 of the  Company's
          Form 10-Q for the period ended June 30, 2000).

10.18   Form  of Director  Stock  Purchase  and Option  Agreement  (incorporated
          herein by reference to Exhibit 10.3 of the Company's Form 10-Q for the
          period ended June 30, 2000).

10.19   Management Stock Purchase Agreement,   Non-Recourse  Secured  Promissory
          Note and Management  Stock Pledge Agreement dated as of April 19, 2000
          between  the  Company  and  Timothy  Beffa  (incorporated   herein  by
          reference  to Exhibit 10.1 of the  Company's  Form 10-Q for the period
          ended June 30, 2000).

10.20   Management  Stock Purchase  Agreement,   Promissory Note  and Management
          Stock Pledge  Agreement dated as of April 19, 2000 between the Company
          and Gary Weller  (incorporated  herein by reference to Exhibit 10.2 of
          the Company's Form 10-Q for the period ended June 30, 2000).

10.21   Management  Stock Purchase  Agreement,  Promissory Note  and  Management
          Stock  Pledge  Agreement  dated as of  November  1, 2000  between  the
          Company and Bryan Faliero (incorporated herein by reference to Exhibit
          10.21 of the  Company's  Form 10-K for the period  ended  December 31,
          2000).

10.22   2001 Management  Incentive Plan  (incorporated  herein  by reference  to
          Exhibit 10 of the  Company's  Form 10-Q for the period  ended June 30,
          2001).

10.23   Outsourcing  Solutions Inc.  Deferred  Compensation Plan   (incorporated
          herein by reference to Exhibit  10.23 of the  Company's  Form 10-K for
          the period ended December 31, 2000).

10.24   Earn-out  Agreement  dated October 8, 1997 by and  among NSA Acquisition
          Corporation,  Outsourcing  Solutions Inc.,  North Shore Agency,  Inc.,
          Automated Mailing Services,  Inc.,  Mailguard Security Systems,  Inc.,
          and DMM Consultants (incorporated herein by reference to Exhibit 10.17
          of the Company's Form 10-K for the year ended December 31,1997).

10.25   Credit Agreement  dated as of November 30, 1999  among the Company,  the
          Lenders listed therein, DLJ Capital Funding,  Inc., as the Syndication
          Agent,   and  Fleet  National  Bank,  as  the   Administrative   Agent
          (incorporated  herein by reference to Exhibit  10.18 of the  Company's
          Form 10-K for the year ended December 31, 1999).

10.26   First Amendment to Credit Agreement dated  as of January 10, 2001  among
          the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as
          the Syndication  Agent, and Fleet National Bank, as the Administrative
          Agent  (incorporated  herein  by  reference  to  Exhibit  10.1  of the
          Company's Form 10-Q for the period ended March 31, 2001).

10.27   Second  Amendment to Credit Agreement  dated as of March 30, 2001  among
          the Company, the Lenders listed therein, DLJ Capital Funding, Inc., as
          the Syndication  Agent, and Fleet National Bank, as the Administrative
          Agent  (incorporated  herein  by  reference  to  Exhibit  10.2  of the
          Company's Form 10-Q for the period ended March 31, 2001).

10.28   Third Amendment to Credit Agreement  dated as of January 24, 2002  among
          the Company,  the Lenders listed  therein,  Credit Suisse First Boston
          (as  successor  in  interest  of DLJ Capital  Funding,  Inc.),  as the
          Syndication  Agent,  and Fleet  National  Bank, as the  Administrative
          Agent.

10.29   Fourth  Amendment to Credit  Agreement  dated  as of April 8, 2002 among
          the Company,  the Lenders listed  therein,  Credit Suisse First Boston
          (as  successor  in  interest  of DLJ Capital  Funding,  Inc.),  as the
          Syndication  Agent,  and Fleet  National  Bank, as the  Administrative
          Agent.

21      Subsidiaries of registrant.



(b)  Reports on Form 8-K

     There were no reports on Form 8-K for the three-month period ended December
     31, 2001.


<PAGE>


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                   OUTSOURCING SOLUTIONS INC.


                                   /s/Timothy G. Beffa
                                   ------------------------------------
                                   Timothy G. Beffa
                                   President and Chief Executive Officer


                                   /s/Gary L. Weller
                                   ------------------------------------
                                   Gary L. Weller
                                   Executive Vice President and
                                   Chief Financial Officer

DATE:  April 15, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

       Signature                      Title                            Date
       ---------                      -----                            ----

/s/Timothy G. Beffa         President and Chief Executive         April 15, 2002
------------------------
Timothy G. Beffa            Officer, Director

/s/William B. Hewitt        Director                              April 15, 2002
------------------------
William B. Hewitt

/s/Timothy M. Hurd          Director and Vice President           April 15, 2002
------------------------
Timothy M. Hurd

/s/Scott P. Marks, Jr.      Director                              April 15, 2002
------------------------
Scott P. Marks, Jr.

/s/Jeff L. Ott              Director                              April 15, 2002
------------------------
Jeff L. Ott

/s/Richard L. Thomas        Director                              April 15, 2002
------------------------
Richard L. Thomas

/s/Paul R. Wood             Director and Vice President           April 15, 2002
------------------------
Paul R. Wood


<PAGE>






INDEX TO CONSOLIDATED  FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE


                                                                           Page
                                                                           ----
Consolidated Financial Statements

Outsourcing Solutions Inc. and Subsidiaries
     Reports of Independent Accountants...................................  F-1
     Consolidated Balance Sheets at December 31, 2001 and 2000............  F-3
     Consolidated Statements of Operations for the years
         ended December 31, 2001, 2000 and 1999...........................  F-4
     Consolidated Statements of Stockholders' Deficit for the
         years ended December 31, 2001, 2000 and 1999.....................  F-5
     Consolidated Statements of Cash Flows for the years ended
         December 31, 2001, 2000 and 1999.................................  F-7
     Notes to Consolidated Financial Statements...........................  F-9



Consolidated Financial Statement Schedule

Report of Independent Accountants.........................................  F-34
Schedule II - Valuation and Qualifying Accounts and Reserves..............  F-35




<PAGE>







                        Report of Independent Accountants

To the Stockholders and Board of Directors of Outsourcing Solutions Inc.:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under Item  14(a)(1)  on page 44,  present  fairly,  in all  material
respects,   the  financial  position  of  Outsourcing  Solutions  Inc.  and  its
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash  flows for each of the two years in the period  ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United  States of  America.  In  addition,  in our  opinion,  the  financial
statement  schedule listed in the index appearing under Item 14(a)(2) on page 44
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction  with the related  consolidated  financial  statements.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audits.  We conducted our audits of these  statements in accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.  The consolidated  financial statements of the
Company for the year ended  December 31, 1999 were audited by other  independent
accountants  whose report dated March 28, 2000 expressed an unqualified  opinion
on those statements.



/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP



March 22, 2002,
except for Notes 2, 22 and 24 which are as of April 12, 2002



<PAGE>






                        Report of Independent Accountants

To the Stockholders of Outsourcing Solutions Inc.:

We  have  audited  the  consolidated  statements  of  operations,  stockholders'
(deficit) and cash flows of Outsourcing  Solutions Inc. and subsidiaries for the
year ended December 31, 1999. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  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  audit  provides  a
reasonable basis for our opinion.

In our opinion, such consolidated  financial statements of Outsourcing Solutions
Inc. and subsidiaries present fairly, in all material respects, the consolidated
results of their operations and their cash flows for the year ended December 31,
1999 in conformity with accounting  principles  generally accepted in the United
States of America.





/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP



St. Louis, Missouri
March 28, 2000




<PAGE>



OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000 (As Restated)
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------




ASSETS                                                                 2000
                                                                   As Restated
                                                      2001        (Notes 2 & 22)
                                                      ----        --------------

Cash and cash equivalents                            $  9,535        $ 10,273

Cash and cash equivalents held for clients             25,920          21,970

Accounts receivable - trade, less allowance
  for doubtful receivables of $1,080 and $447          60,100          61,325

Purchased loans and accounts receivable
  portfolios                                           17,477          24,690

Property and equipment, net                            46,952          46,601

Goodwill, less accumulated amortization of
  $70,824 and $54,218                                 421,871         417,084

Deferred financing costs, less accumulated
  amortization of $8,844 and $4,538                    18,665          22,934

Other assets                                           39,690          27,770
                                                     --------        --------
             TOTAL                                   $640,210        $632,647
                                                     ========        ========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Accounts payable - trade                             $ 16,192        $ 15,896

Collections due to clients                             25,920          21,970

Accrued salaries, wages and benefits                   13,325          15,195

Debt                                                  539,020         539,463

Other liabilities                                      76,346          71,080

Commitments and contingencies
  (Notes 3, 13 and 14)

Mandatorily redeemable preferred stock;
  redemption amount $140,560 and $123,115             123,482         103,455

Stockholders' deficit:
  Senior common stock;  $.01 par value;
    authorized 900,000 shares, 489,795.93
    issued in 2001 and outstanding                          5               -
  Voting common stock; $.01 par value;
    authorized 15,000,000 shares,
    9,166,728.37 shares issued                             92              92
  Non-voting common stock; $.01 par value;
    authorized 2,000,000 shares, 480,321.30
    issued and outstanding                                  5               5
  Paid-in capital                                     223,277         200,537
  Accumulated deficit                                (231,754)       (198,372)
  Accumulated other comprehensive loss                 (8,883)              -
  Notes receivable from management for
    shares sold                                        (1,960)         (1,817)
  Common stock in treasury, at cost;
    3,078,249.07 shares                              (134,857)       (134,857)
                                                     --------        --------
        Total stockholders' deficit                  (154,075)       (134,412)
                                                     ---------       --------
             TOTAL                                   $640,210        $632,647
                                                     ========        ========







              The accompanying notes are an integral part of these
                             financial statements.


<PAGE>



OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                        2000
                                                                                                    As Restated
                                                                                          2001     (Notes 2 & 22)       1999
                                                                                          ----     --------------       ----
<S>                                                                                       <C>       <C>                 <C>

REVENUES                                                                               $ 612,346     $ 541,076       $ 504,425

EXPENSES:
  Salaries and benefits                                                                  294,509       264,293         244,157
  Service fees and other operating and administrative expenses                           209,704       177,457         154,799
  Amortization of purchased loans and accounts receivable portfolios                      26,930        28,092          38,722
  Amortization of goodwill and other intangibles                                          16,606        16,082          16,229
  Depreciation expense                                                                    14,370        15,803          14,866
  Compensation expense related to redemption of stock options                                  -           187               -
  Conversion, realignment and relocation expenses                                          3,564         2,742           5,063
  Change in control bonuses, stock option redemption and other bonuses                         -             -          10,487
  Recapitalization related costs                                                               -             -           6,827
                                                                                       ---------     ---------       ---------
           Total expenses                                                                565,683       504,656         491,150
                                                                                       ---------     ---------       ---------

OPERATING INCOME                                                                          46,663        36,420          13,275

INTEREST EXPENSE - Net                                                                    59,449        60,934          52,265
                                                                                       ---------     ---------       ---------

LOSS BEFORE INCOME TAXES
  AND EXTRAORDINARY ITEM                                                                 (12,786)      (24,514)        (38,990)

PROVISION FOR INCOME TAXES                                                                   569           594             759
                                                                                       ---------     ---------       ---------

LOSS BEFORE EXTRAORDINARY ITEM                                                           (13,355)      (25,108)        (39,749)

EXTRAORDINARY LOSS ON EXTINGUISHMENT OF DEBT                                                   -             -           4,208
                                                                                       ---------     ---------       ---------

NET LOSS                                                                                 (13,355)      (25,108)        (43,957)

PREFERRED STOCK DIVIDEND REQUIREMENTS AND
ACCRETION OF SENIOR PREFERRED STOCK                                                       20,027        17,739           2,358
                                                                                       ---------     ---------       ---------

NET LOSS TO COMMON STOCKHOLDERS                                                        $ (33,382)    $ (42,847)      $ (46,315)
                                                                                       ==========    =========       =========

</TABLE>



              The accompanying notes are an integral part of these
                             financial statements.


<PAGE>



OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                           Common Stock
                       Non-Voting -------------------------------
                       Cumulative                          Non-                         Accumulated
                       Redeemable                         Voting                           Other
                       Preferred                   Non-  Classes   Paid-in  Accumulated Comprehensive  Notes     Treasury
                         Stock    Senior  Voting  Voting A, B & C  Capital    Deficit     Income      Receivable  Stock     Total
                       ---------- ------  ------  ------ --------  -------  ----------- ------------- ---------- -------  ---------
<S>                    <C>        <C>     <C>     <C>    <C>       <C>      <C>         <C>           <C>        <C>      <C>
BALANCE
JANUARY 1,1999         $12,167    $   -   $   35  $    -  $   18   $66,958  $(109,210)  $     -       $    -     $    -   $(30,032)

Payment of preferred
stock dividends through
issuance of
140,997.01 shares of
preferred
stock and recorded
preferred stock dividend
requirements of
$1 per share             1,762        -        -       -       -         -     (1,276)        -            -          -        486

Issuance of
186,791.67 common
shares in exchange
for MDP's
investment  in
FINCO                        -        -        2       -       -     6,998          -         -            -          -      7,000

Issuance of
5,273,037.98 voting
and 480,321.30
non-voting common
shares                       -        -       52       5       -   215,546          -         -            -          -    215,603

Repurchase of
common stock
and redemption of
preferred,
non-voting common,
stock options and
warrants              (13,929)        -        1       -     (18)  (93,163)        -          -            -   (115,391)  (222,500)

Recapitalization
fees & expenses             -         -        -       -       -         -         -          -            -    (19,466)   (19,466)

Accrued dividends
on mandatorily
redeemable
preferred stock             -         -        -       -       -         -      (877)         -            -          -       (877)

Accretion of
mandatorily
redeemable
preferred stock             -         -        -       -       -         -      (205)         -            -          -       (205)

Net loss                    -         -        -       -       -         -   (43,957)         -            -          -    (43,957)
                       ------     -----   ------  ------  ------   -------   --------   -------       ------     ------     ------
BALANCE, DECEMBER
31, 1999                    -         -       90       5       -   196,339  (155,525)         -            -   (134,857)   (93,948)

Issuance of
62,050.23 voting
common
shares                      -         -        1       -       -     2,324         -          -            -          -      2,325

Issuance of
50,040.03 voting
common
shares in exchange
for cash and notes
receivable                  -         -        1       -       -     1,874         -          -       (1,774)         -        101

</TABLE>

                                   (continued)

                 The accompanying notes are an integral part of
                          these financial statements.
<PAGE>



OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) and 1999
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                       Common Stock
                              ---------------------------------
                  Non-voting
                  Cumulative                             Non-
                  Redeemable                            voting                           Accumulated
                  Preferred                            Classes    Paid-in  Accumulated  Comprehensive  Notes     Treasury
                    Stock     Senior   Voting  Voting  A, B & C   Capital  Deficit      Income(Loss) Receivable    Stock     Total
                  ----------  ------   ------  ------  --------   -------  ------------ ------------ ----------  --------    -----
<S>               <C>         <C>      <C>     <C>     <C>        <C>      <C>          <C>          <C>         <C>         <C>
Accrued
interest on
notes
receivable             -          -         -       -          -         -          -          -          (43)         -        (43)

Accrued
dividends on
mandatorily
redeemable
preferred stock        -          -         -       -          -         -    (15,238)         -            -          -    (15,238)

Accretion of
mandatorily
redeemable
preferred stock        -          -         -       -          -         -     (2,501)         -            -          -     (2,501)

Net loss As
Restated
(Notes 2 & 22)         -          -         -       -          -         -    (25,108)         -            -          -    (25,108)
                 -------      -----    ------  ------    -------    ------    -------    -------      -------     ------    -------
BALANCE,
DECEMBER 31,
2000 As
Restated
(Notes 2 & 22)         -          -        92       5          -   200,537   (198,372)         -       (1,817)  (134,857)  (134,412)

Issuance of
489,795.93 of
senior
common shares          -          5         -       -          -    21,999          -          -            -          -     22,004

Fair market
value
adjustments on
derivatives
(see Note 16)          -          -         -       -          -         -          -     (8,883)           -          -     (8,883)

Non-cash
variable stock
options
compensation           -          -         -       -          -       741          -          -            -          -        741

Accrued
interest on
notes
receivable             -          -         -       -          -         -          -          -         (143)         -       (143)

Accrued
dividends on
mandatorily
redeemable
preferred stock        -          -         -       -          -         -    (17,445)         -            -          -    (17,445)

Accretion of
mandatorily
redeemable
preferred stock        -          -         -       -          -         -     (2,582)         -            -          -     (2,582)

Net loss               -          -         -       -          -         -    (13,355)         -            -          -    (13,355)
                  ------      -----    ------  ------    -------  --------  ----------   -------      -------   --------  ---------
BALANCE,
DECEMBER 31,
2001              $    -      $   5    $   92  $    5    $     -  $223,277  $(231,754)   $(8,883)     $(1,960) $(134,857) $(154,075)
                  ======      =====    ======  ======    =======  ========  =========    =======      =======  ========== =========
</TABLE>

              The accompanying notes are an integral part of these
                             financial statements.
<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) AND 1999
(In thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                      2000
                                                                                                  As Restated
                                                                                      2001       (Notes 2 & 22)      1999
                                                                                      ----       ---------------     ----
<S>                                                                                   <C>        <C>                 <C>

OPERATING ACTIVITIES AND PORTFOLIO PURCHASING:
  Net loss                                                                         $ (13,355)      $ (25,108)     $ (43,957)
  Adjustments to reconcile net loss to net cash from operating activities and
portfolio
      purchasing:
        Depreciation and amortization                                                 38,458          36,300         34,477
        Amortization of purchased loans and accounts receivable portfolios            26,930          28,092         38,722
        Extraordinary loss on extinguishment of debt                                       -               -          4,208
        Compensation expense related to redemption of stock options and                    -               -          4,635
repriced options
        Other non-cash charges                                                         1,968               -              -
        Change in assets and liabilities:
          Purchases of loans and accounts receivable portfolios                      (19,717)        (12,835)       (23,176)
          Other assets                                                                (8,429)        (11,127)       (13,245)
          Accounts payable and other liabilities                                      (8,928)          9,470         (5,316)
                                                                                   ---------       ---------      ---------

        Net cash from operating activities and portfolio purchasing                   16,927          24,792         (3,652)
                                                                                   ---------       ---------      ---------

INVESTING ACTIVITIES:
  Payments for acquisitions, net of cash acquired                                    (24,678)        (18,316)          (877)
  Investment in FINCO                                                                      -               -         (2,500)
  Acquisition of property and equipment                                              (14,159)        (18,398)       (18,437)
  Purchases of loans and accounts receivable portfolios for resale to FINCO          (63,399)        (86,910)       (56,664)
  Sales of loans and accounts receivable portfolios to FINCO                          63,399          86,910         56,664
  Other                                                                                                    -            265
                                                                                   ---------       ---------      ---------
        Net cash from investing activities                                           (38,837)        (36,714)       (21,549)
                                                                                   ---------       ---------      ---------

FINANCING ACTIVITIES:
  Proceeds from term loans                                                                 -             150        400,000
  Borrowings under revolving credit agreement                                        341,600         341,950        289,700
  Repayments under revolving credit agreement                                       (327,600)       (322,950)      (302,200)
  Repayments of debt                                                                 (14,670)         (3,315)      (397,448)
  Deferred financing fees                                                               (162)           (125)       (21,242)
  Proceeds from issuance of preferred and common stock                                22,004             426        300,237
  Repurchase of preferred stock, common stock and warrants                                 -               -       (223,208)
  Redemption of stock options                                                              -               -         (3,927)
  Recapitalization fees                                                                    -               -        (19,466)
                                                                                   ---------       ---------      ---------

           Net cash from financing activities                                         21,172          16,136         22,446
                                                                                   ---------       ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (738)          4,214         (2,755)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          10,273           6,059          8,814
                                                                                   ---------       ---------      ---------

CASH AND CASH EQUIVALENTS, END OF YEAR                                             $   9,535       $  10,273      $   6,059
                                                                                   =========       =========      =========

</TABLE>

                                   (continued)

              The accompanying notes are an integral part of these
                             financial statements.
<PAGE>

OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 (As Restated) AND 1999
(In thousands)
--------------------------------------------------------------------------------
                                                             2000
                                                         As Restated
                                                2001    (Notes 2 & 22)   1999
                                                ----    --------------   ----
SUPPLEMENTAL DISCLOSURE OF
 CASH FLOW INFORMATION:

  Cash paid during year for interest          $ 54,057     $ 49,151     $ 51,232
                                              ========     ========     ========

  Net cash paid during year for taxes         $    469     $      2     $    306
                                              ========     ========     ========


SUPPLEMENTAL DISCLOSURE OF
 NON-CASH INFORMATION:

  Investment in FINCO through exchange of
    common stock with MDP                     $      -     $      -     $  7,000
                                              ========     ========     ========

  Accrued dividends on mandatorily
    redeemable preferred stock                $ 17,445     $ 15,238     $    877
                                              ========     ========     ========

  Accretion of mandatorily redeemable
    preferred stock                           $  2,582     $  2,501     $    205
                                              ========     ========     ========

  Notes receivable for common stock           $      -     $  1,774     $      -
                                              ========     ========     ========

  Capital lease obligations incurred for
    the purchase of new equipment             $    227     $    320     $      -
                                              ========     ========     ========
  Issuance of voting common stock in
    partial payment of asset acquisition      $      -     $  2,000     $      -
                                              ========     ========     ========

  Notes payable in partial payment of
    asset acquisition                         $      -     $  5,000     $      -
                                              ========     ========     ========

























              The accompanying notes are an integral part of these
                             financial statements.


<PAGE>


OUTSOURCING SOLUTIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
(In thousands, except share and per share amounts)
--------------------------------------------------------------------------------


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business - The  Company is one of the  largest  providers  of  business  process
outsourcing receivables services in the United States. The Company purchases and
collects  portfolios  of  charged-off  loans  and  accounts  receivable  for the
Company's own account,  services accounts receivable  placements on a contingent
and fixed fee basis and provides contract management of accounts receivable. The
Company's    customers    are    mainly   in   the    educational,    utilities,
telecommunications,  retail,  healthcare and financial services industries.  The
markets for the Company's services currently are the United States, Puerto Rico,
Canada and Mexico.

Consolidation  Policy  -  The  consolidated  financial  statements  include  the
accounts  of  Outsourcing   Solutions  Inc.  ("the  Company")  and  all  of  its
majority-owned subsidiaries (collectively, "OSI"). Ownership in entities of less
than 50% are accounted for under the equity method. All significant intercompany
accounts and transactions have been eliminated.

Cash and Cash  Equivalents - Cash and cash  equivalents  consist of cash,  money
market investments, and overnight deposits with original maturities of less than
three months.  Cash equivalents are valued at cost, which  approximates  market.
Cash and cash  equivalents  held  for  clients  consist  of  certain  restricted
accounts  which are used to maintain cash  collected and held on behalf of OSI's
clients.

Purchased  Loans  and  Accounts  Receivable  Portfolios  -  Purchased  loans and
accounts receivable portfolios  ("Receivables") acquired in the normal course of
business are recorded at cost. The Company  periodically reviews all Receivables
to assess  recoverability.  Impairments  are  recognized  in  operations  if the
expected  aggregate  discounted future net operating cash flows derived from the
portfolios are less than the aggregate  carrying value. No impairments have been
recorded for the year ended December 31, 2001, 2000 and 1999, respectively.

The  Company  amortizes  on an  individual  portfolio  basis  the  cost  of  the
Receivables based on the ratio of current collections for a portfolio to current
and  anticipated  future  collections  including  any  terminal  value  for that
portfolio.  Such portfolio cost is amortized over the expected collection period
as  collections  are  received  which,  depending on the  individual  portfolio,
generally ranges from 3 to 5 years.

Revenue  Recognition - Collections on Receivables  owned are recorded as revenue
when cash is collected.  Proceeds from strategic sales of Receivables  owned are
generally  recognized as revenue when  received.  Revenue from  collections  and
outsourcing  services  is  recorded  as  such  services  are  provided.  Certain
collection  services are provided on a contingent fee basis. For these services,
revenue  is  recognized  when  cash  is  collected.   Deferred  revenue  in  the
accompanying  balance sheet primarily relates to certain prepaid fees for letter
services which are recognized when the letter services are provided.

Property  and   Equipment  -  Property  and   equipment  is  recorded  at  cost.
Depreciation  is computed on the  straight-line  method  based on the  estimated
useful lives (3 years to 30 years) of the related assets. Leasehold improvements
are amortized over the term of the related lease.  The Company  annually reviews
property and equipment to assess  recoverability.  Impairments are recognized in
operations if the  estimated  future  undiscounted  cash flows derived from such
property and equipment  are less than its carrying  value.  Management  believes
there is no impairment of property and equipment at December 31, 2001.

Intangible  Assets - The  excess  of cost over the fair  value of net  assets of
businesses  acquired (goodwill) is amortized on a straight-line basis over 20 to
30 years.  Other identifiable  intangible assets are primarily  comprised of the
fair value of existing  account  placements  acquired in connection with certain
business combinations and non-compete  agreements.  These assets are short-lived
and are being  amortized over the assets' periods of  recoverability,  which are
estimated to be 1 to 3 years.  The Company  annually  reviews goodwill and other
intangibles to assess  recoverability.  Impairments are recognized in operations
if the estimated future operating cash flows  (undiscounted and without interest
charges)  derived from such intangible  assets are less than its carrying value.
At December 31, 2001,  the Company  believes  that no impairment in the carrying
value of goodwill or intangibles exists.

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible
Assets.  SFAS No. 142  eliminates  the  amortization  of  goodwill  and  instead
requires  goodwill to be tested for  impairment  annually at the reporting  unit
level.  Also,  specifically  identifiable  intangible  assets are required to be
amortized over their useful lives and reviewed for impairment in accordance with
Statement  of  Financial   Accounting  Standard  No.  144,  Accounting  for  the
Impairment  or  Disposal  of  Long-Lived  Assets.  Under  SFAS No.  142,  if the
intangible  asset has an indefinite  useful life, it is not amortized  until its
life is determined  to be finite.  The Company is required to adopt SFAS No. 142
on January 1, 2002.  SFAS No. 142 provides a staggered  timeline for  completing
transitional  impairment  testing of goodwill  and  indefinite-lived  intangible
assets.  The Company does not have any  indefinite-lived  intangible assets. The
Company will be required to reassess the useful  lives of  intangible  assets by
the end of the first  quarter of 2002.  The Company will be required to complete
the first step of the transitional  goodwill impairment by the end of the second
quarter of 2002. If this first step indicates  transitional  goodwill impairment
may exist, the second step,  which results in a final  determination of goodwill
impairment,  if any,  must be  completed no later than  December  31, 2002.  The
Company is  currently  evaluating  the  impact of SFAS No. 142 on its  financial
statements. Goodwill, net of amortization, was $421,871 and $417,084 at December
31, 2001 and 2000,  respectively.  Goodwill  amortization  recorded for the year
ended December 31, 2001 and 2000 was $16,606 and $15,484, respectively. However,
as previously noted, goodwill amortization will cease as of January 1, 2002.

Deferred Financing Costs - Deferred financing costs are being amortized over the
terms of the related debt agreements.

Income  Taxes - The  Company  accounts  for  income  taxes  using an  asset  and
liability  approach.  The  Company  recognizes  the  amount of taxes  payable or
refundable for the current year and deferred tax  liabilities and assets for the
expected  future tax  consequences  of events that have been  recognized  in the
consolidated  financial statements.  The Company evaluates the recoverability of
deferred tax assets and establishes a valuation allowance to reduce the deferred
tax assets to an amount that is more likely than not to be realized.

Environmental Costs - All of the Company's  environmental  proceedings relate to
discontinued  operations  of  subsidiaries  or  former  divisions  of The  Union
Corporation  (See Notes 7 and 14). Costs  incurred to investigate  and remediate
contaminated sites are charged against the environmental reserves established in
conjunction with the Union acquisition.

Stock-Based Compensation - The Company accounts for its stock-based compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees.  SFAS No. 123,
Accounting  for  Stock-Based  Compensation,  requires that  companies  using the
intrinsic  value method make pro forma  disclosures of net income as if the fair
value-based  method of  accounting  had been  applied.  See Note 12 for the fair
value disclosures required under SFAS No. 123.

Accounting  Estimates - The  preparation  of financial  statements in conformity
with accounting  principles  generally  accepted in the United States of America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

Earnings  Per  Share - SFAS No.  128,  Earnings  per  Share,  is  applicable  to
companies who have publicly traded equity  securities.  As such, SFAS No. 128 is
not  currently  applicable to the Company and,  accordingly,  earnings per share
information is not presented.

Business  Combinations  - In July 2001,  the FASB issued SFAS No. 141,  Business
Combinations.  SFAS No. 141 requires  that the purchase  method of accounting be
used for all business combinations initiated after June 30, 2001 and establishes
specific criteria for recognition of intangible assets separately from goodwill.
For  business  combinations  initiated  after June 30,  2001,  SFAS No. 141 also
requires that  unallocated  negative  goodwill be written off  immediately as an
extraordinary gain. In addition,  SFAS No. 141 requires  reclassifying  existing
intangible  assets that have been reported as part of goodwill,  and  accounting
for them separately  upon adoption of SFAS No. 142 if certain  criteria are met.
The  adoption  of SFAS No. 141 did not have a material  impact on the  Company's
consolidated  financial  statements  as the Company has no negative  goodwill or
intangible assets that have been reported as part of goodwill.

Impairment or Disposal of Long-Lived  Assets - In October 2001,  the FASB issued
SFAS No. 144,  Accounting for the  Impairment or Disposal of Long-Lived  Assets.
SFAS No. 144 addresses financial  accounting and reporting for the impairment or
disposal of long-lived assets, and is required to be adopted on January 1, 2002.
The  Company  does not  expect  SFAS No.  144 to have a  material  impact on the
Company's consolidated financial statements upon adoption.


2.   RESTATEMENT OF FINANCIAL RESULTS

During the finalization of the Company's consolidated financial statements as of
and  for  the  year  ended  December  31,  2001,  it  was  determined  that  the
consolidated  results reported in the Company's Form 10-K as of and for the year
ended December 31, 2000, as well as the unaudited consolidated quarterly results
reported in the Company's  Report on Form 10-Q for the quarter  ended  September
30,  2001,  would need to be restated  for  inaccurate  financial  reporting  of
certain transactions at one of the Company's  subsidiaries,  North Shore Agency,
Inc.  ("NSA").  The Board of  Directors  authorized  the  Audit  and  Compliance
Committee (the  "Committee") to conduct an independent  investigation,  with the
assistance of special counsel retained by the Committee,  to identify the causes
of these  discrepancies and to make  recommendations to ensure similar issues do
not recur in the  future.  The  Committee  retained  Bryan  Cave LLP as  special
counsel, and Bryan Cave LLP engaged an independent  accounting firm to assist in
the  investigation.  As a result of the  investigation,  it was determined  that
certain  assets  were  overstated  (primarily  accounts  receivable  and prepaid
postage) and trade accounts payable was understated at NSA due to the inaccurate
financial reporting of certain transactions.

As a result, the consolidated  financial statements as of and for the year ended
December 31, 2000, as well as the unaudited consolidated quarterly results as of
and for the quarter ended September 30, 2001 have been restated.  Comparisons of
previously  reported  and restated  consolidated  financial  statements  for all
periods impacted by the restatement,  including  annual  consolidated  financial
statements and unaudited quarterly financial data, are set forth in Notes 22 and
23 to the consolidated financial statements included herein.

For the year ended  December  31, 2000,  the  previously  reported  consolidated
financial  statements  included  an  overstatement  of revenues by $1,551 and an
understatement  of operating  expenses by $4,106.  The impact of the  inaccurate
financial  reporting of certain  transactions on previously  reported  operating
results for the year ended December 31, 2000 was to overstate  operating  income
by $5,657 and understate net loss and net loss to common stockholders by $5,657.


3.   RECAPITALIZATION AND RECENT ACQUISITIONS

In December 1999, the Company was  recapitalized  in a transaction  with Madison
Dearborn  Capital  Partners  III,  L.P.  ("MDP")  and  certain of the  Company's
stockholders,  optionholders  and warrant holders pursuant to which MDP acquired
75.9% of OSI's common stock. In conjunction with the  Recapitalization,  most of
the then outstanding  capital stock of OSI was redeemed,  the Company refinanced
its credit  facility and issued $107,000 of preferred  stock.  The total implied
value of the Company based on the Recapitalization was approximately $790,000.

The  Recapitalization  had no impact on the  historical  basis of the  Company's
assets and liabilities.

In  accordance  with  the  terms  of  the   Recapitalization,   the  holders  of
approximately  85.6%  of  shares  of  the  Company's  common  stock  outstanding
immediately  prior to the  Recapitalization  received $37.47 in cash in exchange
for each of these shares.  In addition,  the holders of the Company's  preferred
stock,  non-voting  common stock,  warrants and stock options received $37.47 in
cash in exchange for each of these instruments.  In accordance with the terms of
the Recapitalizations,  all outstanding stock options that had not vested at the
date of the Recaptialization  became immediately vested.  Immediately  following
the    Recapitalization,    continuing    shareholders    (14.4%    before   the
Recapitalization)  owned  approximately  8.5% of the  outstanding  shares of the
Company's voting common stock.

In connection with the  Recapitalization,  the Company entered into a new credit
facility  providing  for term loans of  $400,000  and  revolving  loans of up to
$75,000  (see Note 6). The  proceeds  of the  initial  borrowings  under the new
credit  facility and the  issuance of  approximately  $300,000 of the  Company's
preferred  and  common  stock  were  used to  finance  the  payments  of cash to
cash-electing  shareholders,  to pay the  holders  of stock  options  and  stock
warrants  exercised  or  canceled,   as  applicable,   in  connection  with  the
Recapitalization,  to repay the Company's  existing  credit  facility and to pay
expenses incurred in connection with the Recapitalization.

During 1999, the Company recorded  $57,880 in fees and expenses  associated with
the  Recapitalization.  The total fees and expenses  consisted  of: (i) fees and
expenses related to the debt and equity transactions,  including bank commitment
fees and  underwriting  commissions;  (ii)  professional  and advisory  fees and
expenses;  (iii) compensation expense relating to the payment of cash for vested
stock options and the payment of change in control  bonuses to certain  officers
in accordance with the terms of their respective employment agreements; and (iv)
other  miscellaneous  fees and  expenses.  The fees and  expenses  that could be
specifically identified as relating to the issuance of debt were capitalized and
are being amortized over the life of the debt as interest expense.  The fees and
expenses  that  could be  specifically  identified  as  relating  to the  equity
transactions  were  charged  directly  to equity.  Other  transaction  fees were
allocated between debt and equity based on the Company's  estimate of the effort
spent in the activity giving rise to the fee or expense.  The allocation of fees
and  expenses to the debt,  equity,  compensation  expense and  Recapitalization
related costs is as follows:

                                        Compensation   Recapitalization
                    Debt       Equity      Expense      Related Costs     Total
                  -------     -------   ------------   ----------------  -------

Direct costs      $20,205     $18,571      $10,487         $ 6,827       $56,090
Allocated costs       895         895            -               -         1,790
                  -------     -------      -------         -------       -------

Total              21,100     $19,466      $10,487         $ 6,827       $57,880
                  =======     =======      =======         =======       =======

In September 2000, the Company through a newly formed limited liability company,
RWC  Consulting   Group,  LLC,  acquired  certain  assets  and  assumed  certain
liabilities of RWC Consulting Group,  Inc. ("RWC"),  a service company providing
highly-skilled  consultants  to banks to assist in their back office  functions.
Total  consideration  for RWC included cash of approximately  $16,968  including
transaction costs of $225,  voting common stock worth $2,000 (53,376.03  shares)
and an 18% unsecured,  subordinated note of $5,000 (interest compounded annually
and principal and interest due September 29, 2003).  The acquisition  contains a
contingent payment obligation based on the attainment of a financial performance
target over the next three years. The future contingent payment  obligation,  if
any,  will be  accounted  for as  additional  goodwill  at such time the Company
determines it is probable that the contingent payment will be made.

In March 2001,  the Company  through a newly formed limited  liability  company,
Coast to Coast  Consulting,  LLC,  acquired  certain assets and assumed  certain
liabilities  of Coast to Coast  Consulting,  Inc.  ("CCC"),  a  service  company
providing  highly  skilled  experts to health care  clients to assist with their
on-site,  back office functions such as billing,  collections,  special projects
and other areas.  Total cash  consideration  for CCC was  approximately  $16,699
including  transaction  costs of $150.  The  acquisition  contains a  contingent
payment  obligation  based on the attainment of a financial  performance  target
over the next three years. The future contingent payment obligation,  if any, is
expected to be accounted for as additional  goodwill at such time as the Company
determines it is probable that the contingent payment will be made.

In April 2001,  the Company  through a newly formed limited  liability  company,
Pacific  Software  Consulting,  LLC,  acquired  (i)  certain  assets and assumed
certain  liabilities of Pacific Software  Consulting,  Inc.  ("PSC"),  a service
company  providing  highly skilled  consultants to banks to assist in their back
office  functions,   and  (ii)  associated   patentable  property.   Total  cash
consideration  for  these   acquisitions  was  approximately   $4,954  including
transaction  costs of $45. In connection  with these  acquisitions,  the Company
agreed to certain  contingent  payment  obligations  based on the  attainment of
certain  financial  performance  targets  through  September  2002.  The  future
contingent  payment  obligations,  if any, are  expected to be accounted  for as
additional goodwill as the payments are made.

The  above  acquisitions  were  accounted  for  under  the  purchase  method  of
accounting.  The excess of cost over the fair  value of the net assets  acquired
was $39,488.  The cash purchase price of the acquisitions was financed under the
Company's  revolving  credit  facility.  Results of operations  for the acquired
businesses were included in the Company's  consolidated  financial statements at
their  respective  acquisition  dates.  No amounts  have been  recorded  to date
relative  to  the  contingent  purchase  price  provisions  for  the  respective
acquisitions noted above.

The unaudited pro forma  consolidated  financial  data shown below  presents the
consolidated financial data as if the RWC, CCC and PSC acquisitions had occurred
as of the beginning of each period  presented.  The unaudited  results have been
prepared  for  comparative  purposes  only and do not  necessarily  reflect  the
results of operations  of the Company that actually  would have occurred had the
acquisitions been consummated as of the beginning of each period presented,  nor
does the data give effect to any transactions other than the acquisitions.

                                             Unaudited
                                             Pro Forma
                                    -----------------------------
                                        2001               2000

     Net revenues                     $617,400           $579,306
                                      ========           ========

     Net loss                         $(13,047)          $(15,210)
                                      ========           ========


4.   PROPERTY AND EQUIPMENT

Property and equipment,  which is recorded at cost, consists of the following at
December 31:
                                                  2001               2000
                                                  ----               ----

     Land                                       $   2,109          $   2,109
     Buildings                                      1,917              1,917
     Furniture and fixtures                        13,391             10,603
     Machinery and equipment                        5,223              4,176
     Telephone equipment                           15,951             13,066
     Leasehold improvements                         9,685              9,056
     Computer hardware and software                64,663             57,710
                                                ---------          ---------
                                                  112,939             98,637
     Less accumulated depreciation                (65,987)           (52,036)
                                                ----------         ---------

                                                $  46,952          $  46,601
                                                =========          =========


5.   OTHER ASSETS

Other assets consist of the following at December 31:
                                                                      2000
                                                                   As Restated
                                                   2001          (Notes 2 & 22)
                                                   ----          --------------

     Investment in FINCO                         $  12,000          $  12,000
     Receivable from FINCO                          17,014              5,612
     Other (primarily supplies
       inventory and prepaid assets)                10,676             10,158
                                                 ---------          ---------

                                                 $  39,690          $  27,770
                                                 =========          =========
6.   DEBT

Debt consists of the following at December 31:
                                                         2001          2000
                                                         ----          ----

     Term Loan Facility                               $ 387,500     $ 397,500
     Revolving Credit Facility                           46,000        32,000
     11% Series B Senior Subordinated Notes             100,000       100,000
     18% Note payable to stockholder
       (See Note 3)                                       5,000         5,000
     9% Note payable to stockholder                           -         4,429
     Other (including capital leases)                       520           534
                                                      ---------     ---------
               Total debt                             $ 539,020     $ 539,463
                                                      =========     =========

On April 28,  1997,  the  Company  registered  $100,000  of 11%  Series B Senior
Subordinated  Notes (the  "Notes")  which mature on November 1, 2006.  The Notes
were  exchanged  for the  then  existing  unregistered  $100,000  of 11%  Senior
Subordinated  Notes. The exchange offer was completed by May 29, 1997.  Interest
on the Notes is payable  semi-annually on May 1 and November 1 of each year. The
Notes are general  unsecured  obligations of the Company and are subordinated in
right of payment to all senior debt of the  Company  presently  outstanding  and
incurred in the future. The Notes contain certain restrictive covenants the more
significant of which are  limitations on asset sales,  additional  indebtedness,
mergers  and  certain  restricted  payments,   including  dividends.  Under  the
Indenture  governing the Notes,  the Company is obligated to furnish  holders of
the Notes with financial  information  that would be required to be contained in
filings with the Securities and Exchange  Commission.  The Company is furnishing
Note holders with copies of the restated  financial  results discussed in Note 2
and,  therefore,  has cured, within any applicable cure period, any default that
may have  existed  as a  result  of  inaccuracies  contained  in any  previously
furnished financial information.

In connection with the  Recapitalization,  the Company entered into a new credit
facility providing up to $475,000 of senior bank financing ("Credit  Facility").
The  proceeds  of the  Credit  Facility  were  used  to  refinance  $439,602  of
indebtedness  outstanding on the date of the Recapitalization  which resulted in
an  extraordinary  loss of $4,208 from the write-off of  previously  capitalized
deferred financing fees. No income tax benefit was recorded with respect to this
write-off.  In  addition,  the Credit  Facility  will be used to provide for the
Company's working capital requirements and any future acquisitions.

The Credit  Facility  consists of a $400,000  term loan  facility  and a $75,000
revolving  credit  facility (the "Revolving  Facility").  The term loan facility
consists of a term loan of $150,000  ("Term Loan A") and a term loan of $250,000
("Term  Loan  B"),  which  mature  on  December  10,  2005 and  June  10,  2006,
respectively.  The Company is required to make quarterly principal repayments on
each term loan  beginning  January 15, 2000 for Term Loan B and January 15, 2001
for Term Loan A. Term Loan A bears interest,  at the Company's option,  (a) at a
base  rate  equal to the  greater  of the  federal  funds  rate plus 0.5% or the
lender's prime rate, plus 2.25% or (b) at the reserve  adjusted  Eurodollar rate
plus 3.25%. Term Loan B bears interest,  at the Company's option,  (a) at a base
rate equal to the  greater of the federal  funds rate plus 0.5% or the  lender's
prime rate, plus 3.0% or (b) at the reserve adjusted  Eurodollar rate plus 4.0%.
As of December 31, 2001 and 2000,  the  interest  rate for Term Loan A was 5.68%
and 10.05%,  respectively.  As of December 31, 2001 and 2000,  the interest rate
for  Term  Loan  B was  6.43%  and  10.80%,  respectively.  See  Note  24 for an
explanation of interest rate adjustments for 2002 and thereafter.

The  Revolving  Facility  has a term of six years and is fully  revolving  until
December 10, 2005.  The  Revolving  Facility  bears  interest,  at the Company's
option,  (a) at a base rate equal to the greater of the federal  funds rate plus
0.5% or the  lender's  prime  rate,  plus 2.25% or (b) at the  reserve  adjusted
Eurodollar  rate plus 3.25%.  The average  interest rate was 5.83% and 10.04% at
December 31, 2001 and 2000,  respectively.  Also outstanding under the Revolving
Facility are letters of credit of $8,571,  which expire at various  dates within
the next year.  After  outstanding  letters of credit,  the  Company had $20,429
available under the Revolving Facility at December 31, 2001.

The Credit Facility is guaranteed by substantially  all of the Company's present
domestic  subsidiaries and is secured by  substantially  all of the stock of the
Company's present domestic  subsidiaries,  by substantially all of the Company's
domestic  property  assets and by certain shares of the Company's  Voting Common
Stock. The Credit Facility  contains  certain  covenants the more significant of
which limit dividends, asset sales, acquisitions and additional indebtedness, as
well as requires the Company to satisfy certain financial performance ratios. As
discussed in Note 24, the Company  amended its Credit Facility to obtain waivers
for the certain  events of  non-compliance  since  December 31, 2000 and further
amended certain of the financial performance ratios.

The Notes are fully and unconditionally  guaranteed on a joint and several basis
by each of the Company's  current domestic  subsidiaries,  with the exception of
OSI Education Services Inc., and any additional domestic  subsidiaries formed by
the Company that become  guarantors  under the Credit Facility (the  "Restricted
Subsidiaries").

The Restricted  Subsidiaries  are wholly-owned by the Company and constitute all
of the  direct and  indirect  subsidiaries  of the  Company  except for  certain
subsidiaries that are individually,  and in the aggregate  inconsequential.  The
Company is a holding  company  with no separate  operations,  although it incurs
some expenses.  The Company has no significant  assets or liabilities other than
the common stock of its subsidiaries, debt, related deferred financing costs and
accrued expenses. The aggregate assets,  liabilities,  results of operations and
stockholders' equity of the Restricted Subsidiaries are substantially equivalent
to those of the  Company  on a  consolidated  basis and the  separate  financial
statements of each of the  Restricted  Subsidiaries  are not  presented  because
management has determined that they would not be material to investors.

Summarized  combined  financial  information of the Restricted  Subsidiaries  is
shown below:
                                                                      2000
                                                                  As Restated
                                               2001              (Notes 2 & 22)
                                               ----              --------------

     Total assets                            $600,688               $591,559
                                             ========               ========

     Total liabilities                       $149,642               $163,960
                                             ========               ========

     Operating revenue                       $579,314               $532,642
                                             ========               ========

     Income from operations                  $ 46,010               $ 44,978
                                             ========               ========

         Net income                          $  4,958               $  8,777
                                             ========               ========

Maturities of debt and capital leases at December 31, 2001 are as follows:

                                                                       Capital
                                                        Debt            Leases
                                                        ----           -------

     2002                                           $   17,590         $   238
     2003                                               37,500             195
     2004                                               40,000              45
     2005                                              201,750               -
     2006                                              241,750               -
     Thereafter                                              -               -
                                                    ----------         -------
     Total Payments                                 $  538,590             478
                                                    ==========
     Less amounts representing interest                                     48
                                                                       -------
     Present value of minimum lease payments                           $   430
                                                                       =======


7.   OTHER LIABILITIES

Other liabilities consist of the following at December 31:

                                                            2001          2000
                                                            ----          ----
     Accrued acquisition related office closure
       costs, over-market leases and other costs          $  3,676      $  5,665
     Accrued interest                                        9,764        11,854
     Deferred revenue                                       10,264        10,424
     Environmental reserves                                 19,698        21,078
     Derivative hedge liability                             11,934             -
     Other                                                  21,010        22,059
                                                          --------      --------
                                                          $ 76,346      $ 71,080
                                                          ========      ========


The environmental  reserves,  on an undiscounted basis, at December 31, 2001 and
2000 are for  environmental  proceedings  as a result of the Union  acquisition.
Union  and  certain  of  its   subsidiaries   are  parties  to  several  pending
environmental  proceedings involving the United States Environmental  Protection
Agency and comparable state environmental agencies. All of these matters related
to  discontinued  operations of former  divisions or  subsidiaries  of Union for
which they have potential continuing responsibility. Management, in consultation
with both legal  counsel and  environmental  consultants,  has  established  the
aforementioned  liabilities  that it  believes  are  adequate  for the  ultimate
resolution  of  these   environmental   proceedings.   However,   Union  or  its
subsidiaries  may be  exposed  to  additional  substantial  liability  for these
proceedings as additional information becomes available over the long-term.  See
Note 14.


8.   MANDATORILY REDEEMABLE PREFERRED STOCK

Mandatorily redeemable preferred stock consists of the following at December 31:

                                        14% Senior
                                        Mandatorily       Junior
                                        Redeemable      Preferred
                                      Preferred Stock     Stock         Total
                                      ---------------- -----------  ------------

     Balance at December 31, 1999       $    78,695     $  7,021     $  85,716

     Accrued dividends                       14,887          351        15,238
     Accretion of preferred stock             2,501            -         2,501
                                        -----------     --------     ---------

     Balance at December 31, 2000       $    96,083     $  7,372     $ 103,455

     Accrued dividends                       17,076          369        17,445
     Accretion of preferred stock             2,582            -         2,582
                                        -----------     --------     ---------

     Balance at December 31, 2001       $   115,741     $  7,741     $ 123,482
                                        ===========     ========     =========

On December 10, 1999,  in  connection  with the  Recapitalization,  the Board of
Directors authorized 50,000 shares of Class A 14% Senior Mandatorily  Redeemable
Preferred  Stock,  no par  value  and  150,000  shares  of  Class  B 14%  Senior
Mandatorily Redeemable Preferred Stock, no par value.  Furthermore,  the Company
issued  25,000  shares of Class A 14% Senior  Mandatorily  Redeemable  Preferred
Stock,  ("Class  A"),  Series A, no par value and  75,000  shares of Class B 14%
Senior  Mandatorily  Redeemable  Preferred Stock,  ("Class B"), Series A, no par
value; collectively referred to as Senior Preferred Stock; along with 596,913.07
shares of the Company's common stock,  valued at $37.47 per share, for $100,000.
The  Company may issue up to one  additional  series of each Class A and Class B
solely to the  existing  holders in exchange  for shares of Class A, Series A or
Class B, Series A. The liquidation value of each share of Senior Preferred Stock
is $1,000 plus accrued and unpaid  dividends.  Dividends,  as may be declared by
the Company's Board of Directors, are cumulative at an annual rate of 14% of the
liquidation value and are payable quarterly.  The Company may, at its option and
upon written notice to preferred shareholders,  redeem all or any portion of the
outstanding  Senior Preferred Stock on a pro-rata basis at the redemption prices
in cash at a stated  percentage  of the  liquidation  value plus all accrued and
unpaid dividends. The redemption prices for Class A are 110%, 114%, 107%, 103.5%
and 100% of the liquidation  value for the period December 15, 1999 through June
15,  2001,  June 16, 2001 through  December 14, 2003,  December 15, 2003 through
December 14, 2004,  December 15, 2004 through December 14, 2005 and December 15,
2005 and thereafter,  respectively.  The redemption price for Class B is 100% of
the liquidation  value.  However,  on December 10, 2007, the Company must redeem
all of the shares of the Senior Preferred Stock then outstanding at a redemption
price equal to 100% of the  liquidation  value per share plus accrued and unpaid
dividends.  Pursuant to the  Company's  financing  arrangements,  the payment of
dividends  and/or the repurchase of shares of Senior  Preferred Stock is allowed
as long as no default on the financing arrangements shall have occurred. The 14%
Senior  Mandatorily  Redeemable  Preferred Stock was recorded at $77,634 to take
into  account  common stock  issued in  conjunction  with the sale of the Senior
Preferred  Stock and will  accrete to $100,000  by  December  10, 2007 using the
interest rate method.

On December 10,  1999,  in  connection  with the  Recapitalization,  the Company
authorized  50,000  shares and issued  7,000  shares of Junior  Preferred  Stock
("Junior  Preferred  Shares").  The liquidation  value of each Junior  Preferred
Share is $1,000 plus accrued and unpaid dividends. Dividends, as may be declared
by the Company's  Board of Directors,  are cumulative at an annual rate of 5% of
the  liquidation  value until December 10, 2003 and then at an annual rate of 8%
thereafter and are payable annually;  however the dividend rate will increase to
20% upon  consummation of certain events.  The Company will pay dividends in the
form of additional Junior Preferred Shares.  The Company may, at its sole option
and upon written notice, redeem,  subject to limitations,  all or any portion of
the outstanding  Junior  Preferred  Shares for $1,000 per share plus all accrued
and unpaid dividends, through the redemption date, whether or not such dividends
have been authorized or declared. However, on January 10, 2008, the Company must
redeem all of the shares of the Junior  Preferred  Stock then  outstanding  at a
redemption  price equal to $1,000 per share plus accrued and unpaid dividends as
long as all of the shares of the Senior Preferred Stock have been redeemed. Upon
consummation of a primary public offering having an aggregate  offering value of
at least $50,000, each holder of Junior Preferred Shares shall have the right to
convert  all,  but not less than all,  into shares of voting  common stock based
upon the public offering price.


9.   STOCKHOLDERS' EQUITY AND WARRANTS

Each share of Non-Voting Common Stock is convertible at the shareholders  option
into  an  equal  number  of  shares  of  Voting  Common  Stock  subject  to  the
requirements set forth in the Company's Certificate of Incorporation.

In  connection  with  the   Recapitalization,   all  warrants  (46,088.67)  then
outstanding  were  exchanged  for cash with each holder  receiving  cash for the
difference  between  $37.47  per  share  and  their  exercise  price of  $12.50.
Consequently, there are no warrants outstanding at December 31, 2001 and 2000.

In 2000,  the Company  issued  50,040.03  shares of its Voting  Common  Stock at
prices  approximating  fair value to certain  members  of senior  management  in
exchange for cash and interest  bearing  notes  secured by the shares along with
certain  personal  assets of the members of senior  management.  The outstanding
principal  balances plus accrued  interest of these notes amounted to $1,960 and
$1,817 at December 31, 2001 and 2000,  respectively,  and are  classified  as an
increase to stockholders' deficit.

In 2001,  the Company  completed a sale of  489,795.93  shares of Senior  Common
Stock for $24,000 ($22,004 after all related  expenses) to a private equity firm
and to certain members of its existing  private  investor group,  including MDP,
the Company's majority stockholder.


10.  INCOME TAXES

Major components of the Company's income tax provision are as follows:

                                              2001          2000          1999
                                              ----          ----          ----
Current:
     Federal                             $       -     $       -     $       -
     State                                     500           400           550
     Foreign                                    69           194           209
                                         ---------     ---------     ---------
       Total current                           569           594           759
                                         ---------     ---------     ---------

Deferred:
     Federal                                     -             -             -
     State                                       -             -             -
     Foreign                                     -             -             -
                                         ---------     ---------     ---------
       Total deferred                            -             -             -
                                         ---------     ---------     ---------

       Provision for income taxes        $     569     $     594     $     759
                                         =========     =========     =========

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax reporting  purposes.  The Company's
deferred  income taxes result  primarily from net operating loss  carryforwards,
differences in loans and accounts receivable purchased,  amortization methods on
other intangible assets and depreciation methods on fixed assets.

Net deferred tax assets consist of the following at December 31:

                                                                     2000
                                                                  As Restated
                                                    2001         (Notes 2 & 22)
                                                    ----         --------------
Deferred tax assets:
     Net operating loss carryforwards         $   77,662           $   68,473
     Accrued liabilities                          16,044               15,894
     Loans and accounts receivable                (1,084)              (1,176)
     Property and equipment                         (993)                 392
     Intangible assets                            (1,963)               1,236
     Tax credit carryforwards                     10,625                8,375
     Other                                           414                1,402
                                              ----------           ----------
Total deferred tax assets                        100,705               94,596
Less valuation allowance                        (100,705)             (94,596)
                                              ----------           ----------
Net deferred tax assets                       $        -           $        -
                                              ==========           ==========

The valuation  allowance was $100,705 and $94,596 at December 31, 2001 and 2000,
respectively.  The Company has determined the valuation allowance based upon the
weight of available evidence regarding future taxable income consistent with the
principles of SFAS No. 109,  Accounting  for Income Taxes.  The increases in the
valuation  allowance during 2001, 2000 and 1999 were primarily the result of net
changes in temporary differences,  and an increase in the net operating loss and
tax credit carryforwards.  The valuation allowance also includes amounts related
to previous  acquisitions  from years before 2001.  Future  realization of these
deferred  tax assets  would  result in the  reduction  of  goodwill  recorded in
connection with the acquisitions.

The  Company  has federal net  operating  loss  carryforwards  of $177,699 as of
December 31, 2001 available to offset future taxable income of the  consolidated
group of corporations.  Since the  Recapitalization  transaction on December 10,
1999  constituted  a change of  ownership  for tax  purposes,  tax law imposes a
limitation on the future use of the Company's net operating  loss  carryforwards
generated through the date of the change in ownership. The annual limit is equal
to the  long-term  tax-exempt  bond  rate  times the fair  imputed  value of the
Company's stock  immediately  before the change in ownership.  In addition,  the
Company  acquired  a  net  operating  loss   carryforward  of  $3,800  with  the
acquisition of Union that is subject to special tax law restrictions  that limit
its potential benefit. These loss carryforwards expire between 2010 and 2021.

The Company also has available federal tax credit carryforwards of approximately
$778  which  expire  between  2003 and  2014  and  federal  minimum  tax  credit
carryforwards of approximately  $759 which may be carried forward  indefinitely.
The Company has various state tax credit  carryforwards of approximately  $8,993
with various  expiration dates primarily from South Carolina,  Alabama,  Georgia
and Pennsylvania for new job creation and new capital investment.

Since the Company has a history of generating net operating  losses,  management
does not expect the Company to generate taxable income in the foreseeable future
sufficient to realize tax benefits from the net operating loss  carryforwards or
the future reversal of the net deductible temporary  differences.  The amount of
the  deferred  tax  assets  considered   realizable,   however,  is  subject  to
reassessment  in future years if estimates of future  taxable  income during the
carryforward period change.

A  reconciliation  of the  Company's  reported  income tax provision to the U.S.
federal statutory rate is as follows:
                                                           2000
                                                        As Restated
                                             2001     (Notes 2 & 22)      1999
                                             ----     --------------      ----

Federal tax benefits
   at statutory rate                      $ (4,347)     $ (8,335)     $ (13,257)

State income taxes
   (net of federal tax benefits)            (7,011)       (9,816)          (874)

Nondeductible amortization                   3,551         3,546          3,753

Other                                        2,068          (825)         2,371

Foreign                                        199           194              -

Deferred tax valuation allowance             6,109        15,830          8,766
                                          --------       -------      ---------

Provision for income taxes                $    569       $   594      $     759
                                          ========       =======      =========


11.  RELATED PARTY TRANSACTIONS

In   connection   with  the   agreements   executed  in   connection   with  the
Recapitalization  discussed  in Note 3, the Company paid  transaction  costs and
advisory fees to certain Company  stockholders.  Such costs were $17,092 for the
year ended December 31, 1999.

Under an Advisory Services Agreement, the Company expensed $500 in 2001 and 2000
for  professional  services  rendered by MDP,  the majority  stockholder  of the
Company.

Under  various  financing  arrangements  associated  with the  Company's  Credit
Facility, the Company incurred interest expense of $2,981, $2,358 and $3,376 for
the years ended  December  31,  2001,  2000 and 1999,  respectively,  to certain
Company   stockholders  of  which  one  is  a  financial   institution  and  was
co-administrative agent of the Company's prior credit facility.


12.  STOCK OPTION AND AWARD PLANS

Under terms of the Company's stock option plans,  selected employees,  directors
and certain  consultants may be granted options and other awards.  The plans are
stock award and  incentive  plans which  permit the  issuance of options,  stock
appreciation rights ("SARs") in tandem with such options,  restricted stock, and
other stock-based  awards. The plans reserved 1,150,000 Voting Common Shares for
grants and  provides  that the term of each award,  not to exceed ten years,  be
determined  by  the  Compensation  Committee  of the  Board  of  Directors  (the
"Committee") charged with administering the plan.

Under the terms of certain plans,  options granted may be either nonqualified or
incentive  stock options and the exercise  price  generally may not be less than
the fair market value of a Voting Common Share,  as determined by the Committee,
on the date of grant. SARs granted in tandem with an option shall be exercisable
only to the extent the  underlying  option is  exercisable  and the grant  price
shall be equal to the exercise  price of the underlying  option.  As of December
31, 2001, no SARs have been granted. The awarded stock options vest over periods
ranging  from  three to four  years  and  vesting  may be  accelerated  upon the
occurrence  of a change in control as defined in the plans.  The options  expire
ten years after date of grant.

In June 1999,  25,500  options  were  repriced  from a grant  price of $40.00 to
$25.00.  In addition,  58,500 options were repriced from a grant price of $65.00
or $50.00 to $40.00.  Simultaneously,  the vesting provisions of certain options
were modified to provide for pro rata vesting over a specified  number of years.
Accordingly, compensation expense of $708 was recognized during 1999 as a result
of these  modifications  of certain options and is reflected in the accompanying
statement of operations.  In addition,  in connection with the Recapitalization,
certain  options were exercised and the holders of such options  received a cash
payment  equal to the exercise  price of such options and $37.47,  the price per
share at which the Recapitalization was consummated.


A summary of the plans activity is as follows:

                                          Number of Shares     Weighted Average
                                          of Stock Subject      Exercise Price
                                             to Options           Per Share
                                          ----------------     ----------------

     Outstanding at January 1, 1999            578,821              25.63
     Granted                                   214,000              40.00
     Forfeited                                (104,500)             28.52
     Exercised                                (245,396)             18.59
                                              --------

     Outstanding at December 31, 1999          442,925              31.69
     Granted                                   305,420              37.47
     Forfeited                                 (38,000)             40.00
     Exercised                                  (5,000)             25.00
                                              --------

     Outstanding at December 31, 2000          705,345              33.79
     Granted                                    52,000              49.00
     Forfeited                                  (4,500)             37.47
     Exercised                                  (1,500)             37.47
                                              --------

     Outstanding at December 31, 2001          751,345              34.82
                                              ========

Exercisable shares at December 31, 2001, 2000 and 1999 were 475,447, 399,925 and
442,925, respectively.

A summary of stock options outstanding at December 31, 2001 is as follows:

                            Options Outstanding             Options Exercisable
                ----------------------------------------  ----------------------
                                 Weighted
                                 Average
 Exercise          Number       Remaining      Exercise    Number      Exercise
 Price          Outstanding  Contractual Life    Price    Exercisable    Price
--------------  -----------  ----------------  ---------  -----------  ---------
   $12.50          70,175      4.7 years        $12.50      70,175      $12.50
   $25.00         111,750      5.6 years        $25.00     111,750      $25.00
   $37.47         299,420      8.6 years        $37.47      75,522      $37.47
   $40.00         218,000      7.1 years        $40.00     218,000      $40.00
   $49.00          52,000      9.9 years        $49.00           -           -
                  -------                                  -------
$12.50-$49.00     751,345      6.9 years        $34.82     475,447      $32.01
                  =======                                  =======

The Company  accounts for the stock option plans in accordance  with APB Opinion
No. 25, under which no compensation cost has been recognized for the majority of
stock option awards.  As required by SFAS No. 123, the Company has estimated the
fair value of its option grants since January 1, 1996.  The fair value for these
options was estimated at the date of the grant based on the  following  weighted
average assumptions:

                                                  2001       2000        1999
                                                  ----       ----        ----

     Risk free rate                               3.59%      5.06%       5.0%
     Expected dividend yield of stock                0%         0%         0%
     Expected volatility of stock                    0%         0%         0%
     Expected life of option (years)               10.0       10.0       10.0

Since the  Company's  common stock is not publicly  traded,  the expected  stock
price  volatility  is assumed to be zero.  The  weighted  fair values of options
granted during 2001, 2000 and 1999 were $15.23, $14.83 and $15.74, respectively.
The Company's pro forma information is as follows:

                                                       2000
                                                   As Restated
                                    2001          (Notes 2 & 22)           1999
                                    ----          --------------           ----
     Net loss:
        As reported              $(13,355)          $(25,108)          $(43,957)
        Pro forma                 (14,712)           (26,493)           (45,436)


In addition,  the Committee may grant  restricted  stock to  participants of the
plans at no cost. Other than the restrictions  which limit the sale and transfer
of these  shares,  recipients  of  restricted  stock awards are entitled to vote
shares of restricted stock and dividends paid on such stock. No restricted stock
has been granted as of December 31, 2001.


13.  COMMITMENTS AND CONTINGENCIES

From time to time, the Company enters into servicing  agreements  with companies
which service loans for others.  The servicers handle the collection  efforts on
certain  nonperforming  loans and accounts  receivable on the Company's  behalf.
Payments to the  servicers  vary  depending on the servicing  contract.  Current
contracts expire on the anniversary date of such contracts but are automatically
renewable at the option of the Company.

A subsidiary  of the Company has several  Portfolio  Flow  Purchase  Agreements,
whereby the subsidiary has a monthly commitment to purchase  nonperforming loans
meeting certain criteria for an agreed upon price subject to due diligence.  The
duration of these  agreements do not extend beyond one year. The purchases under
the Portfolio Flow Purchase Agreements were $23,890,  $16,371 and $33,303, which
excludes amounts purchased and subsequently sold to FINCO (see Note 20), for the
years ended December 31, 2001, 2000 and 1999, respectively.

The  Company  leases  certain   office  space  and  computer   equipment   under
non-cancelable  operating leases.  These  non-cancelable  operating leases, with
terms in excess of one year, are due in approximate amounts as follows:

                                                             Amount
                                                            --------
     2002                                                   $ 20,149
     2003                                                     17,198
     2004                                                     15,465
     2005                                                     14,169
     2006                                                     12,164
     Thereafter                                               12,025
                                                            --------
          Total lease payments                              $ 91,170
                                                            ========

Rent expense  under  operating  leases was $19,288,  $18,372 and $16,974 for the
years ended December 31, 2001, 2000 and 1999, respectively.


14.  LITIGATION AND ENVIRONMENTAL

At December 31, 2001, the Company and certain of its subsidiaries  were involved
in a number of legal  proceedings  and claims that occurred in the normal course
of business and are routine to the nature of the Company's  business.  While the
results of  litigation  cannot be  predicted  with  certainty,  the  Company has
provided for the  estimated  uninsured  amounts and costs to resolve the pending
suits and management, in consultation with legal counsel, believes that reserves
established  for the  ultimate  resolution  of pending  matters are  adequate at
December 31, 2001.

Current operations of the Company and its subsidiaries do not involve activities
materially  affecting  the  environment.   However,  The  Union  Corporation,  a
subsidiary  of the  Company,  and  certain of its  subsidiaries  are  parties to
several   pending   environmental   proceedings   involving  the  United  States
Environmental  Protection  Agency,  or EPA, and comparable  state  environmental
agencies in Indiana,  Maryland,  Massachusetts,  New Jersey, Ohio, Pennsylvania,
South  Carolina  and  Virginia.  All of these  matters  relate  to  discontinued
operations  of  subsidiaries  or  former  divisions  of Union  for  which it has
potential  continuing  responsibility.  Upon  completion of the  acquisition  of
Union, the Company,  in consultation  with both legal counsel and  environmental
consultants,  established  reserves  that it believes  will be adequate  for the
ultimate settlement of these environmental proceedings.

One group of Union's  known  environmental  proceedings  relates to Superfund or
other sites where liability of Union or one or more of its  subsidiaries  arises
from  arranging  for the  disposal  of  allegedly  hazardous  substances  in the
ordinary  course  of prior  business  operations.  In most of these  "generator"
liability  cases,  involvement  by  Union or one or more of its  subsidaries  is
considered to be de minimus (i.e.,  a volumetric  share of  approximately  1% or
less) and in each of these  cases  Union or one or more of its  subsidiaries  is
only one of many potentially responsible parties. From the information currently
available,   there  are  a  sufficient  number  of  other  economically   viable
participating parties so that the projected liability of Union or one or more of
its subsidiaries, although potentially joint and several, is consistent with its
allocable  share  of  liability.  At one  "generator"  liability  site,  Union's
involvement  is  potentially  more  significant  because  of the volume of waste
contributed  in past  years by a  currently  inactive  subsidiary.  Insufficient
information  is  available  regarding  the need for or  extent  and scope of any
remedial  actions which may be required.  Union has recorded what it believes to
be  a  reasonable  estimate  of  its  ultimate   liability,   based  on  current
information, for this site.

The  second  group of  matters  relates to  environmental  issues on  properties
currently or formerly  owned or operated by a  subsidiary  or division of Union.
These cases generally involve matters for which Union or an inactive  subsidiary
is the sole or primary  responsible  party.  In one case, the Metal Bank Cottman
Avenue site, the EPA issued a record of decision on February 6, 1998.  According
to the record of decision,  the cost to perform the remediation  selected by the
EPA for the site is estimated by the EPA to be approximately $17.3 million.  The
aggregate  amount  reserved  by Union  for this site was  $18.2  million,  which
represented Union's best estimate of the ultimate potential legal and consulting
costs for defending its legal and technical positions  regarding  remediation of
this  site  and  its  portion  of the  potential  remediation  costs  that  will
ultimately be incurred by it, based on current information.  However,  Union may
be exposed  to  additional  substantial  liability  for this site as  additional
information  becomes  available over the  long-term.  Actual  remediation  costs
cannot be computed  until such remedial  action is completed.  Some of the other
sites  involving  Union  or an  inactive  subsidiary  are at a  state  where  an
assessment  of ultimate  liability,  if any,  cannot  reasonably be made at this
time.

It is  Union's  policy  to  comply  fully  with all laws  regulating  activities
affecting  the  environment  and to meet its  obligations  in this area. In many
"generator" liability cases, reasonable cost estimates are available on which to
base reserves on Union's  likely  allocated  share among viable  parties.  Where
insufficient  information is available  regarding projected remedial actions for
these  "generator"  liability  cases,  Union has recorded what it believes to be
reasonable  estimates of its potential  liabilities.  Reserves for liability for
sites on which former  operations  were conducted are based on cost estimates of
remedial actions projected for these sites. The Company periodically reviews all
known  environmental   claims,  where  information  is  available,   to  provide
reasonable assurance that reserves are adequate.


15.  DERIVATIVES AND HEDGING ACTIVITIES

The Company is subject to the risk of  fluctuating  interest rates in the normal
course of business.  From time to time and as required by the  Company's  Credit
Facility,  the Company will employ derivative  financial  instruments as part of
its risk  management  program.  The  Company's  objective is to manage risks and
exposures and not to trade such instruments.

At December 31,  2001,  the Company had  interest  rate swap and  collared  swap
agreements  outstanding  in  the  notional  amounts  of  $75,000  and  $225,000,
respectively.  At December  31,  2000,  the Company had  interest  rate swap and
collared  swap  agreements  outstanding  in the notional  amounts of $50,000 and
$150,000, respectively.

Under the interest rate collared swap agreements  maturing June 2003 relating to
$150,000  nominal  amount of its term debt,  the Company  pays three month LIBOR
between 5.90% and 8.50% in addition to the applicable margin as set forth in the
Credit Facility. In the event, however, the three month LIBOR falls below 5.90%,
the Company would be required to pay 7.0% plus the applicable margin, until such
time the three month LIBOR rises above 5.90%,  at which time the rate returns to
a variable rate.

In September  2001, the Company  accelerated the call option of an interest rate
swap agreement maturing November 2006 relating to $50,000 notional amount of its
11.0%  senior  subordinated  notes and  entered  into a new  interest  rate swap
agreement  maturing  November  2006 relating to $75,000  notional  amount of its
11.0% senior subordinated notes. Under this agreement, the Company pays floating
three month LIBOR plus 5.50%.  The financial  institution  has the right to call
the agreement,  at its discretion,  after May 1, 2003. In addition,  the Company
entered into an interest  rate collared swap  agreement  maturing  November 2006
relating to $75,000 notional amount of its term debt.  Under the agreement,  the
Company pays floating  three month LIBOR,  capped at 6.75%,  plus the applicable
margin as set forth in the Credit  Facility.  In the event,  however,  the three
month LIBOR drops below  2.50% from  November 1, 2001 to April 30,  2002,  2.85%
from May 1, 2002 to April 30,  2003,  or 4.10% from May 1, 2003 to  November  1,
2006,  the Company  would be required to pay 5.50% plus the  applicable  margin,
until such time the three month LIBOR  rises  above the period  floor,  at which
time the rate returns to a variable rate.

The three month LIBOR rate (Euro  dollar rate) at December 31, 2001 and 2000 was
1.9% and 6.6%, respectively.

On January  1, 2001,  the  Company  implemented  SFAS No.  133,  Accounting  for
Derivative  Instruments and Hedging  Activities,  as amended by SFAS No. 137 and
SFAS  No.  138  (collectively,  the  Statement).  This  Statement  requires  all
derivatives to be recognized in the balance sheet at fair value, with changes in
that  fair  value to be  recorded  in  current  earnings  or  deferred  in other
comprehensive  income,  depending on whether the derivative instrument qualifies
as a hedge and, if so, the nature of the hedging  activity.  As noted above, the
Company  is  subject  to the risk of  fluctuating  interest  rates in the normal
course of business  from time to time and as required  by the  Company's  Credit
Facility,  the Company will employ derivative  financial  instruments as part of
its risk management  program.  The Company's  interest rate hedges are primarily
classified  as  cash  flow  hedges.  For a cash  flow  hedge  of an  anticipated
transaction,  the  ineffective  portion  of the  change  in  fair  value  of the
derivative is recorded in earnings as incurred, whereas the effective portion is
deferred in accumulated other  comprehensive  income (loss) on the balance sheet
until the transaction is realized,  at which time any deferred  hedging gains or
losses are  recorded in  earnings.  The  Company's  transition  adjustment  upon
adoption of the  Statement  required the recording of a liability of $3,691 with
an offset of the same amount to accumulated other  comprehensive  income (loss).
As of December  31,  2001,  this  liability  is $11,934 and is included in other
liabilities  and $8,883 is included in accumulated  other  comprehensive  income
(loss).  During the year ended  December  31,  2001,  the Company  recorded,  as
additional interest expense, $3,051 due to the hedges' ineffectiveness.


16.  COMPREHENSIVE INCOME (LOSS)

The components of total comprehensive  income (loss) for the year ended December
31 are as follows:

                                                           2000
                                                       As Restated
                                              2001    (Notes 2 & 22)      1999
                                              ----    --------------      ----
     Net income (loss):                    $(13,355)     $(25,108)     $(43,957)
     Other comprehensive income item:
       Cumulative effect of adoption
          of the Statement                   (3,691)            -             -
       Fair market value adjustments
          on derivatives                     (5,192)            -             -
                                           --------      --------      --------
     Total comprehensive income (loss)     $(22,238)     $(25,108)     $(43,957)
                                           ========      ========      ========


17.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values and the methods and  assumptions  used to estimate the
fair values of the financial  instruments of the Company as of December 31, 2001
and 2000 are as follows.  The carrying  amount of cash and cash  equivalents and
long-term debt except the Notes,  approximates  the fair value.  The approximate
fair value of the Notes at December  31, 2001 and 2000 was $80,000 and  $80,000,
respectively.  The fair  value of the  long-term  debt was  determined  based on
current  market  rates  offered  on  notes  and  debt  with  similar  terms  and
maturities.  The fair value of Receivables  was determined  based on both market
pricing and  discounted  expected cash flows.  The discount rate was based on an
acceptable  rate of return  adjusted  for the risk  inherent  in the  Receivable
portfolios.  The estimated fair value of Receivables approximated their carrying
value at December 31, 2001 and 2000.


18.  EMPLOYEE BENEFIT PLANS

At December 31, 2001,  the Company has two defined  contribution  plans,  one of
which it  acquired  through the Union  acquisition,  which  provides  retirement
benefits to the  majority  of all full time  employees.  The  Company  matches a
portion of employee  contributions to the plans. Company  contributions to these
plans,  charged to expense,  were $1,913,  $1,652 and $1,654 for the years ended
December 31, 2001, 2000 and 1999, respectively.

In November  2000,  the Company  established  a deferred  compensation  plan for
selected employees who, due to Internal Revenue Service guidelines,  cannot take
full advantage of the contributory  plan. This plan, which is not required to be
funded,   allows   eligible   employees  to  defer  portions  of  their  current
compensation. To support the deferred compensation plan, the Company has elected
to purchase Company-owned life insurance, which is included in other assets, was
$943 and $175 at December 31, 2001 and 2000,  respectively.  The cash  surrender
value  of  the  Company-owned  life  insurance  and  the  deferred  compensation
liability, which is included in other liabilities, was $829 and $160 at December
31, 2001 and 2000, respectively.


19.  SEGMENT INFORMATION

The Company  has three  reportable  segments,  Outsourcing  Services,  Portfolio
Services  and Recovery  Services.  The  Outsourcing  Services  segment  provides
services  such as  contract  management  of  accounts  receivable,  billing  and
teleservicing  services,  letter  series  programs  and  banking  and  financial
services transaction processing. Portfolio Services involve acquiring portfolios
of  charged-off  consumer  receivables  from credit  grantors  or other  owners,
servicing  such  portfolios  and retaining  all amounts  collected and servicing
customer  owned  portfolios  for an agreed  upon  servicing  fee.  The  Recovery
Services  segment  collects  delinquent or charged-off  consumer  accounts for a
fixed percentage of realized collections or a fixed fee per account. The Company
derives substantially of its revenues from domestic customers.

The chief operating  decision maker evaluates  performance of the segments based
on  Adjusted   Operating  EBITDA  (Earnings  before  interest  expense,   taxes,
depreciation,   amortization  and  corporate  and  shared  expenses,  but  after
amortization of purchased loans and accounts  receivable  portfolios).  Adjusted
Operating EBITDA includes only the costs directly attributable to the operations
of the individual segment.  Eliminations represent intercompany revenue.  Assets
are not identified by the individual segments and,  therefore,  are not reported
by segment.

The  accounting  policies for the  Company's  segments are  consistent  with the
corporate  accounting policies outlined in Note 1 to the accompanying  financial
statements.

The following table presents certain data by business segment:

                                                           2000
                                                        As Restated
     Revenues                                2001     (Notes 2 & 22)     1999
     --------                                ----     --------------     ----

     Outsourcing Services                  $339,298      $255,269      $212,039
     Portfolio Purchasing Services           96,044        92,779        85,815
     Recovery Services                      198,482       208,406       218,177
     Eliminations                           (21,478)      (15,378)      (11,606)
                                           --------      --------      --------
     Total Revenues                        $612,346      $541,076      $504,425
                                           ========      ========      ========

     Adjusted Operating EBITDA

     Outsourcing Services                  $ 46,426      $ 40,434      $ 35,447
     Portfolio Purchasing Services           16,717        13,432        10,152
     Recovery Services                       43,785        47,182        53,239
                                           --------      --------      --------
     Total Adjusted Operating EBITDA       $106,928      $101,048      $ 98,838
                                           ========      ========      ========



20.  PURCHASED LOANS AND ACCOUNTS RECEIVABLE PORTFOLIOS FINANCING

In October 1998, a special-purpose finance company, OSI Funding Corp., formed by
the  Company,  entered into a revolving  warehouse  financing  arrangement  (the
"Warehouse Facility") for up to $100,000 of funding capacity for the purchase of
loans and accounts  receivable  portfolios over its five year term which expires
in October  2003.  In connection  with the  Recapitalization,  OSI Funding Corp.
converted to a limited  liability  company and is now OSI Funding LLC ("FINCO"),
with OSI owning approximately 29% of the voting rights. An unrelated third party
holds the majority voting rights of FINCO and has decision-making authority over
FINCO's operations. The Company's investment in FINCO is accounted for under the
equity method. In connection with the  establishment of the Warehouse  Facility,
FINCO  entered  into an agreement  with a  subsidiary  of the Company to provide
certain  administrative and collection services on a contingent fee basis (i.e.,
fee is based on a percent of amount  collected).  The Company  believes  the fee
structure  agreed to by FINCO is  representative  of a fee structure  that would
exist with an unrelated party. The services provided by the Company to FINCO are
similar to those provided to unrelated parties.  Revenue from FINCO is generally
recognized by the Company as collections  are received.  All borrowings by FINCO
under the Warehouse Facility are without recourse to the Company.

The following  summarizes the transactions between the Company and FINCO for the
year ended December 31:

                                                              2001         2000
                                                              ----         ----
     Sales of purchased loans and accounts receivables
            portfolios by the Company to FINCO              $63,399      $86,910

     Fees paid by FINCO to the Company                      $37,026      $26,827

Sales of purchased  loans and accounts  receivable  portfolios by the Company to
FINCO were in the same amount and occurred  shortly after such  portfolios  were
acquired  by the  Company  from the  various  unrelated  sellers.  As such,  the
Company's  Statements of Operations do not include  revenues or expenses related
to these  loans and  accounts  receivable  portfolios.  In  conjunction  with an
agreement to provide certain  administrative  and collection  services to FINCO,
the  Company  can  achieve a bonus  fee if  amounts  in  excess of the  original
purchase price of a portfolio are recovered. Payment of any bonus fee is subject
to certain  collateral and collection  sharing  requirements  as outlined in the
agreement.  Receivables  from FINCO were $17,014 and $5,612 at December 31, 2001
and 2000, respectively.

At December 31, 2001 and 2000, FINCO had purchased loans and accounts receivable
portfolios of $75,921 and $76,908,  respectively. At December 31, 2001 and 2000,
FINCO had outstanding borrowings of $66,391 and $67,636, respectively, under the
Warehouse Facility.

FINCO's summarized results from operations for the years ended December 31, 2001
and 2000 are as follows:

                                              2001                  2000
                                              ----                  ----
     Net revenues                           $103,548             $ 76,578

     Income from operations                    5,010                4,363

     Net income                                1,400                  702


21.  CONVERSION, REALIGNMENT AND RELOCATION EXPENSES

After the  Company's  formation  in 1995 and  seven  acquisitions,  the  Company
adopted a strategy  to align OSI along  business  services  and  establish  call
centers of excellence.  As a result, the Company incurred $5,063 of nonrecurring
conversion,  realignment and relocation expenses for the year ended December 31,
1999. These expenses  include costs resulting from the temporary  duplication of
operations,  closure of certain call  centers,  costs of  converting  collection
operating  systems,  and other one-time and redundant  costs. No accrued amounts
remained relative to these expenses at December 31, 1999.

In continuing the above  strategy,  the Company  incurred $2,742 of nonrecurring
realignment  expenses  for the year ended  December  31,  2000.  These  expenses
include  costs  resulting  from  closure  of  certain  call  centers,  severance
associated with these office closures and certain other one-time costs. All cash
requirements relative to this charge were settled by December 31, 2000.

For  the  year  ended  December  31,  2001,  the  Company   incurred  $3,564  of
nonrecurring consolidation,  realignment and relocation expenses. These expenses
include costs from consolidation of certain call centers,  severance  associated
with these office  closures,  asset write-offs and certain other one-time costs.
Accrued  costs  at  December  31,  2001  were  $451,  all  of  which  should  be
substantially settled in 2002.



<PAGE>


22.  RESTATEMENT

As described in Note 2, the December 31, 2000 consolidated  financial statements
have  been   restated.   A  comparison  of  previously   reported  and  restated
consolidated financial statements follows:


Consolidated Balance Sheets
---------------------------                          December 31,
                                                      2000 As      December 31,
                                                     Previously      2000 As
                                                      Reported       Restated
                                                    ------------   ------------
ASSETS

Cash and cash equivalents                             $ 10,273       $ 10,273

Cash and cash equivalents held for clients              21,970         21,970

Accounts receivable - trade, less allowance
  for doubtful receivables of $447                      62,876         61,325

Purchased loans and accounts receivable
  portfolios                                            24,690         24,690

Property and equipment, net                             46,601         46,601

Intangible assets, less accumulated
  amortization of $54,218                              417,084        417,084

Deferred financing costs, less accumulated
  amortization of $4,538                                22,934         22,934

Other assets                                            30,426         27,770
                                                      --------       --------

             TOTAL                                    $636,854       $632,647
                                                      ========       ========


LIABILITIES AND STOCKHOLDERS' DEFICIT

Accounts payable - trade                              $ 14,446       $ 15,896

Collections due to clients                              21,970         21,970

Accrued salaries, wages and benefits                    15,195         15,195

Debt                                                   539,463        539,463

Other liabilities                                       71,080         71,080

Commitments and contingencies                                -              -

Mandatorily redeemable preferred stock;
  redemption amount $123,115                           103,455        103,455

Stockholders' deficit:
  Voting common stock; $.01 par value;
    authorized 15,000,000 shares, 9,166,728.7
    shares issued                                           92             92
  Non-voting common stock; $.01 par value;
    authorized 2,000,000 shares, 480,321.30
    issued and outstanding                                   5              5
  Paid-in capital                                      200,537        200,537
  Accumulated deficit                                 (192,715)      (198,372)
  Notes receivable from management for
    shares sold                                         (1,817)        (1,817)
  Common stock in treasury, at cost;
    3,078,249.07 shares                               (134,857)      (134,857)
                                                      --------       --------
        Total stockholders' deficit                   (128,755)      (134,412)
                                                      --------       --------
               TOTAL                                  $636,854       $632,647
                                                      ========       ========




<PAGE>



Statements of Operations                               For the Year Ended
------------------------                         ------------------------------
                                                 December 31,
                                                    2000 As        December 31,
                                                  Previously          2000 As
                                                   Reported          Restated
                                                 ------------      ------------

REVENUES                                          $  542,627       $   541,076

EXPENSES:
  Salaries and benefits                              264,293           264,293
  Service fees and other operating
    and administrative expenses                      173,351           177,457
  Amortization of purchased loans
    and accounts receivable portfolios                28,092            28,092
  Amortization of goodwill and other
    intangibles                                       16,082            16,082
  Depreciation expense                                15,803            15,803
  Compensation expense related to
    redemption of stock options                          187               187
  Conversion, realignment and relocation
    expenses                                           2,742             2,742
                                                  ----------        ----------
          Total expenses                             500,550           504,656
                                                  ----------        ----------

OPERATING INCOME                                      42,077            36,420

INTEREST EXPENSE - Net                                60,934            60,934
                                                  ----------        ----------

LOSS BEFORE INCOME TAXES                             (18,857)          (24,514)

PROVISION FOR INCOME TAXES                               594               594
                                                  ----------        ----------

NET LOSS                                             (19,451)          (25,108)

PREFERRED STOCK DIVIDEND REQUIREMENTS AND
ACCRETION OF SENIOR PREFERRED STOCK                   17,739            17,739
                                                  ----------        ----------

NET LOSS TO COMMON STOCKHOLDERS                   $  (37,190)       $  (42,847)
                                                  ==========        ==========




<PAGE>




23.  QUARTERLY FINANCIAL DATA (unaudited)

As described in Note 2, the unaudited quarterly information for the three months
ended December 31, 2000 and September 30, 2001 have been restated.

Unaudited  quarterly  financial  data for the years ended  December 31, 2001 and
2000 are as follows:


                                            Third as
                                           Previously    Third as
2001                 First      Second      Reported     Restated       Fourth

Revenues           $151,586    $157,433     $151,023     $152,902      $150,425
Operating income     14,910      16,074       16,623       13,163         2,516
Net income (loss)    (1,526)      2,080          (61)      (3,521)      (10,388)


                                                         Fourth as
                                                         Previously    Fourth as
2000                 First      Second       Third       Reported      Restated

Revenues           $133,250    $137,373     $133,871     $138,133      $136,582
Operating income     10,988      10,175        9,679       11,235         5,578
Net loss             (3,380)     (5,203)      (5,763)      (5,105)      (10,762)

The fourth  quarter of 2001 includes a charge for  conversion,  realignment  and
relocation expenses of $3,564. See Note 21.

24.  SUBSEQUENT EVENT-DEBT

As a result of the restatement of financial  results as discussed in Note 2, the
Company breached certain  covenants,  representations  and warranties in each of
its Credit Facility and the Warehouse Facility. In response, the Company and the
lenders to the Credit  Facility  amended the facility  effective April 10, 2002.
The  amendment  to the  Credit  Facility  includes  provisions  that  amend  the
financial  covenants,  waive certain existing defaults of covenants and breaches
in  representations  and  warranties,  increase the interest  rate on borrowings
pursuant to the facility (as  discussed  below),  and,  during 2002,  reduce the
Company's  availability  under its Credit Facility by $5,000,  and limit capital
expenditures,  investments and  acquisitions.  In connection with the amendment,
the Company also issued 4,150 shares of its Series B Junior Preferred Stock with
attached  warrants to acquire 42,347 shares of the Company's Senior Common Stock
to Madison  Dearborn  Capital  Partners III, L.P. and Madison  Dearborn  Special
Equity III, L.P. for a total purchase price of $4,150. The proceeds of this sale
were used to repay  the  Revolving  Facility  in the  amount  of $2,075  and the
balance  pro-rata to the Term A and B loans, as provided in the Credit Facility.
From April 10,  2002 until such time as the  Company  delivers  to the lenders a
compliance  certificate for the period ended December 31, 2002, borrowings under
the  Revolving  Facility  and  Term A Loan  of the  Credit  Facility  will  bear
interest, at the Company's option at (a), the lender's prime rate, plus 2.75% or
at (b) the  Eurodollar  rate plus 3.75%.  Borrowings  under the Term B Loan will
bear  interest,  at the Company's  option,  at (a) the lenders'  prime rate plus
3.50% or (b) the Eurodollar rate plus 4.50%.  The amortization and maturity were
not amended.  Following this  amendment,  the Company is in compliance  with the
Credit Facility and,  subject to the Warehouse  Facility issues discussed below,
expects to be in compliance throughout 2002.

The  Company  has also  received a waiver  from the lender  under the  Warehouse
Facility for certain breaches of covenants,  representations and warranties with
respect to periods  through  year-end  2001.  Since the Company,  on an ongoing,
basis  will   continue  to  be  in  breach  of  certain   financial   covenants,
representations  and warranties,  it has initiated  discussions  with the lender
under the  Warehouse  Facility for the purpose of seeking to amend such facility
to cure such breaches,  although there can be no assurance that the Company will
be successful in negotiating  such an amendment.  If the Company is unsuccessful
in  negotiating  such an amendment,  notwithstanding  the waiver  received,  the
Company may again breach certain  covenants,  representations  and warranties in
the  Warehouse  Facility  and there can be no  assurances  that the lender  will
extend the waiver to cover such breaches.  On an ongoing basis,  the Company has
also been  engaged  in  discussions  with  certain  other  providers  of similar
warehouse  facilities.  While there can be no assurances,  the Company  believes
that other  warehouse  facilities  would be available  on economic  terms and in
amounts  comparable to the Company's  existing  Warehouse  Facility  which would
allow the Company to continue its business of  purchasing  of loans and accounts
receivable.  In the event the Company is unable to amend the current  warehouse
facility and it is  terminated  and the Company is unable to enter a replacement
warehouse facility, the Company would be in default of its Credit Facility.


<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Stockholders of Outsourcing Solutions Inc.:

We have audited the consolidated financial statements of Outsourcing Solutions
Inc. and its subsidiaries for the year ended December 31, 1999, and have issued
our report thereon dated March 28, 2000; such consolidated financial statements
and report is included elsewhere in this Form 10-K.  Our audit also included the
consolidated financial statement schedule of Outsourcing Solutions Inc. and its
subsidaries for the year ended December 31, 1999, listed in the accompanying
index at Item 14(a)2.  This consolidated financial statement schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion based on our audit.  In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
set forth therein.





/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP



St. Louis, Missouri
March 28, 2000







<PAGE>


Outsourcing Solutions Inc. and Subsidiaries                          Schedule II
Valuation and Qualifying Accounts and Reserves
For the year ended December 31, 2001, 2000 and 1999
(In thousands)



  Column A      Column B           Column C           Column D      Column E
-------------   ---------   ----------------------  ------------    --------
                                   Additions
                            ----------------------
                 Balance     Charged      Charged    Deductions      Balance
                @ beg. of      to         to Other    (Please       @ end of
 Description     Period      Expenses     Accounts    explain)       Period
-------------   ---------   ----------   ---------   -----------    --------

Allowance for
doubtful accounts:

     2001       $    447    $  1,289            -    $    656 (A)   $  1,080
                ========    ========     ========    ========       ========

     2000       $    529    $    671            -    $    753 (A)   $    447
                ========    ========     ========    ========       ========

     1999       $  1,309    $    651            -    $  1,431 (A)   $    529
                ========    ========     ========    ========       ========


Environmental
reserves:

     2001       $ 21,078           -            -    $  1,380 (B)   $ 19,698
                ========    ========     ========    ========       ========

     2000       $ 22,218           -            -    $  1,140 (B)   $ 21,078
                ========    ========     ========    ========       ========

     1999       $ 22,726           -            -    $    508 (B)   $ 22,218
                ========    ========     ========    ========       ========




(A)  Accounts receivable write-offs and adjustments, net of recoveries.
(B)  Payments for environmental matters.