================================================================================

                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549

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

                                   FORM 10-K
             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                        COMMISSION FILE NUMBER 000-22751

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

                          CONCENTRA MANAGED CARE, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


            DELAWARE                                      04-3363415
  (State or other jurisdiction of                      (I.R.S. Employer
   incorporation or organization)                      Identification No.)
 
         312 UNION WHARF,
       BOSTON, MASSACHUSETTS                                 02109
  (Address of principal executive offices)                 (Zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 367-2163

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

    SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock,
                                                par value $.01 per share
                                                4.5% Convertible Notes due 2003
                                                6.0% Convertible Notes Due 2001

     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  twelve  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 totaled $679,852,314 (based on the closing price of the Company's
Common Stock on The Nasdaq National Market on March 15, 1999).

     As of March 15,  1999,  the  Registrant  had  outstanding  an  aggregate of
47,294,074 shares of its Common Stock, $.01 par value.




                      DOCUMENTS INCORPORATED BY REFERENCE

                                     NONE.


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<PAGE>

                         CONCENTRA MANAGED CARE, INC.
                                   FORM 10-K
                      FISCAL YEAR ENDED DECEMBER 31, 1998

                                     INDEX





<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           -----
<S>          <C>                                                                                           <C>
PART I
Item 1.      Business ..................................................................................   1
Item 2.      Properties ................................................................................   20
Item 3.      Legal Proceedings .........................................................................   20
Item 4.      Submission of Matters to a Vote of Security Holders .......................................   20
PART II
Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters .....................   21
Item 6.      Selected Financial Data ...................................................................   22
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations .....   22
Item 7A.     Quantitative and Qualitative Disclosures About Market Risk ................................   30
Item 8.      Financial Statements and Supplementary Data ...............................................   30
Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......   30
PART III
Item 10.     Directors and Executive Officers of the Registrant ........................................   31
Item 11.     Executive Compensation ....................................................................   34
Item 12.     Security Ownership of Certain Beneficial Owners and Management ............................   42
Item 13.     Certain Relationships and Related Transactions ............................................   43
PART IV
Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..........................   44
</TABLE>




<PAGE>

                          FORWARD LOOKING INFORMATION

     This Report contains certain  forward-looking  statements that are based on
management's  current views and  assumptions  regarding  future  events,  future
business conditions and the outlook for the Company based on currently available
information.    Wherever   possible,    the   Company   has   identified   these
"forward-looking statements" (as defined in Section 27A of the Securities Act of
1933 and Section 21E of the Security  Exchange Act) of 1934 by words and phrases
such as "anticipates",  "plans",  "believes",  "estimates",  "expects", "will be
developed and implemented",  and similar expressions.  Readers are cautioned not
to  place   undue   reliance   on  these   forward-looking   statements.   These
forward-looking  statements  are subject to risks and  uncertainties  and future
events could cause the Company's actual results,  performance or achievements to
differ materially from those expressed in, or implied by, these statements.  The
Company assumes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.


                                    PART I


ITEM 1. BUSINESS

A. GENERAL

     Concentra Managed Care, Inc. (the "Company" or "Concentra")* is the leading
provider of healthcare  management and cost containment services to the workers'
compensation,  auto insurance and disability  insurance markets.  The Company is
also the leading provider of  out-of-network  medical claims review to the group
health marketplace and performs  non-injury  healthcare services for over 80,000
local employers. Concentra offers a continuum of services to employers, insurers
and third-party  administrators  ("TPAs") of all sizes.  The Company's  services
allow   customers  to  increase  the  direction  of  care  for  injury   claims,
aggressively  manage the treatment  plan and thereby  control the total costs of
those claims, and review medical claims  retrospectively,  thus reducing overall
workers'  compensation,  auto  insurance,  disability and  out-of-network  group
health costs. The Company has demonstrated that by both providing healthcare and
offering claims management services,  Concentra is in a unique position to offer
and provide a full  continuum  of services  on a bundled or  unbundled  basis to
national or regional accounts and local employers.

     Concentra's   comprehensive   services  are  comprised  of  three  distinct
categories: (i) healthcare services, (ii) specialized cost containment services,
and (iii) field case management services.  For the year ended December 31, 1998,
revenues from healthcare  services,  specialized  cost-containment  services and
field case management  services  represented  approximately  43%, 30% and 27% of
total revenues, respectively.

     Healthcare services are provided through the Company's network of 169 owned
and managed occupational healthcare centers,  located in 50 markets in states as
of March 15, 1999.  Healthcare services include injury care and physical therapy
services  for  work-related  injuries  and  illnesses,   physical  examinations,
substance abuse testing and certain other loss-prevention services.

     Specialized cost containment  services are comprised of the Company's first
report of injury service provided  through its First Notice Systems*  subsidiary
("First  Notice"),  telephonic  case management  services,  provider bill review
services,  preferred provider  organization ("PPO") access through the Company's
Focus Healthcare  Management*  subsidiary ("Focus"),  out-of-network bill review
services through the Company's  Concentra  Preferred Systems subsidiary ("CPS").
independent medical exams ("IMEs") and peer reviews CPS provides  out-of-network
medical bill review services primarily to the group health market, but Concentra
is now marketing  this service to its workers'  compensation  and auto insurance
customers.

     Field case  management  services are provided to a national  customer  base
utilizing  over  1,100  full time field  case  managers.  Field case  management
services  involve  working on a  one-on-one  basis with  injured  employees  and
facilitating   communication  among  their  various  healthcare   professionals,
employers and insurance company  adjusters.  Field case management  services are
designed  both  to  assist  in  maximizing   medical   improvement   and,  where
appropriate, to expedite return to work.

--------
* "Concentra",  "First Notice  Systems" and "Focus  Healthcare  Management"  are
  registered service marks of Concentra Managed Care, Inc.



                                       1


<PAGE>

     On March 2, 1999,  Concentra  entered into an Agreement  and Plan of Merger
(the "Merger  Agreement") with Yankee Acquisition Corp., a Delaware  corporation
("Yankee").  On March 24, 1999,  Concentra  entered into an Amended and Restated
Agreement  and Plan of Merger (the  "Amended  Merger  Agreement")  with  Yankee,
amending the Merger  Agreement.  The Amended Merger  Agreement  contemplates the
merger  (the  "Merger")  of Yankee with and into  Concentra.  As a result of the
Merger,  each outstanding share of Concentra Common Stock will be converted into
the right to receive $16.50 in cash. The Merger is conditioned upon, among other
things  approval by the  stockholders  of  Conentra,  receipt of  financing  and
certain regulatory approvals.  The transaction is structured to be accounted for
as a recapitaliztion.

B. INDUSTRY OVERVIEW


WORKERS' COMPENSATION

     Workers' compensation is a state-mandated,  comprehensive insurance program
that  requires  employers to fund medical  expenses,  lost wages and other costs
resulting from work-related injuries and illnesses.  Since their introduction in
the early 1900s,  these  programs have been  expanded to all fifty  states,  the
District of Columbia and Canada. In addition,  federal statutes provide workers'
compensation  benefits  for federal  employees.  Each state is  responsible  for
implementing and regulating its own program. Consequently, workers' compensation
benefits and arrangements  vary on a  state-by-state  basis and are often highly
complex.

     Workers' compensation legislation generally requires employers, directly or
indirectly through an insurance  vehicle,  to fund all of an employee's costs of
medical treatment and a significant  portion of lost wages, legal fees and other
associated  costs.  Typically,  work-related  injuries are broadly defined,  and
injured or ill  employees  are entitled to  extensive  benefits.  Employers  are
required,  directly or  indirectly,  to provide  first-dollar  coverage  with no
co-payment  or  deductible  due from the  injured or ill  employee  for  medical
treatment and, in many states, there is no lifetime limit on expenses.  However,
in exchange for providing this coverage for employees, employers are not subject
to litigation by employees for benefits in excess of those provided  pursuant to
the relevant state statute. In most states, the extensive benefits coverage (for
both  medical  costs  and lost  wages)  is  provided  through  the  purchase  of
commercial  insurance  from  private  insurance   companies,   participation  in
state-run insurance funds or employer self-insurance.

     According to statistics  published in the 1998 Workers'  Compensation  Year
Book, total workers'  compensation  costs to employers in the United States were
estimated to be  approximately  $92 billion in 1996.  Although the industry as a
whole  is  fragmented  with  a  large  number  of  competitors  in  the  various
sub-segments of workers'  compensation  services,  Concentra believes that it is
the only  integrated  provider of  healthcare  management  and  cost-containment
services offering a full continuum of services on a nationwide basis.


OCCUPATIONAL HEALTHCARE

     Occupational healthcare is largely provided by independent physicians,  who
have  experienced  increasing  pressures in recent  years from cost  containment
efforts, growing regulatory complexity,  and increased competition.  The Company
anticipates that competition in the occupational  healthcare  industry may shift
from individual  practitioners  to specialized  provider  groups,  such as those
managed by the Company.

     Occupational  healthcare  services consist of two primary  components:  (i)
workers'  compensation  injury care and related  services;  and (ii)  non-injury
healthcare services related to employer needs or statutory requirements.

     INJURY CARE

     The  dollar   amount  of  workers'   compensation   claims  has   increased
significantly in recent years,  resulting in escalating costs to employers.  The
Company  anticipates that employers' direct costs of workers'  compensation will
continue to escalate  primarily  because of broader  definitions of work-related
injuries and illnesses  covered by workers'  compensation  laws, the shifting of
medical costs from group health plans to the workers'  compensation  system,  an
aging  work force and,  most  importantly,  the  absence of  comprehensive  cost
containment  programs (such as those that  encourage  early  return-to-work  and
limited duty).

     As workers'  compensation costs increase,  Concentra expects that employers
will continue to seek and implement  strategies and programs to reduce  workers'
compensation  costs and to improve worker  productivity,  health and safety. The
Company  believes  that clients' use of its  healthcare  services at the primary
care level, focusing on proactively managing each injury episode and encouraging
early  return to work (as  appropriate),  can result in  substantial  savings in
indemnity and medical costs.

                                       2


<PAGE>


     Provider reimbursement methods vary on a state-by-state basis. Forty states
have  adopted fee  schedules  pursuant  to which all  healthcare  providers  are
uniformly  reimbursed.  The fee  schedules  are set by each state and  generally
prescribe the maximum amounts that may be reimbursed for a designated procedure.
In states without fee schedules,  healthcare  providers are reimbursed  based on
usual,  customary and reasonable ("UCR") fees charged in the particular state in
which the services are provided. Of the 25 states in which the Company currently
operates occupational healthcare centers, 21 have fee schedules.

     Limitations on an employee's right to choose a specific healthcare provider
are  dependent  upon the  particular  state  statute.  According to the Workers'
Compensation  Research  Institute,  as of March  1999,  25  states  limited  the
employee's  choice of provider and 32 states  placed  restrictions  on switching
providers,  including  provisions  requiring  employer approval for any changes.
Twelve  states  place  restrictions  on  switching  providers  via managed  care
arrangements.  Generally,  the employer will also have the ability to direct the
employee when the employer is  self-insured.  Concentra  believes that employers
greatly influence their employees' choices of physicians even in states in which
the employees may select their providers. As a result, it has been the Company's
experience  that its results of operations  and prospects in a particular  state
are not materially dependent upon state statutes regarding direction of care.

     NON-INJURY HEALTHCARE SERVICES

     Non-injury  occupational  healthcare  services  include  employment-related
physical examinations, drug and alcohol testing, functional capacity testing and
other related  programs  designed to meet specific  employer  needs.  Non-injury
healthcare  services also include programs to assist employers in complying with
a  continuously  expanding  list of federal  and state  requirements,  including
hearing  conservation   programs,   toxic  chemical  exposure  surveillance  and
monitoring  programs,  and  Department of  Transportation  and Federal  Aviation
Administration  physical  examinations.  Federal laws governing health issues in
the workplace,  including the Americans with Disabilities Act (the "ADA"),  have
increased employers' demand for healthcare  professionals who are experts in the
delivery of these regulated services.


MANAGED CARE SERVICES: SPECIALIZED COST CONTAINMENT AND FIELD CASE MANAGEMENT

     Managed  care  techniques  are  intended to control the cost of  healthcare
services and to measure the performance of providers  through  intervention  and
on-going  review of  services  proposed  and  actually  provided.  Managed  care
techniques  were  originally  developed  to  stem  the  rising  costs  of  group
healthcare.  Historically,  employers were slow to apply managed care techniques
to  workers'  compensation  costs  primarily  because  the  aggregate  costs are
relatively  small compared to those  associated  with group health  benefits and
because state-by-state regulations related to workers' compensation are far more
complex than those related to group health.  However, in recent years, employers
and insurance carriers have been increasing their focus on applying managed care
techniques to control their workers' compensation costs.

     A number of states have adopted legislation encouraging the use of workers'
compensation managed care organizations ("MCOs") in an effort to allow employers
to  control  their  workers'  compensation  costs.  MCO laws  generally  provide
employers an opportunity to channel injured employees into provider networks. In
certain  states,  MCO laws  require  licensed  MCOs to offer  certain  specified
services,  such as  utilization  management,  case  management,  peer review and
provider bill review. Most of the MCO laws adopted to date establish a framework
within which a company such as Concentra  can provide its customers a full range
of managed care services for greater cost control.

     Because workers'  compensation benefits are mandated by law and are subject
to extensive  regulation,  payors and employers do not have the same flexibility
to alter benefits as they have with other health benefit programs.  In addition,
workers' compensation programs vary from state to state, making it difficult for
payors and multi-state employers to adopt uniform policies to administer, manage
and control the costs of  benefits.  As a result,  managing the cost of workers'
compensation  requires  approaches  that  are  tailored  to the  specific  state
regulatory environment in which the employer operates.

     Workers'  compensation  managed care services include two broad categories:
specialized  cost  containment  services  and field  case  management  services.
Specialized  cost  containment  services  are  designed  to  reduce  the cost of
workers'  compensation  claims  through a variety  of  techniques  such as first
report  of  injury  services,   utilization  management   (precertification  and
concurrent  review),   retrospective  bill  review  services,   telephonic  case

                                       3



<PAGE>

management,  PPO network access,  out-of-network bill review services,  IMEs and
peer reviews.  Field case  management  services  involve working on a one-on-one
basis with injured employees and facilitating  communication among their various
healthcare professionals,  employers and insurance company adjusters. Field case
management   services  are  designed  both  to  assist  in  maximizing   medical
improvement and, where appropriate, to expedite return to work.


GROUP HEALTH COST CONTAINMENT SERVICES

     All healthcare payors have out-of-network exposure due to healthcare claims
that are outside their  coverage area or network either as a matter of choice on
the part of the  insured or as a result of  geographic  circumstances  where the
insured  does not have  local  access to  contracted  providers.  Out-of-network
healthcare  claims  expose  payors to  greater  incidence  of  over-utilization,
cost-shifting,  omission of appropriate  discounts and possible  billing errors.
Out-of-network  bill review service  providers produce savings for their clients
by analyzing  these  out-of-network  medical claims and reducing the costs which
otherwise would be payable through a variety of methods,  including professional
negotiation, line item analysis, specialized audit and bill review processes and
broad access to preferred provider networks.


AUTO MANAGED CARE SERVICES

     The automobile insurance industry, like the workers' compensation industry,
is regulated on a  state-by-state  basis.  Although  regulatory  approval is not
required for Concentra to offer most of its services to the automobile insurance
market  (including  voluntary  network  access),  state  regulatory  approval is
required in order to offer  automobile  insurers'  products  that permit them to
direct claimants into a network of medical providers.

     It is  relatively  recent  that  the auto  insurance  market  has  provided
legislative  support of  healthcare  management  and cost  management  services.
However, in states that have adopted auto managed care legislation, direction of
care to  designated  providers of  treatment  have lowered the costs of Personal
Injury Protection  coverage.  The lowering of this threshold has an impact as to
whether  further  damages  claims can be made with regard to injury costs.  As a
result of  performance in the states of Colorado and Hawaii,  new  opportunities
have arisen in other states with  existing  no-fault  legislation.  Concentra is
pursuing  auto-related business using cost management strategies in those states
that permit such programs.


C. CONCENTRA'S BUSINESS STRATEGY

     Concentra's  objective  is  to  capitalize  on  its  national  presence  by
providing an integrated platform of comprehensive healthcare management and cost
containment  services.   The  Company's  strategy  is  to  (i)  increase  market
penetration of early intervention  services such as healthcare  services,  first
report  of  injury  and  telephonic  case   management,   (ii)  increase  market
penetration of out-of-network bill review services to the group health, workers'
compensation and auto insurance markets, (iii) streamline patient care, outcomes
reporting and claims resolution through enhanced  information  technology,  (iv)
continue  to acquire  and  develop  occupational  healthcare  centers and expand
healthcare network services by developing direct  affiliations with primary care
physicians,  specialists,  hospitals  and  other  ancillary  providers  and  (v)
capitalize on the Company's  national  organization and local market presence to
win  new  customers  and to  increase  cross-selling  of  services  to  existing
accounts. Concentra will seek to implement this strategy as follows:

INCREASE MARKET PENETRATION OF EARLY INTERVENTION SERVICES

     Concentra  intends to  increase  its  development  and  marketing  of early
intervention services,  such as access to its network of occupational healthcare
centers  and  other  providers  in its PPO  network,  first  report  of  injury,
precertification,  and telephonic case management.  Early  intervention  enables
Concentra  to  identify  promptly  cases  that have the  potential  to result in
significant  expenses and to take appropriate measures to control these expenses
before they are incurred.  In addition,  Concentra believes that providing early
intervention  services generally results in the Company obtaining earlier access
to claims  files.  Such earlier  access  improves the Company's  opportunity  to
provide  the  full  range of its  healthcare  management  and  cost  containment
services, which should result in lowering the total costs of the claim.


INCREASE MARKET PENETRATION OF OUT-OF-NETWORK BILL REVIEW SERVICES

     Concentra will further  expand its reach into the group health  marketplace
by offering new and existing  customers CPS's  comprehensive  retrospective bill
review services which will help customers contain costs


                                       4



<PAGE>

related to out-of-network group health medical charges. CPS is the market leader
in this  line of  business  and is  expanding  its  services  into the  workers'
compensation   market  and  auto  insurance  market  in  states  that  have  not
established  fee  schedules.  Concentra  believes that  expansion in these areas
represents a significant opportunity for the Company in the future.


STREAMLINE PATIENT CARE, OUTCOMES REPORTING AND CLAIMS RESOLUTION THROUGH
ENHANCED INFORMATION TECHNOLOGY

     Concentra's  ongoing  development of enhanced  information  technology will
strengthen  the  Company's  ability to provide a full  continuum  of  integrated
services to its customers.  Concentra  will continue to develop its  information
systems  to make  more  effective  use of the  Company's  extensive  proprietary
knowledge base relating to workplace  injuries,  treatment  protocols,  outcomes
data and the workers'  compensation  system's complex web of regulations.  These
enhanced  information  systems will enable Concentra to streamline  patient care
and  outcomes  reporting,  thus  augmenting  the  Company's  ability  to furnish
high-quality,  efficient  healthcare services in compliance with the regulations
governing  healthcare  services.   Further,   Concentra  believes  it  can  more
efficiently process bill review and field case management claims through the use
of enhanced  information  technology  and will  continue to devote  resources to
improving such systems.


CONTINUE TO ACQUIRE AND DEVELOP OCCUPATIONAL HEALTHCARE CENTERS AND EXPAND
HEALTHCARE NETWORK SERVICES

     Concentra  estimates that there are more than 2,000  healthcare  centers in
the United States in which  physicians who specialize in  occupational  medicine
are providing  occupational  healthcare  services.  The Company will continue to
acquire and develop occupational  healthcare centers in new and existing markets
and will continue to organize its occupational healthcare centers in each market
into  clusters to serve  employers,  payors and  workers  more  effectively,  to
leverage  management and other  resources and to facilitate  the  development of
integrated networks of affiliated physicians and other healthcare providers.  In
addition,  Concentra will develop occupational healthcare centers in new markets
and within existing  markets  through joint ventures and management  agreements.
Finally,    through    Focus,    Concentra   will   continue   to   expand   its
vertically-integrated  networks of specialists,  hospitals and other  healthcare
providers.  These networks, and the Company's  occupational  healthcare centers,
are designed to provide quality care to patients,  while reducing total costs to
employers and insurers.


CAPITALIZE ON NATIONAL ORGANIZATION AND LOCAL MARKET PRESENCE TO WIN NEW
CUSTOMERS AND TO INCREASE CROSS-SELLING OF SERVICES TO EXISTING ACCOUNTS

     Concentra  believes  that  national  and  regional  insurance  carriers and
self-insured  employers  will  benefit  greatly  from the  Company's  ability to
provide a full continuum of healthcare  management and cost containment services
on a nationwide  basis.  Concentra  offers  these large  payors a  comprehensive
solution  to their  healthcare  management  and cost  containment  needs  from a
service provider that is adept at understanding  and working with many different
and complex state legislative environments. Concentra's national organization of
local  service  locations  enables the Company to meet the needs of these large,
national payors while maintaining the local market presence necessary to monitor
changes in state-specific  regulations and to facilitate case resolution through
locally provided managed care services. Concentra's national marketing personnel
will  continue to target  these large  payors to expand the  Company's  customer
base.  In  addition,   Concentra  is   well-positioned   to  capitalize  on  the
relationships  developed  through the Company's  broad-based  national and local
marketing efforts by cross-selling  its full continuum of healthcare  management
and cost containment services to its existing customer base.


     D. SERVICES AND OPERATIONS 

     Concentra's business and operations span the workers'  compensation,  group
health, auto and disability insurance markets.  Each of these markets represents
a significant  opportunity  for the full continuum of healthcare  management and
cost  containment  services  provided by  Concentra.  In each of these  markets,
insurance companies,  self-insured  employers and TPAs have a need for Concentra
service offerings.


HEALTHCARE SERVICES

     OCCUPATIONAL HEALTHCARE CENTERS

     The Company's 169 occupational healthcare centers at March 15, 1999 provide
treatment  for   work-related   injuries  and   illnesses,   physical   therapy,
preplacement physical examinations and evaluations, certain diagnostic





                                       5



<PAGE>

testing,  drug and  alcohol  testing  and various  other  employer-requested  or
government-mandated occupational health services. During the year ended December
31, 1998,  approximately 52% of all patient visits to the Company's centers were
for the  treatment of injuries or  illnesses  and 48% were for  substance  abuse
testing,  physical  examinations  and other non-injury  occupational  healthcare
services.

     Preplacement  physical  examinations  and drug and alcohol testing are most
frequently  conducted on a walk-in  basis but may be scheduled in advance.  More
specialized  services,  such as audiogram testing or pulmonary function testing,
are  sometimes  scheduled  in advance.  Employees  suffering  from  work-related
injuries or illnesses are treated on an urgent basis.

     Each of Concentra's centers is staffed with at least one licensed physician
who is an employee of a  professional  association or  professional  corporation
affiliated with the Company (the  "Physician  Groups") and at least one licensed
physical   therapist.   The  licensed   physicians  are  generally  trained  and
experienced  in  occupational  medicine  or  have  emergency,  family  practice,
internal medicine or general medicine backgrounds.  Most centers utilize a staff
of  between  10 and 15  full-time  persons  (or  their  part-time  equivalents),
including  licensed  physicians,   nurses,   licensed  physical  therapists  and
administrative support personnel.

     Physician  and  physical  therapy  services  are  provided  at  Concentra's
occupational  healthcare  centers under  agreements  with the Physician  Groups,
which are independently  organized professional  corporations that hire licensed
physicians  and  physical  therapists  to  provide  healthcare  services  to the
centers' patients. The management agreements between Concentra and the Physician
Groups with  respect to the 300  affiliated  physicians  as of February 28, 1999
have 40-year terms. Pursuant to each management agreement,  the Company provides
a wide array of business  services to the  Physician  Groups,  such as providing
nurses and other medical support personnel,  practice and facilities management,
billing and collection, accounting, tax and financial management, human resource
management,  risk management,  marketing and information-based  services such as
process  management and outcomes  analysis.  As another service to the Physician
Groups, the Company recruits physicians,  nurses,  physical therapists and other
healthcare providers.  Concentra collects receivables on behalf of the Physician
Groups and  advances  funds for  payment  of each  Physician  Group's  expenses,
including salaries, shortly after services are rendered to patients. The Company
receives a management  fee based on all services  performed at the centers.  The
management fee is subject to renegotiation and may be adjusted from time to time
to reflect  industry  practice,  business  conditions  and actual  expenses  for
contractual  allowances  and  bad  debts.  Concentra  provides  services  to the
Physician  Groups as an independent  contractor and is responsible  only for the
non-medical  aspects of the Physician  Groups'  practices.  The Physician Groups
retain sole responsibility for all medical decisions.


     Individual  physicians  who perform  services  pursuant to contracts with a
Physician Group are employees of the Physician Group.  The physicians  providing
services for the Physician Groups do not maintain other practices. The owners of
the Physician Groups are physicians.  It is the  responsibility of the owners of
the  Physician  Group to hire and  manage  all  physicians  associated  with the
Physician   Group  and  to  develop   operating   policies  and  procedures  and
professional standards and controls.  Pursuant to each management agreement, the
Physician  Group  indemnifies  the Company from any loss or expense arising from
acts  or  omissions  of the  Physician  Group  or  its  professionals  or  other
personnel, including claims for malpractice.


     JOINT VENTURES AND MANAGEMENT AGREEMENTS


     Concentra's  strategy is to continue  to develop  clusters of  occupational
healthcare centers in new and existing  geographic markets through the formation
of strategic  joint ventures in addition to the  acquisition  and development of
physician practices. In selected markets in which a hospital management company,
hospital system or other  healthcare  provider has a significant  presence,  the
Company may focus its expansion  efforts on the  establishment of joint ventures
or management contracts. In its joint venture relationships, Concentra typically
acquires a majority  ownership  interest in the venture and agrees to manage the
venture for a management fee based on net revenues.  Concentra  currently is the
managing member of eight joint ventures through which it operates 22 centers and
has entered  into two  management  agreements  through  which it  operates  five
centers.


     OTHER ANCILLARY PROGRAMS


     Concentra  offers other ancillary  programs as described below. It has been
the  Company's  experience  that,  by  offering  a full  range  of  programs  to
complement its core healthcare management operations, it strengthens its


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<PAGE>


relationships  with existing  clients and increases the likelihood of attracting
new clients. Concentra anticipates expanding its ancillary programs as needed to
address occupational legislation and regulations enacted in the future.


     COMPLIANCE WITH ADA. The ADA is a federal statute that generally  prohibits
employers from  discriminating  against  qualified  disabled  individuals in the
areas of the job application process,  hiring,  discharge,  compensation and job
training.  The ADA  now  applies  to all  employers  with 15 or more  employees.
Through its "ADApt  Program,"  Concentra  assists  employers with ADA compliance
issues by proactively  addressing ADA requirements relating to job descriptions,
pre-placement physical examinations, analysis and compliance and confidentiality
of applicant/employee  information. ADApt helps employers adapt their hiring and
termination procedures,  job descriptions and injury/illness management programs
in order to comply with ADA guidelines.

     RISK ASSESSMENT AND INJURY PREVENTION  PROGRAMS.  Concentra assists clients
in reducing workplace injuries and illnesses through its on-site risk assessment
and injury prevention  programs.  These programs include  identifying  workplace
hazards,  designing  plant-specific  safety  programs and helping clients comply
with  federal  and state  occupational  health  regulations.  The  Company  also
provides ongoing educational programs for its clients.

     Healthcare services collectively represented approximately 46%, 43% and 43%
of  Concentra's  total  revenues for the fiscal years ending  December 31, 1996,
1997 and 1998, respectively.


SPECIALIZED COST CONTAINMENT SERVICES

     Concentra  provides a number of specialized  services  focused  directly on
helping to reduce the medical  and  indemnity  costs  associated  with  workers'
compensation  and the medical costs  associated with group health claims.  These
specialized  cost  containment  services  include first report of injury service
through First Notice,  utilization  management  (precertification and concurrent
review),  retrospective  bill review services,  telephonic case management,  PPO
network access through Focus,  out-of-network  bill review services through CPS,
IMEs and peer reviews.

     Concentra  is able to offer  its  services  on an  unbundled  basis or on a
bundled basis as a full-service  managed care program,  beginning with the first
report of injury and including all specialized cost containment  services needed
to  manage  aggressively  the  costs  associated  with  a  work-related  injury.
Concentra's  comprehensive  approach to  managing  workers'  compensation  costs
serves the needs of a broad range of clients,  from local  adjusters to national
accounts.  In addition to providing  specialized cost  containment  services for
work-related  injuries and illnesses,  the Company also provides  out-of-network
bill review services to the group health market,  cost  containment  services to
payors of automobile  accident  medical  claims and social  security  disability
advocacy services to payors of long term disability claims.

     Concentra  believes  that  the  demand  for  specialized  cost  containment
services  will continue to increase due to a number of factors,  including:  (i)
the increasing  payor awareness of the availability of these techniques for cost
containment  and  case  management;  (ii)  the  effectiveness  of  managed  care
techniques  at  reducing  costs  for group  health  insurance  plans;  (iii) the
verifiable  nature  of the  savings  that  can be  obtained  by  application  of
specialized cost containment techniques applicable to workers' compensation; and
(iv) the broad  applicability of these techniques to all injured employees,  not
just severely injured employees likely to be absent from work.

     FIRST REPORT OF INJURY

     Through First Notice,  Concentra  provides a  computerized  first report of
injury/loss reporting service utilizing two centralized national call centers to
which an employer or insurance company claims adjuster  communicates  reports of
injuries or losses as soon as they occur.  First  Notice  provides  its services
primarily  to the auto  industry  for  first  notice  of loss  reporting  and to
workers' compensation  carriers for first report of injuries reporting,  as well
as to  property  and  casualty  carriers  that  write  both  auto  and  workers'
compensation insurance. For injuries, each report is electronically  transferred
or mailed to the state  agency,  the employer and the  insurance  company.  This
service  assists in the timely  preparation and  distribution of  state-mandated
injury  reports and also  provides  Concentra  and its  customers  with an early
intervention  tool to  maximize  control  over  workers'  compensation  and auto
claims.

     UTILIZATION MANAGEMENT: PRECERTIFICATION AND CONCURRENT REVIEW

     Concentra's  precertification  and concurrent  review  services are used by
clients  to  ensure  that  certain  medical  procedures  are  precertified  by a
Concentra registered nurse and/or physician for medical necessity and

                                       7



<PAGE>

appropriateness   of  treatment  before  the  medical  procedure  is  performed.
Concentra's  determinations  represent only recommendations to the customer; the
ultimate  decision  to approve or  disapprove  the request is made by the claims
adjuster. Precertification calls are made by either the claimant or the provider
to one of Concentra's national  utilization  management reporting units. After a
treatment plan has been precertified,  a Concentra employee performs a follow-up
call  (concurrent  review) at the end of an  approved  time  period to  evaluate
compliance and/or discuss alternative plans.


     RETROSPECTIVE BILL REVIEW

     Through a sophisticated software program, Concentra reviews and reduces its
customers'  medical  bills  (including  hospital  bills) to either  the  various
state-mandated fee schedules for workers' compensation claims or a percentage of
the UCR  rates  that  exist  in  non-fee  schedule  states.  Additionally,  this
automated  retrospective  bill review service  enables clients to access certain
PPO pricing schedules that represent  additional savings below the fee schedules
or UCR rates. The savings to Concentra's clients as a result of this service can
be significant.  Retrospective bill review also creates an important  historical
database for provider  practice  patterns and managed care  provider  compliance
requirements.

     TELEPHONIC CASE MANAGEMENT

     This  service  provides  for  short-duration  (30  to 90  days)  telephonic
management of workers' compensation claims. The telephonic case management units
accept first reports of injury,  negotiate  discounts  with  hospitals and other
providers,  identify  care  alternatives  and work  with  injured  employees  to
minimize lost time on the job. Each of the telephonic case  management  units is
overseen  by  nurses  who  are  experienced  in  medical  case  management.  The
telephonic  case  management  units  represent an  important  component of early
intervention  and act as a referral  source of appropriate  cases to Concentra's
field case management offices.

     ACCESS TO PREFERRED PROVIDER NETWORKS

     Through Focus, Concentra provides its clients with access to a national PPO
network.  This network  provides  injured workers with access to quality medical
care and pre-negotiated  volume discounts,  thereby offering Concentra's clients
the ability to influence,  or in certain states to direct,  their employees into
the PPO network as a means of managing their work-related claims. In addition to
providing a vehicle for managing the delivery of  appropriate  care by qualified
providers,  the  discounts  associated  with  these  PPO  arrangements  generate
additional  savings  through the  retrospective  bill review  program  described
above.  Focus's  national  network  includes  approximately  219,000  individual
providers and 2,900 hospitals covering 41 states and the District of Columbia.

     OUT-OF-NETWORK BILL REVIEW

     Through  CPS,  Concentra   continues  to  expand  its  market  presence  in
retrospective  bill review  services.  CPS is the market  leader in this line of
business  in the group  health  arena and is  expanding  its  services  into the
workers'  compensation  market in states that have not established fee schedules
and into the auto insurance market where appropriate.  CPS utilizes a variety of
techniques to reduce expenses by repricing hospital and other facilities' bills.
Utilizing its comprehensive  portfolio of products, CPS reduces costs ordinarily
payable  on  medical   bills   submitted  by   healthcare   providers   and  the
administrative  expense  associated with reviewing and analyzing  medical bills.
These services include  professional fee negotiation,  line-item  analysis,  and
other  specialized  audit  and bill  review  processes,  as well as  access to a
nationwide PPO network.

     CPS provides  out-of-network  bill review services to healthcare  payors in
most risk categories:  indemnity,  PPO, health maintenance  organization,  ERISA
self-insured plans,  Taft-Hartley Plans, reinsurance carriers and intermediaries
such as  administrative  services  organizations  and TPAs.  CPS is the  largest
provider of these specific services in the managed care industry and specializes
in out-of area and non-network cost management  services that reduce exposure to
over-utilization,  upcoding, cost shifting, various forms of revenue enhancement
tactics and inflated retail charge practices.

     The current  service  delivery  model employed at CPS is designed to review
most  provider  bill types,  employ four  distinct  transmission  modalities  to
facilitate the exchange of bill data,  utilize various database  technologies as
part of the bill  screening  process,  score  each  bill  referred  based on the
individual service requirements of each client group, and route each bill to the
most  appropriate  bill review service  included in a consolidated  portfolio of
cost containment  services.  CPS has packaged this process and markets it as the
Healthcare Bill Management


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<PAGE>

System  ("HBMS".) The system  affords large payor  clients  scale and  capacity,
consolidated and uniform cost management capability,  rigorous due diligence and
superior performance.

     INDEPENDENT MEDICAL EXAMS

     IMES are provided to assess the extent and nature of an employee's injury
or illness. Concentra provides its clients with access to independent physicians
who  perform  the IMEs from 14 of the  Company's  service  locations  and,  upon
completion, prepare reports describing their findings.

     PEER REVIEWS

     Peer review services are provided by a physician,  therapist,  chiropractor
or other  provider  who  reviews  medical  files to confirm  that the care being
provided  appears to be necessary  and  appropriate.  The reviewer does not meet
with the patient, but merely reviews the file as presented.


     AUTOMOBILE INSURANCE MANAGED CARE

     Concentra offers an integrated  service to the automobile  insurance market
that,  where  permitted by law,  includes the direction of  automobile  accident
victims  into  networks of medical  providers.  The Company  currently  offers a
fully-integrated service in only 2 states and offers voluntary network access in
several other states. The Company's program has produced significant savings for
its insurance  company  clients.  Services  offered to the automobile  insurance
market  include  precertification,  telephonic  case  management,  direction  of
injured  persons into  specialized  PPO networks,  medical bill review and field
case management.  Specialized cost containment services collectively represented
approximately  22%,  29% and 30% of  Concentra's  total  revenues for the fiscal
years ending December 31, 1996, 1997 and 1998, respectively.

FIELD CASE MANAGEMENT SERVICES

     Concentra   provides  field  case  management   services  to  the  workers'
compensation insurance industry through nurse case managers working at the local
level on a one-on-one basis with injured employees and their various  healthcare
professionals, employers and insurance company adjusters. The Company's services
are designed to assist in maximizing medical improvement and, where appropriate,
to expedite  employees' return to work through medical management and vocational
rehabilitation services.

     Concentra's field case management services consist of one-on-one management
of a  work-related  injury by over 1,100 field case managers in 89 offices in 49
states,  the District of Columbia and Canada.  This service typically involves a
case  with a  significant  potential  or  actual  amount  of lost work time or a
catastrophic  injury that requires detailed management and therefore is referred
out by the local  adjuster  to the  Concentra  marketer.  Concentra  field  case
managers  specialize in expediting the injured employee's return to work through
both  medical  management  and  vocational  rehabilitation.  Medical  management
services  provided by Concentra's  field case managers include  coordinating the
efforts  of  all  the  healthcare  professionals  involved  and  increasing  the
effectiveness  of the care being provided by  encouraging  compliance and active
participation  on the  part of the  injured  worker.  Vocational  rehabilitation
services  include  job  analysis,   work  capacity  assessments,   labor  market
assessments, job placement assistance and return to work coordination.

     The  Company  believes  that  the  following  factors  will  contribute  to
continued growth of its field case management services: (i) increased acceptance
of field case  management  techniques  due to greater  exposure to the  workers'
compensation managed care market; (ii) earlier  identification of individuals in
need of field case  management  services  due to  increased  utilization  of the
Company's specialized cost containment services, particularly early intervention
services;   (iii)   increased   market   share  at  the   expense  of   smaller,
undercapitalized  competitors;  and (iv) the ability to access national accounts
for use of case management services.

     Field case management services  represented  approximately 32%, 28% and 27%
of Concentra's  total  revenues for the years ended December 31, 1996,  1997 and
1998, respectively.

     Financial information regarding the Company's segments is set forth in Note
13 of Notes to Consolidated Financial Statements, beginning on Page F-20.

E. CUSTOMERS

     Concentra's  occupational  healthcare  centers  currently  serve  more than
80,000 employers,  ranging from large corporations to businesses with only a few
employees. The Company serves more than 2,000 specialized

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<PAGE>

cost containment and  field  case management  customers across the United States
and Canada,  including most of the major  underwriters of workers'  compensation
insurance,  TPAs and self-insured employers.

     Concentra  is  compensated  primarily  on  a  fee-for-service   basis.  The
Company's largest customer represented less than 6% of Concentra's total revenue
in 1998.  The Company has not entered into written  agreements  with most of its
healthcare   services  customers.   Many  of  the  Company's   specialized  cost
containment  and  field  case  management  relationships  are  based on  written
agreements.  However,  either the customer or the Company can terminate  most of
these agreements on short notice.


F. SALES AND MARKETING

     Concentra actively markets its services primarily to workers'  compensation
insurance  companies,  TPAs,  employers  and employer  groups.  The Company also
markets to the group  health,  automobile  insurance  and  disability  insurance
markets. The Company's marketing  organization includes over 350 full-time sales
and marketing personnel.

     Concentra markets its services at both the local insurance company adjuster
and  employer  level.  In  addition,  the Company  markets  its  services at the
national and regional level for large managed care accounts and for self-insured
corporations  where  a  more  sophisticated   sales  presentation  is  required.
Concentra has a dedicated staff of national accounts salespeople responsible for
marketing and  coordinating  the  Company's  full range of services to corporate
offices.

     Concentra's  local marketing has been a critically  important  component of
the Company's strategy, because of the decision-making authority that resides at
the  local  level and the  relationship-driven  nature  of that  portion  of the
business.  However,  the expansion of  comprehensive  managed care  legislation,
continuing   receptiveness   to   workers'   compensation   change  and  a  more
comprehensive product offering by Concentra, demand that the Company continue to
focus on marketing to national  headquarters  offices of insurance companies and
self-insured companies.  As part of its coordinated marketing effort,  Concentra
periodically  distributes  follow-up  questionnaires  to patients,  insurers and
employers to monitor satisfaction with the Company's services.


G. QUALITY ASSURANCE

     Concentra  routinely  uses  internal  audits  to test  the  quality  of its
delivery of services.  The Company  conducts  audits of compliance  with special
instructions,   completion  of  activities  in  a  timely  fashion,  quality  of
reporting, identification of savings, accuracy of billing and professionalism in
contacts with healthcare providers.  The Company conducts audits on a nationwide
basis for  particular  customers or on a local office basis by selecting  random
files for review.  A detailed  report is generated  outlining the audit findings
and providing specific  recommendations for service delivery improvements.  When
appropriate,   the   Company   conducts   follow-up   audits  to   ensure   that
recommendations from the initial audit have been implemented.


H. COMPETITION


HEALTHCARE SERVICES

     The market to provide healthcare services within the workers'  compensation
system is highly fragmented and competitive.  Concentra's  competitors typically
have been  independent  physicians,  hospital  emergency  departments  and other
urgent care  providers.  The  Company  believes  that,  as  integrated  networks
continue  to  be  developed,   its  competitors  will  increasingly  consist  of
specialized provider groups.

     Concentra  competes  effectively  because  of  its  specialization  in  the
occupational  healthcare  industry,  its  broad  knowledge  and  expertise,  the
effectiveness of its services as measured by favorable outcomes,  its ability to
offer  services in multiple  markets and its  information  systems.  The Company
believes that it enjoys a unique  competitive  advantage by  specializing in and
focusing on occupational healthcare at the primary care provider level, which is
the entry point to the occupational healthcare delivery system.

     The  recruiting  of  physicians,  physical  therapists,  nurses  and  other
healthcare  providers  can  be  competitive.  However,  Concentra  continues  to
experience  greater  ease in  recruiting  as the Company  grows and becomes more
widely  known  by  healthcare  providers.  The  loss  of  services  provided  by
physicians,  physical  therapists,  nurses and other  providers  for an extended
period of time,  or the  inability  to attract such  individuals,  could have an
adverse effect on the Company's business.


                                       10



<PAGE>

SPECIALIZED COST CONTAINMENT AND FIELD CASE MANAGEMENT SERVICES

     The managed  care  services  market is  fragmented,  with a large number of
competitors.  Concentra  competes with numerous  companies,  including  national
managed care providers,  smaller independent providers, and insurance companies.
The Company's primary  competitors are companies that offer one or more workers'
compensation  managed  care  services  on a national  basis.  The  Company  also
competes  with numerous  smaller  companies  that  generally  provide  unbundled
services on a local level where such companies often have a relationship  with a
local adjuster.  Several large workers'  compensation  insurance  carriers offer
managed care services for their insurance customers either through the insurance
carrier's own personnel or by outsourcing  various services to providers such as
Concentra.  Concentra  believes that this competitive  environment will continue
into the foreseeable future.

     Concentra  competes  effectively  because of its specialized  knowledge and
expertise  in the workers'  compensation  managed care  services  industry,  the
effectiveness of its services, its ability to offer a full continuum of services
in multiple markets,  its information systems and the prices at which its offers
its services.


I. INFORMATION SYSTEMS AND TECHNOLOGY

     Concentra  maintains  a  fundamental  commitment  to  the  development  and
implementation of advanced information technology,  with a considerable focus on
web-based  applications.  These  applications  further the Company's systems and
product  integration,  enhancing  the delivery of quality  customer  service and
increasing   customer   communication  by  augmenting   Concentra's  ability  to
demonstrate cost savings across the entire episode of care.

     Concentra has  substantially  completed the  implementation  of a wide area
network ("WAN") in each market in which it provides  healthcare  services.  When
the implementation is complete, all occupational  healthcare centers in a market
will utilize a patient  administration system (named "OccuSource") which runs on
a client/server  architecture  allowing each center to access and share a common
database  for its market.  The database  contains  employer  protocols,  patient
records and other information  regarding  Concentra's  operations in the market.
Creating  a WAN in each  market  allows  the  centers  in the  market  to  share
information  and thereby improve center and physician  efficiencies  and enhance
customer service.  Concentra is linking each market WAN into a nationwide WAN in
order to create a centralized repository of Company data to be used, among other
things, for clinical outcomes  analysis.  Concentra believes that its commitment
to continued development of its healthcare  information system provides a unique
and  sustainable   competitive  advantage  within  the  occupational  healthcare
industry.

     Concentra has developed a new internet-based first notice of loss reporting
system for all lines of insurance (named "FNSNet").  The application extends the
Company's call center technology through the internet,  enabling users to report
first notices of loss, as well as providing  the user with  immediate  access to
customized  networks  and  routing  to  appropriate  and  qualified   healthcare
providers.  FNSNet can be accessed  through  hyperlinks on customers' web pages.
This application enhances both internal  integration and customer  communication
and creates an effective  platform for Concentra's First Notice Systems division
to handle calls with greater speed and efficiency.

     Concentra's  newly-developed  Integrated  Case  Management  Software System
("ICMS")  facilitates  and expedites the daily tasks of the Company's  field and
telephonic  case  managers,  allowing  them to devote  more  time to  consistent
delivery  of  quality  service.  This  software  allows  immediate  exchange  of
information  among Concentra's  offices,  as well as among employees in the same
office.  ICMS  is  integrated  with  the  FNSNet  web-based  product.  The  ICMS
application  enables a clear,  precise and immediate  transmission  of data from
First  Notice  into the ICMS  system.  This  pre-population  of data  eliminates
redundant and duplicative data entry for nurse case managers,  thus resulting in
greater time efficiency and cost savings.  The development and implementation of
ICMS allow for shared data in  situations  in which  multiple  case managers are
working  on a case.  The  new  ICMS  also  creates  better  customer  access  to
information and allows Concentra to produce specific,  user-friendly  reports to
demonstrate the value of the Company's services.


     Finally,  Concentra's CPS subsidiary utilizes its proprietary,  technology-
based HBMS system for its out-of-network medical claims review services.  Client
bills  are  accessed  and  entered  into HBMS in a  variety  of ways,  including
electronic bill  identification  within the client's claim  adjudication  system
with  subsequent  EDI  transfer  to  CPS,  entry  of  appropriate  bills  into a
customized, CPS-supplied Data Access Point ("DAP") system,


                                      11


<PAGE>

on-site bill entry by a CPS employee into the DAP system,  and overnight mail or
facsimile of client bills to a CPS service center.  These access  strategies are
designed to increase the number of  appropriate  bills that CPS receives,  while
minimizing the administrative  cost to the client. Once a bill is electronically
or manually entered into HBMS, the bill is evaluated  against CPS's licensed and
proprietary  databases that are designed to identify instances of cost shifting,
improper coding and utilization  and pricing issues.  Following  analysis of the
bill, the bill passes through CPS's client preference profile that is created at
the time of CPS's initial  engagement  with the client.  HBMS then evaluates the
compatibility of the service with the greatest expected savings with the service
requirements of the client and  electronically  sends the bill for processing to
the appropriate CPS service department.

J. GOVERNMENT REGULATION


GENERAL

     As a provider  of  healthcare  management  and cost  containment  services,
Concentra  is subject to  extensive  and  increasing  regulation  by a number of
governmental  entities at the federal,  state and local  levels.  The Company is
also  subject to laws and  regulations  relating  to  business  corporations  in
general. Applicable laws and regulations are subject to frequent changes.

     Laws and  regulations  affecting  Concentra's  operations  fall  into  four
general categories:  (i) workers'  compensation and other laws that regulate the
provision of healthcare  services or the provision of cost containment  services
or require licensing,  certification or other approval of such services provided
by the  Company;  (ii) laws  regarding  the  provision  of  healthcare  services
generally;  (iii)  laws  regulating  the  operation  of  managed  care  provider
networks; and (iv) other laws and regulations of general applicability.


WORKERS' COMPENSATION LAWS AND REGULATIONS

     In  performing   workers'   compensation   healthcare   services  and  cost
containment  services,  Concentra must comply with state  workers'  compensation
laws.   Workers'   compensation  laws  require  employers  to  assume  financial
responsibility  for medical  costs,  a portion of lost wages and  related  legal
costs of work-related illnesses and injuries. These laws establish the rights of
workers to receive benefits and to appeal benefit denials. Workers' compensation
laws  generally   prohibit  charging  medical   co-payments  or  deductibles  to
employees.  In addition,  certain states  restrict  employers'  rights to select
healthcare  providers and establish  maximum fee levels for treatment of injured
workers.


     Many states are  considering or have enacted  legislation  reforming  their
workers'  compensation  laws.  These reforms  generally give  employers  greater
control over who will provide  healthcare  services to their employees and where
those services will be provided and attempt to contain medical costs  associated
with  workers'  compensation  claims.  At  present,  40 of the  states  in which
Concentra does business have implemented  treatment-specific  fee schedules that
set  maximum  reimbursement  levels for  healthcare  services.  The  District of
Columbia and 10 states  provide for a  "reasonableness"  review of medical costs
paid  or  reimbursed  by  workers'  compensation.  When  not  governed  by a fee
schedule,  Concentra adjusts its charges to the usual,  customary and reasonable
levels accepted by the payor.


     Many  states,  including  a number  of those in which  Concentra  transacts
business,  have licensing and other  regulatory  requirements  that apply to the
Company's  specialized  cost  containment  and field case  management  business.
Approximately  half of the states have enacted  laws that  require  licensing of
businesses that provide medical review  services,  such as Concentra's.  Some of
these laws apply to medical  review of care  covered by  workers'  compensation.
These  laws  typically   establish  minimum  standards  for   qualifications  of
personnel,  confidentiality,  internal  quality  control and dispute  resolution
procedures.  In  addition,  new laws  regulating  the  operation of managed care
provider networks have been adopted by a number of states.  These laws may apply
to managed  care  provider  networks  having  contracts  with the  Company or to
provider networks that the Company has organized and may organize in the future.
To the extent that Concentra is governed by these regulations, it may be subject
to  additional  licensing  requirements,   financial  oversight  and  procedural
standards for beneficiaries and providers.


CORPORATE PRACTICE OF MEDICINE AND OTHER LAWS


     Most states  limit the  practice of  medicine  to licensed  individuals  or
professional  organizations comprised of licensed individuals.  Many states also
limit the scope of business  relationships between business entities such as


                                       12



<PAGE>


the  Company  and  licensed   professionals   and   professional   corporations,
particularly   with   respect   to   fee-splitting    between   physicians   and
non-physicians.  Laws and  regulations  relating to the  practice  of  medicine,
fee-splitting  and similar  issues  vary  widely from state to state,  are often
vague, and are seldom  interpreted by courts or regulatory  agencies in a manner
that provides guidance with respect to business  operations such as Concentra's.
The Company attempts to structure all of its healthcare  services  operations to
comply with applicable state statutes regarding medical practice,  fee-splitting
and  similar  issues.  However,  there can be no  assurance  (i) that  courts or
 .governmental  officials  with the power to interpret or enforce  these laws and
regulations  will not assert that  Concentra  is in  violation  of such laws and
regulations  or (ii) that future  interpretations  of such laws and  regulations
will not require  Concentra  to modify the  structure  and  organization  of its
business.

FRAUD AND ABUSE LAWS


     A federal law (the "Anti-Kickback  Statute") prohibits the offer,  payment,
solicitation  or receipt of any form of  remuneration to induce or in return for
the  referral of  Medicare  or other  governmental  health  program  patients or
patient care  opportunities,  or in return for the  purchase,  lease or order of
items or services  that are covered by  Medicare  or other  governmental  health
programs.  Violations of the statute can result in the imposition of substantial
civil and  criminal  penalties.  In  addition,  as of January  1, 1995,  certain
anti-referral  provisions (the "Stark  Amendments")  prohibit a physician with a
"financial  interest"  in an entity from  referring a patient to that entity for
the  provision of any of 11  "designated  medical  services"  (some of which are
provided by Physician Groups affiliated with the Company).


     At least six of the states in which the  Company  conducts  its  healthcare
services business (Florida, California, Texas, Arizona, New Jersey and Maryland)
have  enacted  statutes  similar  in scope and  purpose  to the  Anti-  Kickback
Statute,  with applicability to services other than those covered by Medicare or
other  governmental  health  programs.  In addition,  most states have statutes,
regulations  or  professional  codes that  restrict a physician  from  accepting
various kinds of remuneration in exchange for making  referrals.  Several states
are considering  legislation that would prohibit  referrals by a physician to an
entity in which the physician has a specified financial interest. Even in states
which have not enacted  such  statutes,  the Company  believes  that  regulatory
authorities and state courts  interpreting these statutes may regard federal law
under the Anti-Kickback Statute and the Stark Amendments as persuasive.

     Concentra  believes that its arrangements  with the Physician Groups comply
with the Anti-Kickback  Statute, the Stark Amendments and applicable state laws.
However,   all  of  the  foregoing   laws  are  subject  to   modification   and
interpretation,  have not often been interpreted by appropriate authorities in a
manner  applicable  to the  Company's  business and are enforced by  authorities
vested with broad  discretion.  Concentra  has attempted to structure all of its
operations  so  that  they  comply  with  all   applicable   anti-kickback   and
anti-referral prohibitions.  Concentra also continually monitors developments in
this area. If these laws are  interpreted  in a manner  contrary to  Concentra's
interpretation or are reinterpreted or amended, or if new legislation is enacted
with respect to  healthcare  fraud and abuse,  illegal  remuneration  or similar
issues, the Company will seek to restructure any affected operations to maintain
compliance   with   applicable   law.  No  assurance  can  be  given  that  such
restructuring  will be possible,  or, if  possible,  will not  adversely  affect
Concentra's business or results of operations.


SPECIALIZED COST CONTAINMENT SERVICES

     Many  of  the  Company's  specialized  cost  containment  services  include
prospective  or  concurrent  review of  requests  for  medical  care or therapy.
Approximately  half of the states  have  enacted  laws that  require  licensure,
certification or other approval of businesses, such as Concentra's, that provide
medical  review  services.  Some of these laws  apply to medical  review of care
covered  by  workers'  compensation.  These  laws  typically  establish  minimum
standards for  qualifications  of personnel,  confidentiality,  internal quality
control and dispute resolution procedures.  These regulatory programs may result
in increased costs of operation for Concentra,  which may have an adverse impact
upon the  Company's  ability to compete with other  available  alternatives  for
healthcare cost control.


USE OF PROVIDER NETWORKS

     Concentra's ability to provide comprehensive healthcare management and cost
containment  services  depends in part on its ability to contract with or create
networks of healthcare providers which share the Company's objectives.  For some
of its clients, Concentra offers injured workers access to networks of providers
who


                                       13


<PAGE>


are selected by the Company for quality of care and pricing. Laws regulating the
operation of managed  care  provider  networks  have been adopted by a number of
states.  These laws may apply to managed care provider networks having contracts
with Concentra or to provider networks that the Company may organize or acquire.
To the extent Concentra is governed by these  regulations,  it may be subject to
additional licensing requirements,  financial oversight and procedural standards
for beneficiaries and providers.


ERISA

     The  provision  of goods and services to certain  types of employee  health
benefit plans is subject to the Employee  Retirement Income Security Act of 1974
("ERISA").  ERISA is a complex set of laws and  regulations  
subject to  periodic  interpretation  by the  Internal  Revenue  Service and the
Department of Labor ("DOL"). ERISA regulates certain aspects of the relationship
between  Concentra's managed care contracts and employers that maintain employee
benefit  plans  subject to ERISA.  DOL is engaged in ongoing  ERISA  enforcement
activities  that may  result in  additional  constraints  on how  ERISA-governed
benefit plans conduct their  activities.  There can be no assurance  that future
revisions to ERISA or judicial or regulatory  interpretations  of ERISA will not
have a material adverse effect on Concentra's business or results of operations.


AUTOMOBILE INSURANCE REGULATION

     The automobile insurance industry, like the workers' compensation industry,
is regulated on a  state-by-state  basis.  Although  regulatory  approval is not
required  for the  Company  to  offer  most of its  services  to the  automobile
insurance market (including voluntary network access), state regulatory approval
is required in order to offer automobile  insurers  products that permit them to
direct claimants into a network of medical providers. To date, only Colorado and
Hawaii have  permitted  such  direction  of care,  and the  Company  offers this
managed care service to automobile insurers in those states. No assurance can be
given that other  states  will  permit  such  direction  of care for  automobile
accident  victims or, if such a program is  permitted,  that the Company will be
able  to  obtain  regulatory  approval,  if any is  required,  to  provide  such
services.


ENVIRONMENTAL

     Concentra  is subject  to various  federal,  state and local  statutes  and
ordinances  regulating the disposal of infectious  waste,  including medical and
other waste generated at the Company's  occupational  healthcare  centers. If an
environmental  regulatory  agency  finds any of the  Company's  centers to be in
violation  of waste  laws,  penalties  and fines may be imposed  for each day of
violation,  and the  affected  facility  could be  forced  to cease  operations.
Concentra  believes  that its waste  handling  and  discharge  practices  are in
material compliance with applicable law.


K. SEASONALITY

     Concentra's  healthcare  services business is seasonal in nature.  Although
Concentra's  expansion of services and continuing  growth may obscure the effect
of  seasonality  in the Company's  financial  results,  the Company's  first and
fourth quarters  generally  reflect lower net healthcare  services revenues on a
same market basis when compared to the second and third quarters.

     Plant closings, vacations and holidays during the first and fourth quarters
result in fewer patient visits at the Company's occupational healthcare centers,
primarily  because of fewer  occupational  injuries and  illnesses  during those
periods. In addition, employers generally hire fewer employees during the fourth
quarter, thereby reducing the number of pre-employment physical examinations and
drug and alcohol tests conducted at the Company's centers during that quarter.


L. INSURANCE

     The Company and the Physician Groups maintain medical malpractice insurance
in the  amount  of  $1,000,000  per  incident/$3,000,000  annual  aggregate  per
provider,  subject to an annual  aggregate  limit in the amount of  $20,000,000.
Pursuant to the  management  agreements  between  the Company and the  Physician
Groups,  each  Physician  Group has agreed to indemnify the Company from certain
losses,  including  medical  malpractice.  The Company  maintains  an errors and
omissions  liability  insurance  policy  covering  all aspects of the  Company's
managed care services. This policy has limits of $1,000,000 per claim/$3,000,000
annual aggregate.


                                       14


<PAGE>


     In addition,  Concentra maintains $3,000,000 of general liability insurance
and an umbrella  policy that  provides  excess  insurance  coverage  for medical
malpractice  and for  errors and  omissions  in the  amount of  $20,000,000  per
occurrence and $20,000,000 in the aggregate.


M. EMPLOYEES

     Concentra had  approximately  7,800 employees at December 31, 1998. None of
Concentra's  employees  is subject to a  collective  bargaining  agreement.  The
Company  has  experienced  no work  stoppages  and  believes  that its  employee
relations are good. All physicians, physician assistants and physical therapists
providing professional services in the Company's occupational healthcare centers
are either employed by or contract with the Physician Groups.


N. RISK FACTORS


DEPENDENCE ON FUTURE ACQUISITIONS AND JOINT VENTURES; ACQUISITION RISKS

     The growth of Concentra's healthcare services in new and current markets is
dependent upon an aggressive acquisition and joint venture strategy. The success
of this acquisition  strategy will be determined by numerous factors,  including
the Company's ability to identify suitable acquisition  candidates,  competition
for such acquisitions, purchase price, the financial performance of the acquired
businesses  after  acquisition  and the  ability  of the  Company  to  integrate
effectively  the  operations  of  acquired  businesses.  Although  Concentra  is
currently  in various  stages of  negotiations  to  complete  acquisitions  from
several  prospective  selling groups,  there can be no assurance that additional
suitable acquisition  candidates can be found, that acquisitions can be financed
or consummated on favorable terms or that  acquisitions,  if completed,  will be
successful. In addition, there can be no assurance that Concentra  will be  able
to integrate  successfully  the operations of acquired  businesses  or institute
Company-wide  systems  and  procedures  to  operate  successfully  the  combined
enterprises.   A  strategy  of  growth  by acquisition also involves the risk of
assuming  unknown  or  contingent  liabilities  of  acquired   businesses.  Such
liabilities could be material,  individually or in the aggregate.

     Any failure by Concentra to identify  suitable  candidates for acquisition,
to integrate or operate  acquired  businesses  effectively or to insulate itself
from unwanted  liabilities of acquired  businesses could have a material adverse
effect on the Company's business, financial condition and results of operations.
In  addition,  the  Emerging  Issues  Task  Force  of the  Financial  Accounting
Standards  Board  is  currently  evaluating  certain  matters  relating  to  the
accounting for business combinations. Concentra is unable to predict the impact,
if any, that this review may have on the Company's acquisition strategy.

     Concentra has also entered into, and is in various  stages of  negotiations
to form, joint ventures to own and operate  occupational  healthcare  centers in
selected  markets and to enter into management  agreements in selected  markets.
The  Company's  strategy  is to form these  joint  ventures  or enter into these
management   agreements  with   competitively-positioned   hospital   management
companies,  hospital  systems and other  healthcare  providers.  There can be no
assurances  that Concentra will continue to utilize joint ventures or management
agreements as part of its growth strategy,  that further suitable joint ventures
or  management  agreements  can be entered into or that such  existing or future
joint ventures or management relationships will be successful.


EFFECT OF AMORTIZATION ON RESULTS OF OPERATIONS

     Concentra  has had,  and will  continue  to have,  significant  charges for
depreciation and  amortization  expense related to the fixed assets and goodwill
and  other  intangibles  acquired,  or  to be  acquired,  in  its  acquisitions.
Consequently,  the Company expects that such  depreciation and amortization will
continue  to  have  an  impact  on  its  results  of  operations.   The  Company
periodically  reviews  whether  changes have  occurred,  either  specific to the
business or  generally  in the  industry,  which might  require  revision of the
remaining  estimated  useful  life of the  assigned  goodwill or render all or a
portion of the goodwill non-recoverable. In accordance with Financial Accounting
Standards No. 121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and
Long-Lived  Assets to be Disposed of,"  impairments  are determined by comparing
undiscounted  estimated  future cash flows to the carrying  value of  long-lived
assets.  At December  31,  1998,  intangible  assets were  approximately  $280.4
million compared to total assets of $657.2 million and  stockholders'  equity of
$239.9 million.


MANAGEMENT OF GROWTH

     Concentra  has  experienced  rapid growth.  Continued  growth could place a
significant strain on the Company's management and other resources.  The Company
anticipates that continued growth, if any, will require it to


                                      15



<PAGE>


continue  to recruit,  hire,  train and retain a  substantial  number of new and
highly-skilled  administrative,   information  technology,  finance,  sales  and
marketing and support personnel.  Concentra's ability to compete effectively and
to manage  future  growth,  if any,  will  depend on its  ability to continue to
implement and improve operational,  financial and management information systems
on a timely  basis and to expand,  train,  motivate  and manage its work  force.
Should Concentra continue to experience rapid growth,  there can be no assurance
that the Company's personnel,  systems, procedures and controls will be adequate
to  support  the  Company's   operations  or  that  management  will  anticipate
adequately  all demands  that growth will place on the Company.  If  Concentra's
management is unable to manage growth effectively,  the quality of the Company's
products and its business,  operating  results and financial  condition could be
materially and adversely affected.


COMPETITION

     The market to provide healthcare services within the workers'  compensation
system is highly  fragmented and competitive.  Concentra's  primary  competitors
have typically been independent  physicians,  hospital emergency departments and
other urgent care providers.  The Company believes that, as integrated  networks
continue to be developed,  its healthcare services competitors will increasingly
consist of specialized provider groups.

     Concentra  faces managed care services  competition  from national  managed
care providers,  smaller independent  providers,  and insurance  companies.  The
Company believes that, as managed care techniques continue to gain acceptance in
the  workers'   compensation   marketplace,   the  Company's   competitors  will
increasingly  consist of nationally focused workers'  compensation  managed care
service  companies,  insurance  companies,  and other  significant  providers of
managed care products.  Legislative  reforms in some states permit  employers to
designate  health plans such as PPOs to cover workers'  compensation  claimants.
Because many health plans have the ability to manage  medical costs for workers'
compensation  claimants,  such  legislation  may  intensify  competition  in the
markets served by the Company.

     In the face of such  competition,  there can be no assurance that Concentra
will continue to maintain its existing performance or be successful with any new
products or in any new geographic markets it may enter.


UNCERTAINTIES REGARDING HEALTHCARE REFORM

     There have been  numerous  initiatives  at the federal and state levels for
comprehensive  reforms  affecting the payment for and availability of healthcare
services.  Concentra  believes  that  such  initiatives  will  continue  in  the
foreseeable future.  Aspects of certain of these reforms as proposed in the past
could, if adopted, adversely affect the Company.


RISKS INHERENT IN PROVISION OF MEDICAL SERVICES; POSSIBLE LITIGATION AND LEGAL
   LIABILITY

     The Physician  Groups and certain  employees of the Company are involved in
the delivery of healthcare services to the public and, therefore, are exposed to
the risk of medical  malpractice  claims.  Claims of this nature, if successful,
could result in substantial  damage awards against the Company and the Physician
Groups  that  could  exceed  the limits of any  applicable  insurance  coverage.
Concentra is  indemnified  under its  management  agreements  with the Physician
Groups from certain losses,  including medical malpractice and maintains medical
malpractice insurance.  However,  successful malpractice claims asserted against
the Physician  Groups or the Company could have a material adverse effect on the
Company's financial condition and profitability.

     Through  its  specialized   cost  containment  and  field  case  management
services,  Concentra makes  recommendations  concerning the  appropriateness  of
providers' proposed medical treatment of patients throughout the country, and as
a result the Company could be subject to claims arising from any adverse medical
consequences. The Company does not grant or deny claims for payment of benefits,
and the Company  does not believe that it engages in the practice of medicine or
the  delivery  of medical  services in the  provision  of its  specialized  cost
containment  and  field  case  management  services.  However,  there  can be no
assurance that Concentra will not be subject to claims or litigation  related to
the grant or denial of claims for payment of benefits  or  allegations  that the
Company engages in the practice of medicine or the delivery of medical  services
in this context.  In addition,  there can be no assurance  that the Company will
not be subject  to other  litigation  that may  adversely  affect the  Company's
business or results of  operations.  Concentra  maintains  errors and  omissions
insurance  and  such  other  lines  of  coverage  as the  Company  believes  are
reasonable in light of the Company's experience to date. There



                                       16



<PAGE>


can be no  assurance,  however,  that  such  insurance  will  be  sufficient  or
available at reasonable  cost to protect  Concentra from  liability  which might
adversely affect the Company's business or results of operations.


CORPORATE PRACTICE OF MEDICINE AND OTHER LAWS AND REGULATIONS

     Most states  limit the  practice of  medicine  to licensed  individuals  or
professional  organizations comprised of licensed individuals.  Many states also
limit the scope of business  relationships between business entities such as the
Company and licensed professionals and professional  corporations,  particularly
with respect to fee-splitting  between physicians and  non-physicians.  Laws and
regulations  relating to the  practice of  medicine,  fee-splitting  and similar
issues  vary  widely  from  state to state,  are  often  vague,  and are  seldom
interpreted by courts or regulatory  agencies in a manner that provides guidance
with respect to business operations such as Concentra's. The Company attempts to
structure all of its healthcare  services  operations to comply with  applicable
state statutes  regarding  medical  practice,  fee-splitting and similar issues.
However,  there can be no assurance  (i) that courts or  governmental  officials
with the power to  interpret  or  enforce  these laws and  regulations  will not
assert that Concentra is in violation of such laws and  regulations or (ii) that
future  interpretations  of such laws and regulations will not require Concentra
to modify the structure and organization of its business.

     Many  states,  including a number of those in which the  Company  transacts
business,  have licensing and other  regulatory  requirements  that apply to the
Company's  specialized  cost  containment  and field case  management  business.
Approximately  half of the states have enacted  laws that  require  licensing of
businesses that provide medical review  services,  such as Concentra's.  Some of
these laws apply to medical  review of care  covered by  workers'  compensation.
These  laws  typically   establish  minimum  standards  for   qualifications  of
personnel,  confidentiality,  internal  quality  control and dispute  resolution
procedures. These regulatory programs may result in increased costs of operation
for the Company,  which may have an adverse impact upon the Company's ability to
compete with other  available  alternatives  for  healthcare  cost  control.  In
addition,  new laws  regulating the operation of managed care provider  networks
have been  adopted by a number of states.  These laws may apply to managed  care
provider networks having contracts with the Company or to provider networks that
the Company has  organized  and may  organize in the future.  To the extent that
Concentra  is governed  by these  regulations,  it may be subject to  additional
licensing  requirements,   financial  oversight  and  procedural  standards  for
beneficiaries and providers.

     Regulation in the healthcare and workers' compensation fields is constantly
evolving. Concentra is unable to predict what additional government regulations,
if any,  affecting its business may be promulgated in the future.  The Company's
business may be adversely  affected by failure to comply with  existing laws and
regulations,  failure to obtain necessary  licenses and government  approvals or
failure to adapt to new or modified regulatory requirements.


FRAUD AND ABUSE AND ILLEGAL REMUNERATION LAWS

     The  Anti-Kickback  Statute prohibits the offer,  payment,  solicitation or
receipt of any form of  remuneration  to induce or in return for the referral of
Medicare  or  other  governmental   health  program  patients  or  patient  care
opportunities,  or in  return  for the  purchase,  lease  or  order  of items or
services  that are covered by Medicare or other  governmental  health  programs.
Violations of the statute can result in the imposition of substantial  civil and
criminal penalties.  In addition, the Stark Amendments prohibit a physician with
a "financial  interest" in an entity from referring a patient to that entity for
the provision of any of eleven  "designated  health services" (some of which are
provided by Physician Groups affiliated with Concentra).

     At least six of the states in which the  Company  conducts  its  healthcare
services business (Florida, California, Texas, Arizona, New Jersey and Maryland)
have  enacted  statutes  similar  in scope and  purpose  to the  Anti-  Kickback
Statute,  with applicability to services other than those covered by Medicare or
other  governmental  health  programs.  In addition,  most states have statutes,
regulations  or  professional  codes that  restrict a physician  from  accepting
various kinds of remuneration in exchange for making  referrals.  Several states
are considering  legislation that would prohibit  referrals by a physician to an
entity in which the physician has a specified financial interest. Even in states
which have not enacted  such  statutes,  the Company  believes  that  regulatory
authorities and state courts  interpreting these statutes may regard federal law
under the Anti-Kickback Statute and the Stark Amendments as persuasive.


                                       17



<PAGE>


     Concentra  believes that its arrangements  with the Physician Groups comply
with the Anti-Kickback  Statute, the Stark Amendments and applicable state laws.
However,   all  of  the  foregoing   laws  are  subject  to   modification   and
interpretation,  have not often been interpreted by appropriate authorities in a
manner  applicable  to the  Company's  business and are enforced by  authorities
vested with broad  discretion.  Concentra  has attempted to structure all of its
operations  so  that  they  comply  with  all   applicable   anti-kickback   and
anti-referral prohibitions.  Concentra also continually monitors developments in
this area. If these laws are  interpreted  in a manner  contrary to  Concentra's
interpretation or are reinterpreted or amended, or if new legislation is enacted
with respect to  healthcare  fraud and abuse,  illegal  remuneration  or similar
issues, the Company will seek to restructure any affected operations to maintain
compliance   with   applicable   law.  No  assurance  can  be  given  that  such
restructuring  will be possible,  or, if  possible,  will not  adversely  affect
Concentra's business or results of operations.


RELIANCE ON DATA PROCESSING AND LICENSED SOFTWARE

     Certain  aspects of Concentra's  business are dependent upon its ability to
store,  retrieve,  process and manage data and to maintain  and upgrade its data
processing  capabilities.  Interruption of data processing  capabilities for any
extended  length  of time,  loss of  stored  data,  programming  errors or other
computer problems could have a material adverse effect on the Company's business
and results of operations.

     Certain of the  software  Concentra  uses  within its  medical  bill review
operation is licensed from an independent  third-party software company pursuant
to a  non-exclusive  license  that may be  terminated  by either  party upon six
months  notice.   Although  the  Company  has  historically  maintained  a  good
relationship  with the  licensor,  there can be no assurance  that this software
license will not be terminated or that the licensor will be able to continue the
license on its existing terms. The Company is currently negotiating an extension
of this software license. Although management believes that alternative software
would be available if the existing  license were  terminated,  such  termination
could be  disruptive  and could have a material  adverse  effect on  Concentra's
business and results of operations.


INFORMATION SYSTEM UPGRADES AND YEAR 2000 COMPLIANCE

     The Year 2000  concern,  which is common to most  companies,  involves  the
inability  of  information  and  non-information  systems,   primarily  computer
software programs, to properly recognize and process date-sensitive  information
as the year 2000 approaches. System database modifications and/or implementation
modifications  will be required to enable such  information and  non-information
systems to  distinguish  between  20th and 21st  century  dates.  Concentra  has
completed a number of acquisitions in recent years, and the information  systems
of some of the  acquired  businesses  have not been  fully  integrated  with the
Company's information systems.

     Concentra  has formed a Year 2000 Program  Office to provide a  centralized
management  function  for the entire  Company  that will assist in  identifying,
addressing  and  monitoring  the Company's  Year 2000  readiness and  compliance
programs. The Year 2000 Program Office has organized teams in each business unit
of the Company to research Year 2000 compliance status and implement appropriate
solutions.  Concentra's  Year 2000  Program  includes  five phases -  awareness,
assessment,   remediation,   testing  and  implementation.   The  awareness  and
assessment  phases  are  substantially   complete  with  the  exception  of  the
assessment  phase of the Company's  information  systems  infrastructure  (i.e.,
desktops and other hardware) Year 2000 compliance.

     The Company's  Year 2000 Program  Office  engaged an outside  consultant to
assist in an  inventory  and  assessment  of Year 2000  affected  areas,  with a
primary focus on information  technology  systems,  third party software and key
suppliers and selected customers. This inventory and assessment was completed in
the fourth  quarter of 1998.  The Company's  Year 2000 Program Office engaged an
outside  consultant in the first quarter of 1999 to assist in an inventory,  and
assessment  and  remediation  efforts  of  the  Company's   information  systems
infrastructure Year 2000 compliance. The Company completed in the fourth quarter
of 1998 an internal  inventory  and  assessment  of  non-information  technology
systems (e.g., embedded systems contained in medical equipment).  Remediation or
replacement  of  noncompliant  Year 2000  medical  equipment  began in the first
quarter of 1999 and  Concentra  expects this effort to be completed by the third
quarter of 1999.



                                       18



<PAGE>


    The Year 2000 Program Office has established a protocol for soliciting Year
2000  compliance  information  from third  parties.  Concentra sent requests for
compliance  information  from all key  suppliers  and selected  customers in the
fourth  quarter of 1998 and first  quarter of 1999.  The  Company  continues  to
gather Year 2000  compliance  information  from third  parties  and  anticipates
receiving the majority of responses by the end of the second quarter of 1999. To
the extent  responses have not been  received,  the Year 2000 Program Office has
ranked the third parties by level of importance to the Company's  operations and
is following up with phone surveys,  additional  mailings and research of public
information issued by the third party (i.e., internet research). These responses
should  indicate  the extent to which  Concentra  is  vulnerable  to those third
parties' failure to remediate their own Year 2000 issues.

     The  Company's  identified  Year 2000  projects  overlap  with its  ongoing
investments in information  technology.  As such,  there are presently Year 2000
projects at the  assessment,  remediation,  testing and  implementation  phases.
Concentra believes that it has identified most "mission critical" issues and has
developed or is in the process of modifying  appropriate  action plans which may
include software upgrades, replacement of noncompliant components or referral of
problems related to third party-provided  software to the original supplier. The
Company has prepared its plans to have all "mission critical" projects Year 2000
compliant  by the end of the  fourth  quarter of 1999.  While some  non-critical
systems may not be addressed  until after December  1999,  the Company  believes
such systems will not disrupt the Company's operations in a material manner. Any
additional issues that may arise will be classified as either "mission critical"
or non-critical, and appropriate action plans will be developed and implemented.
Concentra  expects to have  formulated  any necessary  contingency  plans by the
third quarter of 1999.

     Concentra  currently estimates that the total cost of implementing its Year
2000  Program  will be between  $5,000,000  and  $10,000,000.  This  preliminary
estimate is based upon presently  available  information  and will be updated as
the Company finalizes its assessments and continues through  implementation.  In
particular,  the estimate may also need to be increased as the Company  receives
feedback from key suppliers and selected  customers and  formulates  contingency
plans,  if  required.  It is  expected  these  costs  will not be  significantly
different  from   Concentra's   current   planned   investment  for  information
technology,  and  therefore,  should not have a material  adverse  effect on the
Company's long-term results of operations,  liquidity or consolidated  financial
position. However, until the information systems infrastructure assessment phase
is  completed  in the second  quarter of 1999,  the Company is  uncertain if its
present plans and resources will be sufficient to ensure Year 2000 compliance of
all "mission critical" projects by January 1, 2000.

     Although  Concentra does not anticipate any disruption in its operations or
financial reporting as a result of system upgrades or system integrations, there
can be no  assurance  that  such  disruption  will not  occur or that  Year 2000
compliance  of the Company's  information  and  non-information  systems will be
realized.  If the Company does not identify and remediate Year 2000 issues prior
to  January  1, 2000,  its  operations  could be  disrupted  which  could have a
material  adverse  effect on the  Company's  business  or  operating  results or
financial condition.  In addition,  the Company places a high degree of reliance
on computer  systems of third parties,  such as customers,  trade  suppliers and
computer  hardware and commercial  software  suppliers.  Although the Company is
assessing the readiness of these third  parties,  there can be no guarantee that
the  failure  of these  third  parties  to modify  their  systems  in advance of
December 31, 1999 would not have a material  adverse  effect on the Company.  In
addition,  Concentra's operations could be disrupted if the companies with which
Concentra  does  business do not  identify  and correct any Year 2000 issues and
their failure adversely affects their ability to do business with Concentra.  If
all Year 2000 issues are not  identified  and all action plans are not completed
and contingency plans become necessary, Concentra may not be Year 2000 compliant
which could have a material adverse effect on the Company's long-term results of
operations,  liquidity,  or  consolidated  financial  position.  The  amount  of
potential liability and lost revenue has not been estimated.


VOLATILITY OF STOCK PRICE

     The market price of  Concentra's  Common Stock has been volatile and may be
volatile  in the  future.  Future  developments  concerning  the  Company or its
competitors,   including  developments  related  to  governmental   regulations,
acquisitions,  operating results,  the healthcare industry generally and general
market and  economic  conditions,  may have a  significant  impact on the market
price of Concentra's Common Stock.



                                       19



<PAGE>


DIVIDEND POLICY AND RESTRICTIONS

     Concentra  does not intend to pay cash dividends on the Common Stock in the
foreseeable  future and  anticipates  that future  earnings  will be retained to
finance future operations and expansion.  Concentra's revolving credit agreement
with its senior lenders  prohibits the Company from paying  dividends and making
other distributions on its Common Stock.


ANTI-TAKEOVER PROVISIONS

     Certain provisions of Concentra's  Certificate of Incorporation and certain
provisions  of the  Delaware  General  Corporation  Law may make it difficult to
change  control of the Company and replace  incumbent  management.  For example,
Concentra's  Certificate  of  Incorporation  provides  for a staggered  Board of
Directors. The Certificate of Incorporation also permits the Board of Directors,
without  stockholder  approval,  to issue  additional  shares of Common Stock or
establish  one or more series of  Preferred  Stock having such number of shares,
designations,  relative  voting rights,  dividend  rates,  liquidation and other
rights,  preferences  and  limitations  as the Board of Directors may determine.
Concentra  has also  adopted  a Rights  Agreement,  which is  intended  to deter
certain takeover practices or takeover bids.

     In connection with the Merger,  effective March 2, 1999,  Concentra amended
its Rights Agreement.  The amendment  provides,  among other things, that Yankee
and its  affiliates  will not be deemed  an  Acquiring  Person  (as such term is
defined  in  the  Rights   Agreement)  and  the  Rights  Agreement  will  expire
immediately prior to the effective time of the Merger




ITEM 2. PROPERTIES 

     The   Company's   principal   corporate   office  is   located  in  Boston,
Massachusetts.  The Company  leases the 11,000 square feet of space in this site
pursuant  to a lease  agreement  expiring  in 2003.  Except for 13  occupational
medical  centers  owned by the  Company,  the Company  leases all of its offices
located in 49  states,  the  District  of  Columbia  and  Canada.  Twelve of the
Company's  offices  are leased  from  Colonial  Realty  Trust,  of which Lois E.
Silverman, a director of the Company, is a trustee and beneficiary.  The Company
believes  that its  facilities  are  adequate  for its  current  needs  and that
suitable additional space will be available as required.


ITEM 3. LEGAL PROCEEDINGS

     As of the date hereof,  Concentra is aware of three lawsuits that have been
filed by alleged  stockholders  of Concentra  relating to the Merger.  All three
lawsuits were filed in the Chancery Court for New Castle County,  Delaware. Each
of the lawsuits names  Concentra,  its directors and Yankee as  defendants.  The
plaintiff  in each  lawsuit  seeks to  represent a putative  class of all public
holders of Concentra common stock. The lawsuits allege, among other things, that
the  directors of  Concentra  breached  their  fiduciary  duties to  Concentra's
stockholders  by approving the Merger.  The lawsuits  seek,  among other things,
preliminary  and permanent  injunctive  relief  prohibiting  consummation of the
Merger, unspecified damages, attorneys' fees and other relief. Concentra expects
that these  lawsuits  will be  consolidated  into a single  action.  The Company
intends to contest these lawsuits vigorously.

     The Company is party to certain other claims and litigation in the ordinary
course of  business.  Other than as described in the  preceding  paragraph,  the
Company is not involved in any legal  proceeding  that it believes  will result,
individually  or in  the  aggregate,  in a  material  adverse  effect  upon  its
financial condition or results of operations.


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

     During the fourth  quarter of 1998,  no matter was  submitted  to a vote of
security holders.

                                       20



<PAGE>

                                    PART II


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

     The Company's  common stock is listed in the NASDAQ  National Market System
under the trading symbol  "CCMC." The high and low prices of Concentra's  common
stock for the past eight quarters are shown in the table below:


                            HIGH          LOW
                        -----------   -----------
     1997
     First Quarter      $ 28.00       $ 22.00
     Second Quarter     $ 29.50       $ 17.25
     Third Quarter      $ 35.88       $ 27.50
     Fourth Quarter     $ 38.50       $ 31.38
     1998
     First Quarter      $ 35.50       $ 27.25
     Second Quarter     $ 34.25       $ 22.00
     Third Quarter      $ 26.00       $  5.63
     Fourth Quarter     $ 12.50       $  5.44
 

     The Company  has neither  declared  nor paid cash  dividends  on its Common
Stock during 1997 and 1998.


RECENT SALES OF UNREGISTERED SECURITIES

     On January 6,  1998,  Concentra  issued  10,500  shares of Common  Stock to
Robert D. Kirkpatrick, M.D., P.C. ("Kirkpatrick"),  as a portion of the purchase
price  for  the  Company's  purchase  of  substantially  all  of the  assets  of
Kirkpatrick's business.  These shares were issued in reliance on Section 4(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder.

     On January 22,  1998,  Concentra  issued  3,500  shares of Common  Stock to
Meadowlands  Medical  Associates,  P.A.  ("Meadowlands"),  as a  portion  of the
purchase price for the Company"s  purchase of substantially all of the assets of
Meadowlands'  business.  These shares were issued in reliance on Section 4(2) of
the Securities Act of 1933 and Rule 506 promulgated thereunder.

     On February 24, 1998,  Concentra issued 7,100,690 shares of Common Stock to
certain of the  shareholders of Preferred  Payment  Systems,  Inc.  ("PPS"),  in
connection with the merger of PPS into a subsidiary of the Company. These shares
were issued in reliance on Section 4(2) of the  Securities  Act of 1933 and Rule
506 promulgated thereunder.

     On March 1, 1998,  Concentra  issued  279,250 shares of Common Stock to the
shareholders of Rehabilitation  Consultants for Industry,  Inc. ("RCI"),  as the
purchase price for the Company's purchase of the outstanding stock of RCI. These
shares were issued in reliance on Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder.

     On May 1, 1998,  Concentra  issued  70,000  shares of Common  Stock to AMAX
Occupational  Medicine  ("AMAX"),  as a portion  of the  purchase  price for the
Company's purchase of substantially all of the assets of AMAX's business.  These
shares were issued in reliance on Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder.

     On July 24, 1998,  Concentra  issued  45,000  shares of Common Stock to the
shareholders of New England Medical Claims Analysts Corp. ("NMCA"), as a portion
of the purchase  price for the Company's  purchase of the  outstanding  stock of
NMCA. These shares were issued in reliance on Section 4(2) of the Securities Act
of 1933 and Rule 506 promulgated thereunder.

     On July 29, 1998,  Concentra  issued 4,500 shares of Common Stock to Howard
E. Boulter as a portion of the purchase price for the Company's  purchase of the
outstanding stock of The Exam Center,  Inc. These shares were issued in reliance
on  Section  4(2)  of the  Securities  Act of  1933  and  Rule  506  promulgated
thereunder.


                                       21



<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     Selected  Financial  Data is  included  in this Form 10-K in note 15 to the
Company's Consolidated Financial Statements on page F-23.


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

     THIS SECTION CONTAINS CERTAIN FORWARD-LOOKING  STATEMENTS THAT ARE BASED ON
MANAGEMENT'S  CURRENT VIEWS AND  ASSUMPTIONS  REGARDING  FUTURE  EVENTS,  FUTURE
BUSINESS CONDITIONS AND THE OUTLOOK FOR THE COMPANY BASED ON CURRENTLY AVAILABLE
INFORMATION.    WHEREVER   POSSIBLE,    THE   COMPANY   HAS   IDENTIFIED   THESE
"FORWARD-LOOKING  STATEMENTS"  (AS DEFINED IN SECTION 27A OF THE  SECURITIES ACT
AND SECTION 21E OF THE EXCHANGE ACT) BY WORDS AND PHRASES SUCH AS "ANTICIPATES",
"PLANS",   "BELIEVES",   "ESTIMATES",   "EXPECTS",   "WILL  BE   DEVELOPED   AND
IMPLEMENTED", AND SIMILAR EXPRESSIONS.  READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING  STATEMENTS.  THESE FORWARD-LOOKING STATEMENTS
ARE  SUBJECT  TO RISKS AND  UNCERTAINTIES  AND  FUTURE  EVENTS  COULD  CAUSE THE
COMPANY'S ACTUAL RESULTS,  PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM
THOSE  EXPRESSED  IN, OR IMPLIED BY, THESE  STATEMENTS.  THE COMPANY  ASSUMES NO
OBLIGATION  TO UPDATE  PUBLICLY  ANY  FORWARD-LOOKING  STATEMENTS,  WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.



OVERVIEW

     On August 29, 1997, Concentra,  a Delaware  corporation,  was formed by the
merger (the "1997 Merger") of CRA Managed Care,  Inc.  ("CRA") and  OccuSystems,
Inc.  ("OccuSystems").  The 1997 Merger was a tax-free  stock for stock exchange
accounted for as a pooling of interests.

     Concentra  Health  Services,   Inc.  ("Health   Services"),   an  operating
subsidiary  of  Concentra,   which  was  formerly  OccuSystems,   Inc.,  manages
occupational   healthcare  centers  at  which  it  provides  support  personnel,
marketing,  information  systems  and  management  services  to  its  affiliated
physicians. Health Services owns all of the operating assets of the occupational
healthcare centers, including leasehold interests and medical equipment.  Health
Services   generates  its  net  patient  service  revenues  primarily  from  the
diagnosis,  treatment and management of work-related  injuries and illnesses and
from  other  occupational  healthcare  services,  such  as  employment-  related
physical examinations, drug and alcohol testing, functional capacity testing and
other related  programs.  For the years ended December 31, 1996,  1997 and 1998,
Health  Services  derived  64.0%,  63.5% and 63.1% of its net revenues  from the
treatment of work-related injuries and illnesses,  respectively and 36.0%, 36.5%
and  36.9%  of its  net  revenues  from  non-injury  related  medical  services,
respectively.

     Physician and physical therapy services are provided at the Health Services
centers  under  management  agreements  with the  Physician  Groups,  which  are
organized  professional  corporations that hire licensed physicians and physical
therapists to provide medical  services to the centers'  patients.  Since Health
Services effectively controls the Physician Groups,  Health Services' results of
operations  reflect the revenues generated by the Physician Groups and the costs
associated with the delivery of their services.  The financial statements of the
Physician Groups are consolidated because Health Services has unilateral control
over the assets and operations of the Physician Groups and  notwithstanding  the
lack of technical majority ownership, consolidation of the Physician Groups with
Health  Services is  necessary  to present  fairly the  financial  position  and
results  of   operations   of  Health   Services  due  to  the  existence  of  a
parent-subsidiary  relationship  by means  other than  record  ownership  of the
Physician Group's voting stock. The shareholders of the Physician Groups are the
physician leaders of Health Services, and are employed by Health Services or one
of its  wholly-owned  subsidiaries.  Through  a  shareholder  agreement,  Health
Services restricts any transfer of Physician Group ownership without its consent
and can  require the holder of such  shares to  transfer  ownership  to a Health
Services  designee  upon the  occurrence  of certain  events,  including but not
limited to the  cessation  of  employment.  Control of the  Physician  Groups is
perpetual due to the nature of the  relationship  and the management  agreements
between the  entities.  The employed  physicians  do not control fee  schedules,
payor contracts or employment  decisions regarding  personnel.  The risk of loss
for billed  services  provided by the Physician  Groups resides  ultimately with
Health  Services as  Concentra  is required to provide  financial  support on an
as-needed basis.

     Concentra  Managed  Care  Services,  Inc.  ("Managed  Care  Services"),  an
operating  subsidiary of Concentra  which was formerly CRA Managed  Care,  Inc.,
provides specialized cost containment and field case management

                                       22


<PAGE>


services.   Specialized  cost  containment  includes  first  report  of  injury,
utilization management  (precertification and concurrent review),  retrospective
medical bill review, telephonic case management,  PPO network access, IMEs, peer
reviews and hospital bill auditing services that are designed to reduce the cost
of workers'  compensation  claims,  automobile  accident injury claims and group
health claims.  On February 24, 1998, the Company merged with Preferred  Payment
Systems,  Inc. ("PPS") in a  pooling-of-interests  transaction and significantly
expanded its  presence in the  out-of-network  group health bill review  market.
PPS,  now  operating  as CPS,  is a  nationwide  provider  of  specialized  cost
containment and outsourcing services for healthcare payors. In the first quarter
of 1998, the Company  recorded a non-recurring  charge of $12,600,000  primarily
associated  with the  merger  of PPS.  Managed  Care  Services  has  experienced
significant growth in its specialized cost containment services by virtue of the
following acquisitions: (1) FOCUS HealthCare Management, Inc. ("FOCUS") on April
2, 1996, (2) Prompt Associates,  Inc.  ("PROMPT") on October 29, 1996, (3) First
Notice Systems,  Inc. ("FNS"),  on June 4, 1997, (4) About Health,  Inc. ("ABOUT
HEALTH") by PPS in a two-step transaction on August 1, 1997 and October 31, 1997
and (5) other smaller acquisitions. Managed Care Services currently derives most
of its revenues on a fee-for-service basis.

     Field case management  services  involve working on a one-on-one basis with
injured  employees and their various  health care  professionals,  employers and
insurance  company  adjusters to assist in maximizing  medical  improvement and,
where appropriate,  to expedite the return to work. Managed Care Services' field
case  management  revenue growth has resulted from both local market share gains
and geographic  office  expansion;  however,  field case management gross profit
margins  deteriorated in the second half of 1998 prompting a  reorganization  in
the fourth  quarter  of 1998 to improve  efficiency.  As a result,  the  Company
recorded a  non-recurring  charge of $20,514,000  primarily  associated with the
reorganization  of its Managed  Care  Services  division  to improve  efficiency
through facility  consolidations and related headcount reductions,  to recognize
an impairment loss on the intangible  related to an acquired  contract and costs
associated  with  settling  claims  on other  expired  contracts.  Managed  Care
Services  believes  that the current  size of its field case  management  office
network  is  sufficient  to serve the needs of its  nationwide  customers.  As a
result,  Managed  Care  Services  anticipates  opening only a few new field case
management  offices per year if client needs in selected regions require it. The
Company  would,  however,  continue  to examine  the  possibility  of  acquiring
additional  field  case  management  offices  or  businesses  if an  appropriate
strategic opportunity arose.

     The following table provides certain  information  concerning the Company's
service locations:

<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                                     ------------------------------------
                                                                        1996         1997         1998
                                                                     ----------   ----------   ----------
<S>                                                                  <C>          <C>          <C>
Service locations at the end of the period:
 Medical centers (1) .............................................        109          140          156
 Cost containment services .......................................         70           83           85
 Field case management (2) .......................................        118          123           89
Physician practices acquired during the period (3) ...............         32           22           12
Physician practices developed during the period ..................         10            8            4
Number of affiliated physicians at the end of the period .........        196          252          278
Medical centers - same market revenue growth (4) .................       10.7%        11.0%        11.4%
</TABLE>

--------
(1) Does not  include  the  assets of the  practices  which  were  acquired  and
    subsequently  divested or  consolidated  into  existing  centers  within the
    market.

(2) The decline in field case management offices in 1998 is primarily due to the
    fourth   quarter   of   1998   reorganization    which   included   facility
    consolidations.

(3) Represents  the assets of practices  which were acquired  during each period
    presented and not subsequently divested.

(4) Same  market  revenue  growth sets forth the  aggregate  net change from the
    prior  period for all markets in which  Health  Services  has  operated  for
    longer  than one year  (excluding  revenue  growth  due to  acquisitions  of
    additional centers).


                                       23



<PAGE>

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

REVENUES

     Total revenues increased 24.9% in 1998 to $616,780,000 from $493,879,000 in
1997.  Health Services'  revenues  increased 25.0% in 1998 to $265,205,000  from
$212,237,000 in 1997. Managed Care Services' revenues increased 24.8% in 1998 to
$351,575,000 from $281,642,000 in 1997, as specialized cost containment revenues
increased 28.6% in 1998 to $183,734,000 from $142,919,000 in 1997 and field case
management revenues increased 21.0% in 1998 to $167,841,000 from $138,723,000 in
1997.

     The  Health  Services  revenue  growth  resulted  from the  acquisition  of
practices  (including the acquisition of 16 occupational medical centers and the
management of an additional  four medical centers from Vencor,  Inc.  ("VMC") in
the fourth  quarter of 1997),  an increase  in  business  in  existing  markets,
development  of sites in new markets,  as well as an increase in consulting  and
other ancillary  services.  The specialized cost  containment  revenue growth is
largely  attributable  to  the  growth  of  PPS  (including  the  impact  of its
acquisition  of ABOUT HEALTH in August 1997),  the  acquisition of FNS and other
immaterial acquisitions,  as well as revenue increases attributable to growth in
retrospective medical bill review,  telephonic case management and claims review
services in existing service locations. The field case management revenue growth
is  primarily  due to the  business  generated  from two field  case  management
acquisitions and continued growth in revenues from existing service locations.

COST OF SERVICES

     Total  cost of  services  increased  26.0%  in 1998  to  $474,102,000  from
$376,250,000 in 1997. Health Services' cost of services  increased 29.6% in 1998
to $205,986,000  from $158,987,000 in 1997, while Managed Care Services' cost of
services increased 23.4% in 1998 to $268,116,000 from $217,263,000 in 1997.

     Total gross profit margins decreased  slightly to 23.1% in 1998 compared to
23.8% in 1997.  Health Services' gross profit margins decreased to 22.3% in 1998
compared to 25.1% in 1997,  while Managed Care  Services'  gross profit  margins
increased to 23.7% in 1998 compared to 22.9% in 1997.

     Health Services' gross profit margins decreased primarily as a result of an
acceleration  in the roll-out of patient  tracking and billing  systems into the
medical centers,  increased spending on marketing and facility  improvements and
the impact of lower gross profit  margins from practices  recently  acquired and
developed.  Historically,  as  certain  functions  are  consolidated  and  other
staff-related  changes occur,  coupled with increased patient volume,  the gross
profit margins of acquired or developed practices have tended to improve.

     Managed  Care  Services  has  seen  improvement  in  gross  profit  margins
primarily  resulting  from a shift in its revenue mix towards  specialized  cost
containment  services,  including the services  provided by PPS  (including  its
acquisition of ABOUT HEALTH) and FNS, which  historically  have had higher gross
profit margins than revenues  derived from field case  management.  Although the
gross profit margins improved slightly in 1998, they were negatively affected by
a decrease in provider  bill review gross profit  margins and a slow down in the
growth of field case management revenues and resulting gross profit margins. The
provider bill review gross profit margins decrease was due primarily to start-up
costs,  pricing  concessions  on new  customers  and an increase in the level of
uncollectable accounts receivable charges.

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative  expenses increased 13.8% in 1998 to $45,530,000
from  $40,008,000  in 1997, or 7.4% and 8.1% as a percentage of revenue for 1998
and 1997,  respectively.  The increase in general and administrative expenses in
1998 was due primarily to the continued  investment in the Information  Services
and Technology Group and in accounting and administrative personnel.

AMORTIZATION OF INTANGIBLES

     Amortization  of  intangibles  increased  37.4% in 1998 to $8,167,000  from
$5,945,000  in 1997,  or 1.3% and 1.2% as a percentage  of revenues for 1998 and
1997,  respectively.  This  increase  is the  result  of  amortizing  additional
intangible  assets such as goodwill,  customer  lists and  assembled  workforces
primarily  associated  with the  purchases of FNS,  ABOUT HEALTH by PPS, VMC and
various smaller acquisitions by Health Services.

NON-RECURRING CHARGE

     The Company recorded non-recurring charges for the years ended December 31,
1997 and 1998 of $38,625,000 and $33,114,000, respectively.


                                       24



<PAGE>

         In the first  quarter of 1998,  the  Company  recorded a  non-recurring
charge  of  $12,600,000  primarily  associated  with  the  merger  of  PPS.  The
utilization  of  this  charge  through  December  31,  1998,  was  approximately
$5,136,000 for  professional  fees and services,  $2,355,000 in costs associated
with personnel  reductions,  $746,000 in facility  consolidations  and closings,
$1,627,000  associated  with the  write-off  of deferred  financing  fees on PPS
indebtedness  retired and $1,264,000 of other  non-recurring  costs. At December
31, 1998, approximately $1,472,000 of the non-recurring charge remains primarily
related to remaining facility lease obligations.

     In the fourth quarter of 1998, the Company recorded a non-recurring  charge
of $20,514,000  primarily associated with the reorganization of its Managed Care
Services  division to improve  efficiency  through facility  consolidations  and
related headcount reductions,  to recognize an impairment loss on the intangible
related to an acquired  contract and costs  associated  with settling  claims on
other expired  contracts.  The  utilization of this charge through  December 31,
1998 was  approximately  $7,416,000 in charges  related to the recognition of an
impairment loss on the intangible related to an acquired contract, $2,490,000 in
costs   associated   with  personnel   reductions  and  $1,140,000  in  facility
consolidations.   At  December  31,  1998,   approximately   $9,468,000  of  the
non-recurring  charge  remains  primarily  related to remaining  facility  lease
obligations  and  costs   associated  with  settling  claims  or  other  expired
contracts.

     In the third quarter of 1997, the Company  recorded a non-recurring  charge
of  $38,625,000  associated  with the  merger  of CRA  Managed  Care,  Inc.  and
OccuSystems,  Inc. The utilization of this charge through December 31, 1998, was
approximately  $11,569,000 for  professional  fees and services,  $16,216,000 in
costs  associated with personnel  reductions and the  consolidation of CRA's and
OccuSystems'  employee  benefits,  $5,945,000  in  facility  consolidations  and
closings, $2,541,000 for the write-off of start-up costs and $2,354,000 of other
charges.


INTEREST EXPENSE

     Interest  expense   increased   $5,354,000  in  1998  to  $18,021,000  from
$12,667,000 in 1997 due primarily to increased outstanding  borrowings under the
credit  facilities to finance  acquisitions  and the issuance of $230,000,000 in
4.5% Convertible  Subordinated Notes in March and April 1998 partially offset by
the repayment of borrowings under the Senior Credit Facility and debt assumed in
the merger with PPS.


INTEREST INCOME

     Interest income increased  $2,362,000 in 1998 to $4,659,000 from $2,297,000
in 1997 due  primarily to the  investment  of excess cash as a result of the net
proceeds of  $223,589,000  from the issuance the 4.5%  Convertible  Subordinated
Notes after the payment of approximately  $122,000,000 of outstanding borrowings
under the Senior  Credit  Facility,  debt assumed in the merger with PPS and the
payment to PPS dissenting shareholders.


OTHER EXPENSE, NET

     Other expense,  net decreased  $908,000 in 1998 to $711,000 from $1,619,000
in 1997 primarily as a result of PPS' 1997 minority interest expense of $556,000
related to the two-step acquisition of ABOUT HEALTH and the 1997 amortization of
start-up costs of $315,000  recorded prior to the write-off of start-up costs in
the third quarter of 1997.


PROVISION FOR INCOME TAXES

     The Company's  provision for income taxes in 1998 and 1997 was  $19,308,000
and $11,062,000,  respectively.  On a pro forma basis,  giving effect to the PPS
transaction,  the  Company's  provision  for income taxes in 1998 and 1997 would
have been  $19,308,000  and  $13,873,000,  respectively,  resulting in pro forma
effective tax rates of 46.2% and 65.9%, respectively.  Excluding the tax effects
of the non-recurring  charges in the third quarter of 1997, the first quarter of
1998 and the fourth quarter of 1998, the pro forma effective tax rate would have
been 41.0% for 1998 and 39.3% for 1997.  The Company  expects to provide for its
taxes at an effective tax rate of approximately 41% to 42% for 1999.


RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


REVENUES

     Total revenues increased 32.5% in 1997 to $493,879,000 from $372,683,000 in
1996.  Health Services'  revenues  increased 24.8% in 1997 to $212,237,000  from
$170,035,000 in 1996. Managed Care Services' revenues


                                       25



<PAGE>

increased  39.0%  in  1997  to  $281,642,000   from  $202,648,000  in  1996,  as
specialized  cost containment  revenues  increased 70.6% in 1997 to $142,919,000
from $83,784,000 in 1996 and field case management  revenues  increased 16.7% in
1997 to $138,723,000 from $118,864,000 in 1996.

     The  Health  Services  revenue  growth  resulted  from the  acquisition  of
practices  (including the acquisition of 16 occupational medical centers and the
management of an additional  four medical centers from VMC in the fourth quarter
of 1997),  development  of sites in new  markets,  an  increase  in  business in
existing  markets,  as well as an increase  in  consulting  and other  ancillary
services.   The  specialized   cost   containment   revenue  growth  is  largely
attributable to the acquisitions of FOCUS, PROMPT, FNS and ABOUT HEALTH, as well
as  revenue  increases  attributable  to growth in  retrospective  medical  bill
review,  telephonic  case  management  and claims  review  services  in existing
service locations and the expansion into additional service locations. The field
case  management  revenue  growth is  primarily  due to growth in revenues  from
existing service locations, and the opening of 13 offices during 1996 and 1997.


COST OF SERVICES

     Total  cost of  services  increased  29.8%  in 1997  to  $376,250,000  from
$289,928,000 in 1996. Health Services' cost of services  increased 21.6% in 1997
to $158,987,000  from $130,754,000 in 1996, while Managed Care Services' cost of
services increased 36.5% in 1997 to $217,263,000 from $159,174,000 in 1996.

Total gross profit margins increased to 23.8% in 1997 compared to 22.2% in 1996.
Health  Services'  gross profit  margins  increased to 25.1% in 1997 compared to
23.1% in 1996,  while Managed Care Services'  gross profit margins  increased to
22.9% in 1997 compared to 21.5% in 1996.

     Health  Services'  gross  profit  margin   improvement  has  resulted  from
increased  efficiencies and productivity.  As certain functions are consolidated
and other  staff-related  changes occur,  coupled with increased patient volume,
the margins of acquired or developed  practices have tended to improve.  Managed
Care Services has seen  improvement in gross margin  primarily  resulting from a
shift  in  its  revenue  mix  towards  specialized  cost  containment  services,
including the services provided by FOCUS,  PROMPT,  FNS and ABOUT HEALTH,  which
historically  have had higher gross profit  margins than  revenues  derived from
field case management.


GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative  expenses increased 20.7% in 1997 to $40,008,000
from  $33,155,000  in 1996, or 8.1% and 8.9% as a percentage of revenue for 1997
and 1996,  respectively.  The increase in general and administrative expenses in
1997  was  due  primarily  to  expenses  associated  with  acquisitions  and the
continued investment in the Information Services and Technology Group.


AMORTIZATION OF INTANGIBLES

     Amortization  of  intangibles  increased  72.7% in 1997 to $5,945,000  from
$3,442,000  in 1996,  or 1.2% and 0.9% as a percentage  of revenues for 1997 and
1996,  respectively.  This  increase  is the  result  of  amortizing  additional
intangible  assets such as goodwill,  customer  lists and  assembled  workforces
primarily  associated with the purchase of FOCUS,  PROMPT,  FNS, ABOUT HEALTH by
PPS, VMC and other smaller acquisitions.


NON-RECURRING CHARGE

     The Company recorded a non-recurring charge of $38,625,000  associated with
the 1997  Merger.  The  charges  incurred  were  approximately  $11,569,000  for
professional  fees and services,  $16,216,000 in costs associated with personnel
reductions and the  consolidation of CRA's and OccuSystems'  employee  benefits,
$5,945,000 in facility consolidations and closings, $2,541,000 for the write-off
of  start-up  costs and  $2,354,000  of other  charges.  At December  31,  1997,
approximately  $7,527,000 of the non-recurring  charge remains primarily related
to personnel related charges and facility consolidations and closings.


INTEREST EXPENSE

     Interest  expense   increased   $8,926,000  in  1997  to  $12,667,000  from
$3,741,000  in  1996  due  primarily  to  the  issuance  of  $97,750,000  of  6%
Convertible   Subordinated   Notes  in  December   1996,  the  issuance  of  PPS
indebtedness  in  August  1996  and to  increased  outstanding  credit  facility
borrowings used to finance acquisitions.


                                       26



<PAGE>

INTEREST INCOME

     Interest income increased $1,438,000 in 1997 to $2,297,000 from $859,000 in
1996 due primarily to the  investment of excess cash generated from the issuance
of the 6%  Convertible  Subordinated  Notes  until the funds  were  utilized  to
finance certain acquisitions.


OTHER EXPENSE, NET

     Other expense,  net increased  $783,000 in 1997 to $1,619,000 from $836,000
in 1996 primarily due to minority interests.


PROVISION FOR INCOME TAXES

     The Company's  provision for income taxes in 1997 and 1996 was  $11,062,000
and $13,437,000,  respectively.  On a pro forma basis,  giving effect to the PPS
transaction,  the  Company's  provision  for income taxes in 1997 and 1996 would
have been  $13,873,000  and  $16,167,000,  respectively,  resulting in pro forma
effective tax rates of 65.9% and 39.0%, respectively.  Excluding the tax effects
of the  non-recurring  charge,  the pro forma effective tax rate would have been
39.3% for 1997.


SEASONALITY

     The  Company's  business is seasonal in nature.  Health  Services'  patient
visits at its  medical  centers  are lower in the  first  and  fourth  quarters,
primarily because of fewer occupational injuries and illnesses during those time
periods due to plant closings,  vacations and holidays.  In addition,  employers
generally  hire fewer  employees  in the fourth  quarter,  thereby  reducing the
number  of  pre-placement  physical  examinations  and  drug and  alcohol  tests
conducted at the medical  centers  during that quarter.  Managed Care  Services'
field case management revenues have historically been flat in the fourth quarter
compared  to the third  quarter  due to the impact of  vacations  and  holidays.
Although the Company's  revenue  growth may obscure the effect of seasonality in
the Company's financial results, the first and fourth quarters generally reflect
lower revenues when compared to the Company's second and third quarters.


INFORMATION SYSTEMS - YEAR 2000

     The Year 2000  concern,  which is common to most  companies,  concerns  the
inability  of  information  and  non-information  systems,   primarily  computer
software programs,  to properly recognize and process date sensitive information
as the Year 2000 approaches. System database modifications and/or implementation
modifications  will be required to enable such  information and  non-information
systems to  distinguish  between  21st and 20th century  dates.  The Company has
completed a number of acquisitions in recent years, and the information  systems
of some of the  acquired  operations  have not been  fully  integrated  with the
Company's information systems.

     The Company has formed a Year 2000 Program  Office to provide a centralized
management function for the entire organization that will assist in identifying,
addressing  and  monitoring  the Company's  Year 2000  readiness and  compliance
programs.  The Year 2000 Program Office has organized  teams at each division to
research Year 2000 compliance  status and implement the  appropriate  solutions.
The Company's  Year 2000 Program  includes five phases - awareness,  assessment,
remediation, testing and implementation. The awareness and assessment phases are
substantially  complete  with  the  exception  of the  assessment  phase  of the
Company's information systems infrastructure (i.e., desktops and other hardware)
Year 2000 compliance.

     The Company's  Year 2000 Program  Office  engaged an outside  consultant to
assist in an  inventory  and  assessment  of Year 2000  affected  areas,  with a
primary focus on information  technology  systems,  third party software and key
suppliers and selected customers. This inventory and assessment was completed in
the fourth  quarter of 1998.  The Company's  Year 2000 Program Office engaged an
outside  consultant  in the first  quarter  of 1999 to  assist in an  inventory,
assessment  and  remediation  efforts  of  the  Company's   information  systems
infrastructure Year 2000 compliance. The Company completed in the fourth quarter
of 1998 an internal  inventory  and  assessment  of  non-information  technology
systems (e.g. embedded systems contained in medical  equipment).  Remediation or
replacement  of  noncompliant  Year 2000  medical  equipment  began in the first
quarter of 1999 and is expected to be completed by the third quarter of 1999.

     The Year 2000 Program Office has established a protocol for soliciting Year
2000  compliance  information  from third  parties and requests  for  compliance
information from all key suppliers and selected customers were


                                       27



<PAGE>

sent in the fourth  quarter of 1998 and the first  quarter of 1999.  The Company
continues  to gather Year 2000  compliance  information  from third  parties and
anticipates receiving the majority of responses by the end of the second quarter
of 1999. To the extent  responses have not been received,  the Year 2000 Program
Office has ranked the third  parties  by level of  importance  to the  Company's
operations  and is  following  up with phone  surveys,  additional  mailings and
research of public information issued by the third-party (i.e., "web research").
These responses should indicate the extent to which the Company is vulnerable to
those third parties' failure to remediate their own Year 2000 issues.

     The  Company's  identified  Year 2000  projects  overlap  with its  ongoing
investments in information  technology,  as such,  there are presently Year 2000
projects at the assessment,  remediation, testing and implementation phases. The
Company  believes that it has identified most "mission  critical" issues and has
developed or is in the process of modifying  appropriate  action plans which may
include software upgrades, replacement of noncompliant components or referral of
problems related to third party-provided  software to the original supplier. The
Company has prepared its plans to have all "mission critical" projects Year 2000
compliant  by the end of the  fourth  quarter of 1999.  While some  non-critical
systems may not be addressed  until after December  1999,  the Company  believes
such systems will not disrupt the Company's operations in a material manner. Any
additional issues that may arise will be classified as either "mission critical"
or non-critical, and appropriate action plans will be developed and implemented.
The Company expects to have formulated any contingency plans deemed necessary by
the third quarter of 1999.

     The Company  currently  estimates that the total cost of  implementing  its
Year 2000 Program will be between  $5,000,000 and $10,000,000.  This preliminary
estimate is based upon presently  available  information  and will be updated as
the Company finalizes its assessments and continues through  implementation.  In
particular,  the estimate may also need to be increased as the Company  receives
feedback from key suppliers and selected  customers and  formulates  contingency
plans,  if  required.  It is  expected  these  costs  will not be  significantly
different  from  the  Company's  current  planned   investment  for  information
technology,  and  therefore,  should not have a material  adverse  effect on the
Company's long-term results of operations,  liquidity or consolidated  financial
position. However, until the information systems infrastructure assessment phase
is  completed  in the second  quarter of 1999,  the Company is  uncertain if its
present plans and resources will be sufficient to ensure Year 2000 compliance of
all "mission  critical"  projects by January 1, 2000. The Company's  capital and
noncapital  investment  in the  Information  Services and  Technology  Group was
approximately  $32,000,000 in 1998 and expected to be approximately  $50,000,000
in 1999. Of this  investment,  the Company's Year 2000 Program  Office  incurred
expenses of approximately  $300,000 in fiscal 1998 primarily associated with the
engagement of an outside  consultant to assist in an inventory and assessment of
Year 2000 affected areas.

     Although the Company does not  anticipate  any disruption in its operations
or financial  reporting as a result of system  upgrades or system  integrations,
there  can be no  assurance  that  such  disruption  will not  occur or that the
desired benefits from the Year 2000 compliance of the Company's  information and
non-information  systems will be realized.  If the Company does not identify and
remediate  Year 2000 issues prior to January 1, 2000,  its  operations  could be
disrupted which could have a material  adverse effect on the Company's  business
or operating results or financial condition.  In addition,  the Company places a
high degree of reliance on computer systems of third parties, such as customers,
trade  suppliers  and  computer  hardware  and  commercial  software  suppliers.
Although the Company is assessing  the readiness of these third  parties,  there
can be no  guarantee  that the  failure of these third  parties to modify  their
systems in advance of December 31, 1999 would not have a material adverse effect
on the Company. In addition,  the Company's operations could be disrupted if the
companies  with which the Company does  business do not identify and correct any
Year 2000 issues and such failure adversely affects their ability to do business
with the  Company.  If all Year 2000  issues are not  identified  and all action
plans are not completed and contingency plans become necessary,  the Company may
not be Year 2000  compliant  which could have a material  adverse  effect on the
Company's long-term results of operations,  liquidity, or consolidated financial
position.  The  amount of  potential  liability  and lost  revenue  has not been
estimated.


LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from (used for) operations were $37,895,000, ($262,000) and
$15,595,000 for the years ended December 31, 1998, 1997 and 1996,  respectively.
During  1998,  working  capital used  $10,307,000  of cash  primarily  due to an
increase in accounts receivable of $19,993,000,  offset by a decrease in prepaid
expenses and income  taxes of  $1,421,000  and an increase in accounts  payable,
accrued expenses and income 


                                       28



<PAGE>

taxes of $8,265,000.  Accounts  receivable  increased primarily due to continued
revenue  growth,  while  accounts  payable,  accrued  expenses  and income taxes
increased due to the timing of payments and the remaining  obligations  relating
to the first quarter and fourth quarter of 1998 non-recurring charges.

     The  Company   utilized  net  cash  of  $18,070,000   in  connection   with
acquisitions,  $15,523,000 to purchase marketable  securities and $34,395,000 of
cash to purchase  property and equipment  during 1998, the majority of which was
spent on new computer hardware and software technology.

     Cash  flows  provided  by  financing  activities  of  $121,555,000  was due
primarily  to the  issuance of  $230,000,000  in 4.5%  Convertible  Subordinated
Notes,  $223,589,000,  net of deferred  finance  fees. A portion of the proceeds
from the issuance of the 4.5% Convertible  Subordinated  Notes was used to repay
borrowings  under the Senior Credit  Facility,  repay debt assumed in the merger
with PPS, and for the payment of $15,047,000 to PPS dissenting shareholders. Net
proceeds  from the issuance of Common Stock under  employee  stock  purchase and
option plans and the related tax benefit was $14,403,000.

         The Company  believes  that its current  cash  balances,  the cash flow
generated  from  operations and its borrowing  capacity  under the  $100,000,000
Senior  Credit  Facility,  if needed,  will be  sufficient to fund the Company's
working   capital,   medical  center   acquisitions   and  capital   expenditure
requirements  for at least the next  twelve  months.  As a result of the  fourth
quarter  1998  non-recurring  charge,  the  Company was not in  compliance  with
certain leverage ratio covenants under the  $100,000,000  Senior Credit Facility
in the  fourth  quarter  of  1998  and the  Company  expects  it will  not be in
compliance  with  those  covenants  in the first  quarter of 1999.  The  Company
received a waiver on all financial  covenants through the first quarter of 1999.
The Company does not have any  borrowings  outstanding  under the Senior  Credit
Facility  and does not  anticipate  the need to borrow  under the Senior  Credit
Facility for the next twelve months.

     The Company's  long-term  liquidity  needs  consist of working  capital and
capital expenditure requirements, the funding of any future acquisitions and the
repayment of the 6% Convertible  Subordinated Notes in 2001 and 4.5% Convertible
Subordinated  Notes  in  2003.  The  Company  intends  to fund  these  long-term
liquidity needs from the cash generated from  operations,  available  borrowings
under the Senior  Credit  Facility  and,  if  necessary,  future  debt or equity
financing.  There can be no assurance  that any future debt or equity  financing
will be available on terms favorable to the Company.


SUBSEQUENT EVENTS

     On March 2, 1999,  Concentra  entered into a definitive  agreement to merge
(the "Merger") with Yankee Acquisition Corp. ("Yankee"), a corporation formed by
Welsh,  Carson,  Anderson & Stowe ("WCAS"),  a 14.8% stockholder of the Company.
Concentra's Board of Directors  unanimously  approved the transaction based upon
the recommendation of its special committee of the Board of Directors, which was
formed on October  29, 1998 to evaluate  strategic  alternatives  in response to
several unsolicited  expressions of interest regarding the possible  acquisition
of some or all of the  Company's  Common  Stock.  On March 24,  1999,  Concentra
entered  into an Amended and Restated  Agreement  and Plan of Merger with Yankee
(the "Amended  Merger  Agreement").  Pursuant to the Amended  Merger  Agreement,
Yankee  will  acquire  approximately  93% and funds  managed  by Ferrer  Freeman
Thompson & Co. ("FFT") will acquire  approximately 7% of the post-merger  shares
of common stock of the Company for $16.50 per share.  As a result of the Merger,
each  outstanding  share of Concentra  Common  Stock will be converted  into the
right to receive $16.50 in cash.

     In connection with the Merger,  effective March 2, 1999,  Concentra amended
its Rights Agreement.  The amendment  provides,  among other things, that Yankee
and its  affiliates  will not be deemed  an  Acquiring  Person  (as such term is
defined  in the Rights  Agreement)  and that the Rights  Agreement  will  expire
immediately prior to the effective time of the Merger.

     The transaction is valued at  approximately  $1,100,000,000,  including the
refinancing of $327,750,000 of the 6% and 4.5%  Convertible  Subordinated  Notes
which  contain  change in control  provisions  in the  related  indentures.  The
transaction  is  structured  to be accounted  for as a  recapitalization  and is
expected to be completed late in the second quarter of 1999. The  transaction is
conditioned upon, among other things, approval of the shareholders of Concentra,
receipt of financing and certain regulatory approvals.

     To finance the acquisition of the Company,  WCAS will invest  approximately
$350,000,000 in equity financing, including the value of shares already owned by
WCAS, and up to  $110,000,000 in subordinated  indebtedness.  Additionally,  FFT
will  invest  approximately  $30,000,000  in  equity.  WCAS  has  also  received
commitments  from various lenders to provide Yankee with  $190,000,000 in senior
subordinated notes, a 

                                       29



<PAGE>

$375,000,000  term loan and a $100,000,000  revolving credit facility to replace
the Company's existing Senior Credit Facility.  Additionally,  Yankee would also
utilize  the  Company's  excess  cash on hand at the time of the  merger to help
finance the purchase of the Common  Stock.  Subsequent to the exchange of shares
for cash,  Yankee would merge with Concentra  Managed Care,  Inc. with Concentra
Managed Care, Inc. surviving.

     As of March 26, 1999,  Concentra is aware of three  lawsuits that have been
filed by alleged  stockholders  of Concentra  relating to the Merger.  All three
lawsuits were filed in the Chancery Court for New Castle County,  Delaware. Each
of the lawsuits names  Concentra,  its directors and Yankee as  defendants.  The
plaintiff  in each  lawsuit  seeks to  represent a putative  class of all public
holders of Concentra common stock. The lawsuits allege, among other things, that
the  directors of  Concentra  breached  their  fiduciary  duties to  Concentra's
stockholders  by approving the Merger.  The lawsuits  seek,  among other things,
preliminary  and permanent  injunctive  relief  prohibiting  consummation of the
Merger, unspecified damages, attorneys' fees and other relief. Concentra expects
that these  lawsuits  will be  consolidated  into a single  action.  The Company
intends to contest these lawsuits vigorously.


     ITEM 7A.  Quantitative and quantitative  disclosures about market risk.

     Concentra  has  not  entered  into  derivative  financial   instruments  or
derivative commodity  instruments.  Other financial instruments are described in
Note 7 of Notes to Consolidated Financial Statements, beginning on page F-13.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The audited consolidated  financial statements of the Company and other
information  required by this Item 8 are included in this Form 10-K beginning on
page F-1.


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

        Not Applicable



                                       30



<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


DIRECTORS


GOVERNANCE OF THE COMPANY; BOARD OF DIRECTORS AND COMMITTEES

     Pursuant to the Delaware  General  Corporation  Law, as  implemented by the
Company's  Certificate of Incorporation and Bylaws,  the business,  property and
affairs  of the  Company  are  managed  under  the  direction  of the  Board  of
Directors.  Members of the Board are kept  informed  of the  Company's  business
through  discussions  with the Chairman,  the President and other  officers,  by
reviewing  materials  provided to them and by  participating  in meetings of the
Board and its committees.

     The Board of  Directors  is divided  into three  classes  and is  presently
comprised  of eight  members.  The  directors  of each  class  are  elected  for
three-year  terms,  with terms of the three classes  staggered so that directors
from a single class are elected at each annual meeting of  stockholders.  George
H. Conrades,  Robert A.  Ortenzio,  and Lois E. Silverman are Class II directors
whose terms of office expire at the annual meeting of stockholders in 1999. John
K.  Carlyle is a Class III director  whose term of office  expires at the annual
meeting of  stockholders  in 2000.  Hon.  Willis D. Gradison,  Jr.,  Mitchell T.
Rabkin,  M.D.,  Richard D. Rehm, M.D. and Daniel J. Thomas are Class I directors
whose terms of office expire at the annual meeting of stockholders in 2001.

         During  1998,  the  Board of  Directors  held a total  of 13  meetings,
including 4 regular meetings and 9 special meetings. Each director attended more
than 75% of the  aggregate of (i) the total number of meetings held by the Board
of Directors and (ii) the total number of meetings held by all committees of the
Board of Directors on which he served.


COMMITTEES OF THE BOARD OF DIRECTORS

         During  1998,  the Board of  Directors  of the Company had two standing
committees: an Audit Committee and an Option and Compensation Committee.

     The Audit Committee held two meetings in 1998. The Audit Committee  reviews
the  adequacy  of the  Company's  system of  internal  controls  and  accounting
practices.  In  addition,  the Audit  Committee  reviews the scope of the annual
audit of the Company's  independent  public  accountants,  Arthur  Andersen LLP,
prior to its  commencement,  and  reviews  the types of  services  for which the
Company retains Arthur  Andersen LLP.  Commencing in December 1998, the Board of
Directors  designated the Audit Committee as the committee  charged with primary
oversight  of  the  Company's  Corporate  Integrity  Program,   currently  under
development.

     The  Option and  Compensation  Committee  held six  meetings  in 1998.  The
functions  of the Option and  Compensation  Committee  are to  establish  annual
salary levels,  approve fringe benefits and administer any special  compensation
plans or programs  for  officers of the  Company,  review and approve the salary
administration  program for the Company and administer  the Company's  incentive
and stock option plans.

     Hon.  Willis  D.  Gradison,  Jr.,  Mitchell  T.  Rabkin,  M.D.  and Lois E.
Silverman  currently serve on the Audit  Committee.  John K. Carlyle,  George H.
Conrades and Robert A. Ortenzio  currently serve on the Option and  Compensation
Committee.


VOTING AGREEMENT

     Pursuant to an agreement  entered into between Lois E. Silverman and Donald
J. Larson, Mr. Larson has agreed to vote his shares in favor of Ms. Silverman or
her designee as a member of the Board for as long as Ms.  Silverman,  her family
and trusts established by her hold at least 519,113 shares of Common Stock.


                                       31



<PAGE>

Tabular  information  and a brief  biography  of each  Director  of the  Company
follow.



<TABLE>
<CAPTION>
             NAME                 AGE                        POSITION
------------------------------   -----   ------------------------------------------------
<S>                              <C>     <C>
John K. Carlyle                  44      Chairman, Director
Daniel J. Thomas                 40      President and Chief Executive Officer, Director
George H. Conrades               60      Director
Hon. Willis D. Gradison, Jr.     70      Director
Robert A. Ortenzio               41      Director
Mitchell T. Rabkin, M.D.         68      Director
Richard D. Rehm, M.D.            53      Director
Lois E. Silverman                58      Director
</TABLE>

         JOHN K.  CARLYLE has served as a Director of the Company  since  August
1997.  Mr.  Carlyle  has served as  Chairman  of the Board of  Directors  of the
Company since September 1998. In addition, he served as Chairman of the Board of
Directors  of the  Company  from  August 1997 to January  1998.  Mr.  Carlyle is
currently  President  and  CEO of  MAGELLA  Healthcare  Corporation,  a  private
physician  practice  management  company devoted to the areas of neonatology and
perinatology.  Mr.  Carlyle  served as Chairman and Chief  Executive  Officer of
OccuSystems,  Inc., one of Concentra's  predecessor  companies  ("OccuSystems"),
from  January  1997 until  August  1997.  He joined  OccuSystems  in 1990 as its
President and served in that capacity until December 1996. Mr. Carlyle served as
the Chief Executive Officer and a director of OccuSystems from 1991 until August
1997. Mr. Carlyle has served as a director of National Surgery Centers, Inc., an
owner and operator of free standing, multi-specialty ambulatory surgery centers,
since  1991.  He also  serves as a director of several  private  companies.  Mr.
Carlyle is a certified public accountant.

         DANIEL J. THOMAS has served as a Director of the Company  since January
1998. He has served as President  and Chief  Executive  Officer since  September
1998, and he served as President and Chief Operating Officer of the Company from
January 1998 until  September  1998. He served as Executive  Vice  President and
President of the Practice  Management  Services  subsidiary  of the Company from
August 1997 until January 1998.  He served as a director of  OccuSystems  and as
its President and Chief Operating Officer from January 1997 to August 1997. From
April 1993 through  December 1996, Mr. Thomas served as  OccuSystems'  Executive
Vice  President and Chief  Operating  Officer.  Prior to joining  OccuSystems in
1993, Mr. Thomas served in various  capacities with Medical Care  International,
Inc.,  most recently as its Senior Vice President and Divisional  Director.  Mr.
Thomas is a certified public accountant.

         GEORGE H. CONRADES has served as a Director of the Company since August
1997.  He served as a director of CRA Managed  Care,  Inc.,  one of  Concentra's
predecessor  companies  ("CRA"),  from July 1994 until August 1997. Since August
1998, Mr. Conrades has been a Venture Partner with Polaris Venture Partners. Mr.
Conrades served as President and Chief Executive Officer of BBN  Corporation/GTE
Internetworking,   a  provider  of   internetworking   services,   products  and
application solutions from 1994 to August 1998. He had served as Chairman of the
Board of BBN from November 1995 to July 1997, when GTE Corporation acquired BBN.
From 1992 to 1994, Mr. Conrades was a partner in Conrades/Reilly  Associates,  a
business  consulting  company.  From 1961 to 1992, Mr. Conrades held a number of
management  positions with International  Business Machines Corp., most recently
as Senior Vice President and a member of IBM's Corporate  Management  Board. Mr.
Conrades  is also a director  of CBS  Corporation,  Infinity  Broadcasting,  and
Cubist Pharmaceuticals, Inc.

         HON.  WILLIS D.  GRADISON,  JR. has served as a Director of the Company
since May 1998. He currently serves as Senior Public Policy Counselor for Patton
Boggs,  L.L.P.  From 1993 to December 1998, Mr.  Gradison served as President of
the  Health  Insurance   Association  of  America  ("HIAA"),   the  trade  group
representing  the  nation's  commercial  health  insurance  companies.  Prior to
assuming his position with HIAA, Mr.  Gradison served in the United States House
of  Representatives  for 18 years where, most recently,  he was ranking Minority
Member of the House Budget  Committee and the Health  Subcommittee  of the House
Ways and Means Committee.

         ROBERT A. ORTENZIO has served as a Director of the Company since August
1997. He served as director of OccuSystems  from May 1992 until August 1997. Mr.
Ortenzio  currently  serves as the President of Select  Medical  Corporation,  a
private healthcare company based in Mechanicsburg,  Pennsylvania, and has served
in such capacity since August 1996. From 1986 to 1996, Mr. Ortenzio was employed
by Continental  Medical Systems,  Inc., a nationwide  provider of rehabilitation
services,  from 1986 until 1988 as its Senior  Vice  President,  from 1988 until
June 1995


                                       32



<PAGE>

as its President and Chief  Operating  Officer and from July 1995 to August 1996
as its President and Chief  Executive  Officer.  Mr. Ortenzio also served as the
Executive Vice President and a director of  Horizon/CMS  Healthcare  Corporation
from July 1995 to August 1996.

         MITCHELL T. RABKIN,  M.D. has served as a Director of the Company since
August  1997.  He served as a director of CRA from  February  1995 until  August
1997.  Dr.  Rabkin  is  currently  a  Distinguished  Institute  Scholar  for the
Institute for Education and Research of Beth Israel  Deaconess  Medical  Center.
From 1966 to September  1996,  Dr. Rabkin served as Chief  Executive  Officer of
Boston's  Beth Israel  Hospital.  He holds the rank of  Professor of Medicine at
Harvard Medical School.  From October 1996 to October 1998, Dr. Rabkin served as
Chief  Executive  Officer of CareGroup,  Inc.,  the parent  corporation  of Beth
Israel Deaconess Medical Center. Dr. Rabkin is a graduate of Harvard College and
received his M.D. from Harvard Medical School.

         RICHARD D. REHM, M.D. has served as a Director of the Company since May
1998. He currently  serves as President of Network  Health  Services,  a private
company based in Nashville,  Tennessee. Dr. Rehm founded OccuSystems in 1990 and
served as its  Chairman of the Board from 1991  through  December  1996 and as a
director  through  August  1997.  Dr.  Rehm has owned,  operated  and  developed
occupational healthcare centers since 1979.

         LOIS E.  SILVERMAN has served as a Director of the Company since August
1997.  She  co-founded  CRA in 1978  and  served  as  Chairman  of the  Board of
Directors  of CRA from March 1994 until  August 29, 1997 and as Chief  Executive
Officer of CRA from 1988 to  December  31,  1995.  Prior to  founding  CRA,  Ms.
Silverman  held the  position of Northeast  Regional  Manager at  IntraCorp.,  a
Division of Cigna  Corporation.  Ms.  Silverman is a director of Sun  Healthcare
Group,  Inc., and CareGroup,  Inc., parent  corporation of Beth Israel Deaconess
Medical Center, and serves as a Trustee of Simmons College and Overseer of Tufts
Medical Schools.


EXECUTIVE OFFICERS

         Executive  officers  are  generally  elected  annually  by the Board of
Directors to serve,  subject to the discretion of the Board of Directors,  until
their  respective  successors  are  elected.  Tabular  information  and a  brief
biography of each executive officer of the Company follow. For information about
Mr. Carlyle and Mr. Thomas, see their biographies under "Directors" above.




<TABLE>
<CAPTION>
         NAME             AGE                           POSITION
----------------------   -----   ------------------------------------------------------
<S>                      <C>     <C>
John K. Carlyle          44      Chairman, Director
Daniel J. Thomas         40      President and Chief Executive Officer, Director
James M. Greenwood       38      Executive Vice President of Corporate Development
Richard A. Parr II       40      Executive Vice President, General Counsel and
                                 Secretary
Joseph F. Pesce          50      Executive Vice President, Chief Financial Officer and
                                 Treasurer
W. Tom Fogarty, M.D.     51      Senior Vice President and Chief Medical Officer
Kenneth Loffredo         41      Senior Vice President of Marketing and Sales
</TABLE>

         JAMES M.  GREENWOOD has served as Executive Vice President of Corporate
Development  since  February  1998 and as Senior  Vice  President  of  Corporate
Development  of the Company  from August  1997 to  February  1998.  He served as
OccuSystems'  Chief Financial Officer from 1993 when he joined  OccuSystems as a
Vice  President  until  August  1997.  Mr.  Greenwood  served  as a Senior  Vice
President of OccuSystems  since May 1994. From 1988 until he joined  OccuSystems
in 1993, Mr. Greenwood served in numerous  positions with Bank One, Texas, N.A.,
and its  predecessors,  most  recently as Senior Vice  President  and Manager of
Mergers and Acquisitions. Mr. Greenwood is a certified public accountant.

         RICHARD  A. PARR II has served as  Executive  Vice  President,  General
Counsel  and   Secretary  of  the  Company  since  August  1997.  He  served  as
OccuSystems' Executive Vice President, General Counsel and Secretary from August
1996 to August  1997.  Prior to joining  OccuSystems,  Mr.  Parr  served as Vice
President and Assistant General Counsel of OrNda HealthCorp, a national hospital
management company, from April 1993 through August 1996 and as Associate General
Counsel of OrNda HealthCorp from September 1991 through March 1993.


                                       33



<PAGE>

         JOSEPH F. PESCE has served as Executive Vice President, Chief Financial
Officer and Treasurer of the Company since August 1997. He served as Senior Vice
President-Finance  and Administration of CRA from August 1996 to August 1997 and
as Chief  Financial  Officer and  Treasurer  of CRA from  October 1994 to August
1997. Mr. Pesce served as Vice  President-Finance and Administration of CRA from
October 1994 to August 1996. From October 1981 to September 1994, Mr. Pesce held
various financial positions with Computervision Corporation and its predecessor,
Prime Computer,  Inc.,  including  Director of Corporate  Planning and Analysis,
Director of Leasing,  Corporate Controller,  Treasurer and, most recently,  Vice
President-Finance  and Chief Financial Officer.  Mr. Pesce is a certified public
accountant.

         W. TOM  FOGARTY,  M.D.  has served as Senior Vice  President  and Chief
Medical  Officer of the Company  since  August 1997.  He served as  OccuSystems'
Senior Vice  President and Chief Medical  Officer from  September 1995 to August
1997.  From 1993 to September  1995,  Dr.  Fogarty  served as Vice President and
Medical  Director  of  OccuSystems.  From 1992 to 1993,  he served as a Regional
Medical Director of OccuSystems and, from 1985 until 1992, as a medical director
of one of OccuSystems' centers.

         KENNETH  LOFFREDO has served as Senior Vice  President of Marketing and
Sales of the Company since August 1997. Mr. Loffredo served as Vice President of
Sales of CRA from February  1995 to August 1997.  From July 1993 to January 1995
he was CRA's Regional  Sales Manager for the New England  states.  Mr.  Loffredo
joined CRA in July of 1981,  and from 1981 to June 1993,  he held  positions  of
Case Manager, Account Manager and Regional Manager.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's Directors, executive officers and persons who own more than 10% of the
Company's  Common Stock to file reports of holdings and  transactions  in Common
Stock with the Securities and Exchange  Commission and the National  Association
of Securities Dealers, Inc. Based on Company records and other information,  the
Company believes that all applicable  Section 16(a) reporting  requirements were
complied with for all transactions which occurred in 1998.


ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table summarizes the  compensation  paid to the Company's
Chief Executive Officer, to the Company's former Chief Executive Officer, and to
the Company's  four most highly  compensated  executive  officers other than the
Chief Executive  Officer and the former Chief Executive Officer who were serving
as  executive  officers  at the end of fiscal  year 1998 (the  "Named  Executive
Officers") during (a) fiscal year 1998 by the Company, and (b) fiscal years 1997
and 1996 by the  Company  and its  predecessors,  CRA  Managed  Care,  Inc.,  or
OccuSystems, Inc.



<TABLE>
<CAPTION>
                                                                              LONG-TERM
                                                                            COMPENSATION
                                                                               AWARDS
                                                                             SECURITIES
                                            ANNUAL COMPENSATION              UNDERLYING       ALL OTHER
                                  --------------------------------------    OPTIONS/SARS     COMPENSATION
  NAME AND PRINCIPAL POSITION      YEAR     SALARY ($)(1)     BONUS ($)        (#)(2)           ($)(3)
-------------------------------   ------   ---------------   -----------   --------------   -------------
<S>                               <C>      <C>               <C>           <C>              <C>
Daniel J. Thomas                  1998         294,241               0         250,000      3,276 (4)
President and Chief Executive     1997         248,807          65,000         130,000        198
Officer, Director                 1996         225,000          60,000               0        198
James M. Greenwood                1998         247,495               0         250,000      3,250
Executive Vice President of       1997         212,974          52,500          85,000        198
Corporate Development             1996         170,000          40,000               0        198
Richard A. Parr II                1998         230,000               0          30,000      5,718
Executive Vice President,         1997         212,879          52,500          50,000        198
General Counsel and Secretary     1996          79,166          35,000          50,000         66
</TABLE>

                                       34



<PAGE>


<TABLE>
<CAPTION>
                                                                                LONG-TERM
                                                                              COMPENSATION
                                                                                 AWARDS
                                                                               SECURITIES
                                              ANNUAL COMPENSATION              UNDERLYING        ALL OTHER
                                    --------------------------------------    OPTIONS/SARS     COMPENSATION
   NAME AND PRINCIPAL POSITION       YEAR     SALARY ($)(1)     BONUS ($)        (#)(2)           ($)(3)
---------------------------------   ------   ---------------   -----------   --------------   --------------
<S>                                 <C>      <C>               <C>           <C>              <C>
Joseph F. Pesce                     1998     289,221                   0         230,000       9,243
Executive Vice President, Chief     1997     245,096              86,500         130,000      12,720
Financial Officer and Treasurer     1996     235,000             108,100         160,740      17,955
W. Tom Fogarty, M.D.                1998     240,000                   0          30,000      55,000
Senior Vice President and Chief     1997     223,671              55,000          75,000         864
Medical Officer                     1996     166,667              15,000               -         522
Donald J. Larson                    1998     434,540                   0               -       5,161 (5)
Former Chairman, President and      1997     320,204             116,500         100,000       3,200
Chief Executive Officer             1996     250,000             161,000         178,600       3,000
</TABLE>

--------
(1) Salaries for the  currently-employed  Named  Executives  Officers  effective
    January  1,  1999 are  $400,000  for Mr.  Thomas,  $300,000  for Mr.  Pesce,
    $270,000 for Mr.  Greenwood,  $260,000 for Dr.  Fogarty and $250,000 for Mr.
    Parr.

(2) Represents  long-term awards of options and restricted stock. See the tables
    "Option Grants in last Fiscal Year" and "Long-Term Incentive Plans-Awards in
    Last Fiscal Year."

(3) Amounts  shown  represent,  to the extent that the Named  Executive  Officer
    participated  in the Employee Stock  Purchase and the 401(k) Plans,  (i) the
    purchase discount on shares of the Company's Common Stock purchased pursuant
    to the Company's  Employee Stock Purchase Plan, (ii) the Company's  matching
    provision  under the  Company's  401(k) Plan and (iii)  premiums paid by the
    Company for group term life  insurance that is taxable  compensation  to the
    Named Executive Officers.

(4) Excludes relocation related costs and benefits totaling $158,709 paid to Mr.
    Thomas in 1998 associated with his relocation from Dallas,  Texas to Boston,
    Massachusetts.

(5) Excludes payments totaling  $1,354,092 paid to Mr. Larson in connection with
    his  resignation  from the  Company  as its  Chairman,  President  and Chief
    Executive  Officer in  September of 1997  comprised  of salary  continuation
    payments  of  $1,150,000,   transfer  of  the  cash  surrender  value  of  a
    split-dollar  life insurance policy of $168,592,  consulting fees of $25,000
    and other benefits of $10,500.  The Company is further  obligated to pay Mr.
    Larson an additional $125,000 under his consulting agreement in 1999.


                                       35



<PAGE>

OPTION AND RESTRICTED STOCK GRANTS IN 1998

     The following tables set forth certain information concerning grants by the
Company of stock options and  restricted  stock to each of the  Company's  Named
Executive  Officers  during 1998. In accordance with the rules of the Securities
and Exchange Commission,  the potential realizable values under such options are
shown based on assumed rates of annual  compound stock price  appreciation of 5%
and 10% over the full option term from the date the option was granted.

                       OPTION GRANTS IN LAST FISCAL YEAR



<TABLE>
<CAPTION>
                                                                                            POTENTIAL REALIZABLE
                                                                                              VALUE AT ASSUMED
                             NUMBER OF        % OF TOTAL                                      ANNUAL RATES OF STOCK
                            SECURITIES          OPTIONS                                      PRICE APPRECIATION FOR
                            UNDERLYING        GRANTED TO      EXERCISE OR                      OPTION TERM ($)(2)
                              OPTIONS        EMPLOYEES IN     BASE PRICE     EXPIRATION   ----------------------------
                          GRANTED (#)(1)      FISCAL YEAR      ($/SHARE)        DATE           5%           10%
                         ----------------   --------------   ------------   -----------   -----------   -----------
<S>                      <C>                <C>              <C>            <C>           <C>           <C>
Daniel J. Thomas              220,000        7.47%           $ 30.44          3/18/08      4,457,606    11,064,401
James M. Greenwood            200,000        6.79%           $ 29.44          5/13/08      3,702,617    9,383,159
Richard A. Parr II             30,000        1.02%           $ 29.44          5/13/08        555,393    1,407,474
Joseph F. Pesce               200,000        6.79%           $ 29.44          5/13/08      3,702,617    9,383,159
W. Tom Fogarty, M.D.           30,000        1.02%           $ 29.44          5/13/08        555,393    1,407,474
Donald J. Larson                    -           -                 -                 -              -            -
</TABLE>

--------
(1) The vesting of each option is cumulative,  and no vested portion will expire
    until the  expiration  of the option.  These  options  vest over a four-year
    period beginning on the January 1 subsequent to the date of the grant,  with
    25% of the  options  vesting and  becoming  exercisable  on each  subsequent
    January 1. All options will vest immediately upon the occurrence of a change
    in control triggering event, which includes a consolidation or merger of the
    stock of the Company,  or a sale of  substantially  all of the assets of the
    Company.   The   Merger  of  the   Company   with   Yankee   (see  "Item  1.
    Business-General") would be considered a change in control triggering event,
    and, therefore,  all unexercisable shares would become vested at the time of
    the Merger.

(2) These amounts represent  certain assumed rates of appreciation  only. Actual
    gains,  if any,  on stock  option  exercises  will  depend  upon the  future
    performance of the Common Stock.

             LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                            POTENTIAL REALIZABLE
                              NUMBER OF                                                       VALUE AT ASSUMED
                        SECURITIES UNDERLYING                   % OF TOTAL                   ANNUAL RATES OF STOCK
                         AWARDS GRANTED (#)     PERFORMANCE       OPTIONS      EXERCISE     PRICE APPRECIATION FOR
                       ----------------------   PERIOD UNTIL    GRANTED TO     PRICE OF       OPTION TERM ($)(2)
                         STOCK    RESTRICTED     MATURATION    EMPLOYEES IN     OPTIONS   --------------------------
                        OPTIONS      STOCK     OR PAYOUT (1)    FISCAL YEAR   ($/SHARES)       5%           10%
                       --------- ------------ --------------- -------------- ------------ ------------ ------------
<S>                    <C>       <C>          <C>             <C>            <C>          <C>          <C>
Daniel J. Thomas        21,000       9,000       1998-2005    1.02%          $ 29.44         820,240    1,672,322
James M. Greenwood      35,000      15,000       1998-2005    1.70%          $ 29.44       1,367,067    2,787,202
Richard A. Parr II           -           -               -       -                -                -            -
Joseph F. Pesce         21,000       9,000       1998-2005    1.02%          $ 29.44         820,240    1,672,322
W. Tom Fogarty, M.D.         -           -               -       -                -                -            -
Donald J. Larson             -           -               -       -                -                -            -
</TABLE>

--------
(1) The awards listed in the table relate to the  performance  period  beginning
    January 1, 1998 and ending December 31, 2005. The vesting of awards for each
    officer  will be based on the level of  attainment  of an earnings per share
    growth objective. All options will vest immediately upon the occurrence of a
    change in control triggering event, which includes a consolidation or merger
    of the stock of the Company, or a sale of substantially all of the assets of
    the  Company.   The  Merger  of  the  Company  with  Yankee  (see  "Item  1.
    Business-General") would be considered a change in control triggering event,
    and, therefore,  all unexercisable shares would become vested at the time of
    the Merger.

(2) These amounts represent  certain assumed rates of appreciation  only. Actual
    gains,  if any,  on stock  option  exercises  will  depend  upon the  future
    performance of the Common Stock of the Company.


                                       36



<PAGE>

OPTION EXERCISES AND FISCAL YEAR END VALUES

     The following  table  provides  information  about option  exercises by the
Named  Executive  Officers  during 1998 and the value  realized by them (whether
through  the  Company  or one of its  predecessors).  The  table  also  provides
information  about the number and value of options  held by the Named  Executive
Officers at December 31, 1998.


                 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
            AND FISCAL YEAR-END OPTION AND RESTRICTED STOCK VALUES



<TABLE>
<CAPTION>
                                                                NUMBER OF SECURITIES
                                                               UNDERLYING UNEXERCISED            VALUE OF IN-THE-MONEY
                                                                  OPTIONS AT FISCAL                OPTIONS AT FISCAL
                             SHARES                                  YEAR END (#)                    YEAR END ($)(2)(3)
                           ACQUIRED ON         VALUE       -------------------------------   ---------------------------------
         NAME             EXERCISE (#)     REALIZED ($)     EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
----------------------   --------------   --------------   -------------   ---------------   -------------   --------------
<S>                      <C>              <C>              <C>             <C>               <C>             <C>
Daniel J. Thomas         -                -                   389,000          266,000         1,020,312     352,357
James M. Greenwood       -                -                   123,000          262,000                 -     352,358
Richard A. Parr II       -                -                    62,750           67,250                 -      160,16
Joseph F. Pesce          -                -                   179,803          368,834           272,857     364,754
W. Tom Fogarty, M.D.     -                -                   103,800           79,500           211,719     192,195 3
Donald J. Larson         -                -                         -                -                 -           -
</TABLE>

--------
(1) Market  value of  underlying  securities  based on the closing  price of the
    Company's  Common  Stock  on the  Nasdaq  National  Market  on the  date  of
    exercise, minus the exercise price.

(2) Market value of  securities  underlying  in-the-money  options  based on the
    closing price of the  Company's  Common Stock on December 31, 1998 (the last
    trading  day of the fiscal  year) on the Nasdaq  National  Market of $10.69,
    minus the exercise price.

(3) All options for the Named Executive  Officers will vest immediately upon the
    occurrence  of a change  in  control  triggering  event,  which  includes  a
    consolidation  or  merger  of  the  stock  of  the  Company,  or a  sale  of
    substantially  all of the assets of the  Company.  The Merger of the Company
    with Yankee (see "Item 1. Business-General") would be considered a change in
    control  triggering event, and,  therefore,  all unexercisable  shares would
    become vested at the time of the Merger.


COMPENSATION OF DIRECTORS

     Concentra  pays each  non-employee  Director  an annual  fee of  $15,000 in
restricted  stock (subject to pro-rata  forfeiture in the event a director fails
to  attend  at  least  75% of board  meetings  in such  year)  and  grants  each
non-employee  Director  options  each year to acquire  5,000 shares of Concentra
Common Stock.  Each annual grant of options  vests,  and the  restrictions  with
respect to each annual grant of  restricted  stock  lapses,  after one year.  In
addition, each of the Company's Directors receives reimbursement of all ordinary
and  necessary  expenses  incurred  in  attending  any  meeting  of the Board of
Directors  or any  committee  of the Board of  Directors.  The Company  does not
otherwise compensate,  and does not anticipate  compensating,  its Directors for
their services as Directors.


OTHER COMPENSATION ARRANGEMENTS


EMPLOYMENT AGREEMENTS

     The Company has entered into  employment  agreements with Daniel J. Thomas,
James M. Greenwood,  Richard A. Parr II, Joseph F. Pesce,  W. Tom Fogarty,  M.D.
and Kenneth  Loffredo.  Each of the agreements  provides for the payment of base
salary  amounts,  bonuses at the discretion of the Company's  Board of Directors
and  participation  in any employee  benefit plan adopted by the Company for its
employees. The term of each of the agreements is two years, subject to automatic
renewal for additional  terms of one year each. Each of the agreements  entitles
each such  individual to receive  severance  payments if the Company  terminates
such  individual's  employment  without cause or the  individual  terminates his
employment for good reason.  Such severance payments shall equal two years' base
salary for Mr.  Thomas and one year's base salary for Messrs.  Greenwood,  Parr,
Pesce, Fogarty and Loffredo. The Employment Agreements also provide that, if the
Company


                                       37



<PAGE>

terminates  such  individual's   employment  without  cause  or  the  individual
terminates  his  employment  for a defined  reason  within one year  following a
change in control of the Company  which  occurs on or before  December 31, 1999,
the  severance  payments to which the  individuals  would be  entitled  would be
increased to two and one-half  years' base salary for Mr.  Thomas and two year's
base salary for Messrs. Greenwood, Parr, Pesce, Fogarty and Loffredo.


INDEMNITY AGREEMENTS AND LIMITATIONS ON DIRECTORS' LIABILITY

     The  Company  has  entered  into  indemnity  agreements  with  each  of its
Directors  and executive  officers.  Pursuant to these  agreements,  the Company
will, to the extent  permitted  under  applicable  law,  indemnify these persons
against all expenses, judgments, fines and penalties incurred in connection with
the defense or settlement of any actions  brought  against them by reason of the
fact that they are or were  Directors  or  officers  of the Company or that they
assumed certain responsibilities at the direction of the Company.

     In  addition,  the  Company's  Certificate  of  Incorporation  provides for
certain  limitations  on  Director  liability.   The  Company's  Certificate  of
Incorporation  provides  that no  Director of the  Company  shall be  personally
liable to the Company or its  stockholders  for  monetary  damages for breach of
fiduciary  duty as a director,  except for  liability  (i) for any breach of the
Director's duty of loyalty to the Company or its stockholders,  (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation  of law,  (iii) in respect of certain  unlawful  dividend  payments or
stock  redemptions or repurchases,  or (iv) for any  transaction  from which the
Director derived an improper personal benefit. The effect of these provisions is
to  eliminate  the  rights  of  the  Company  and  its   stockholders   (through
stockholders'  derivative  suits on behalf of the  Company) to recover  monetary
damages against a Director for breach of fiduciary duty as a director (including
breaches  resulting from grossly negligent  behavior),  except in the situations
described above.


COMPENSATION PLANS


1997 LONG-TERM INCENTIVE PLAN

     GENERAL

     The Company may grant  awards with  respect to shares of Common Stock under
the Company's 1997 Long-Term  Incentive Plan (the "Incentive Plan") to officers,
directors,  employees and certain consultants and advisors. The awards under the
Incentive Plan include (i) incentive stock options  qualified as such under U.S.
Federal  income tax laws,  (ii) stock  options  that do not qualify as incentive
stock options,  (iii) stock appreciation rights ("SARs"),  (iv) restricted stock
awards and (v) performance units.

     The number of shares of Common  Stock  that may be  subject to  outstanding
awards under the  Incentive  Plan at any one time is equal to ten percent of the
total number of outstanding  shares of Common Stock (treating as outstanding all
shares of Common Stock issuable within 60 days upon exercise of stock options or
conversion  or  exchange  of   outstanding,   publicly-traded   convertible   or
exchangeable  securities  of the  Company)  minus the total  number of shares of
Common Stock  subject to  outstanding  awards under the  Incentive  Plan and any
stock-based  plan for  employees or directors of the Company  adopted  after the
adoption  of the  Incentive  Plan.  The  number of shares  authorized  under the
Incentive  Plan and the number of shares subject to an award under the Incentive
Plan will be adjusted  for stock  splits,  stock  dividends,  recapitalizations,
mergers and other changes affecting the capital stock of the Company.

         The Board of Directors or any committee designated by it may administer
the Incentive Plan (the "Committee").  The Option and Compensation  Committee of
the Board of Directors is currently  designated  as the  Committee to administer
     the Incentive Plan. The Committee has broad discretion to administer the
Incentive Plan, interpret its provisions and adopt policies for implementing the
Incentive Plan. This discretion  includes the ability to select the recipient of
an award,  determine  the type and amount of each award,  establish the terms of
each  award,  accelerate  vesting  or  exercisability  of an award,  extend  the
exercise period for an award, determine whether performance conditions have been
satisfied,  waive conditions and provisions of an award,  permit the transfer of
an award to family trusts and other  persons and  otherwise  modify or amend any
award under the Incentive  Plan.  Nevertheless,  no awards for more than 250,000
shares or more than $2.5 million in cash may be granted to any one employee in a
calendar year.


                                       38



<PAGE>

     AWARDS


     The Committee  determines  the exercise  price of each option granted under
the Incentive Plan. The exercise price for an incentive stock option must not be
less than the fair market  value of the Common  Stock on the date of grant,  and
the exercise price of  non-qualified  stock options must not be less than 85% of
the fair market  value of the Common Stock on the date of grant.  Stock  options
may be exercised as the Committee determines,  but not later than ten years from
the date of grant in the case of incentive  stock options.  At the discretion of
the  Committee,  holders  may use  shares  of stock to pay the  exercise  price,
including shares issuable upon exercise of the option. Under the Incentive Plan,
each  non-employee  Director who is a director of the Company as of both the day
immediately preceding the annual meeting of stockholders and the day immediately
following  that annual  meeting shall  automatically  be granted a  Nonstatutory
Option for the purchase of 5,000  shares of Common Stock and a Restricted  Stock
Award having a fair market  value of $15,000  effective on the date of the first
meeting of the Board of Directors following that annual meeting,  whether or not
that director is in attendance at that Board meeting.


     An SAR may be awarded in  connection  with or separate from a stock option.
An SAR is the right to receive an amount in cash or stock equal to the excess of
the fair  market  value of a share of the Common  Stock on the date of  exercise
over the exercise price  specified in the agreement  governing the SAR (for SARs
not granted in  connection  with a stock  option) or the  exercise  price of the
related stock option (for SARs granted in connection  with a stock  option).  An
SAR granted in  connection  with a stock  option will  require the holder,  upon
exercise,  to surrender the related stock option or portion thereof  relating to
the  number of shares  for which the SAR is  exercised.  The  surrendered  stock
option or portion will then cease to be exercisable.  Such an SAR is exercisable
or transferable  only to the extent that the related stock option is exercisable
or  transferable.  An SAR  granted  independently  of a  stock  option  will  be
exercisable  as the  Committee  determines.  The  Committee may limit the amount
payable  upon  exercise  of any SAR.  SARs may be paid in cash or stock,  as the
Committee provides in the agreement governing the SAR.

     A  restricted  stock  award is a grant of shares of Common  Stock  that are
nontransferable  or subject to risk of forfeiture until specific  conditions are
met.  The  restrictions  will  lapse  in  accordance  with a  schedule  or other
conditions as the  Committee  determines.  During the  restriction  period,  the
holder of a  restricted  stock award may, in the  Committee's  discretion,  have
certain rights as a  stockholder,  including the right to vote the stock subject
to the award or receive  dividends on that stock.  Restricted  stock may also be
issued upon exercise or settlement of options, SARs or performance units.

     Performance units are performance-based  awards payable in cash, stock or a
combination  of both.  The  Committee  may  select  any  performance  measure or
combination of measures as conditions for cash payments or stock issuances under
the Incentive Plan, except that performance measures for executive officers must
be  objective  measures  chosen  from  among the  following  choices:  (a) total
stockholder return (Common Stock  appreciation plus dividends);  (b) net income;
(c)  earnings  per  share;  (d) cash flow per share;  (e) return on equity;  (f)
return  on  assets,  (g)  revenues;  (h)  costs;  (i) costs as a  percentage  of
revenues;  (j) increase in the market price of Common Stock or other securities;
(k) the  performance of the Company in any of the items  mentioned in clause (a)
through (j) in comparison to the average  performance of the companies  included
in the Nasdaq  Health  Services  Stocks  Index;  or (1) the  performance  of the
Company in any of the items mentioned in clause (a) through (j) in comparison to
the average  performance of the companies used in a self-constructed  peer group
established  before the beginning of the performance  period.  The Committee may
choose different  performance  measures if the  stockholders so approve,  if tax
laws  or  regulations  change  so as  not to  require  stockholder  approval  of
different measures in order to deduct the compensation  related to the award for
federal income tax purposes,  or if the Committee  determines  that it is in the
Company's  best  interest to grant awards not  satisfying  the  requirements  of
Section 162(m) of the Internal Revenue Code or any successor law.


     OTHER PROVISIONS


     At the Committee's  discretion and subject to conditions that the Committee
may impose,  a  participant's  tax  withholding  with respect to an award may be
satisfied  by the  withholding  of shares of  Concentra  Common  Stock  issuable
pursuant to the award or the  delivery of  previously  owned shares of Concentra
Common Stock, in either case based on the fair market value of the shares.


                                       39



<PAGE>

     The  Committee  has  discretion  to  determine  whether an award  under the
Incentive  Plan will have  change-of-control  features.  The Committee  also has
discretion to vary the change of control features as its deems appropriate.  The
following  describes the change of control  features that the Company  generally
expects may apply to additional  awards,  if any such feature applies.  An award
agreement under the Incentive Plan may provide that, upon a change of control of
the Company with  respect to awards held by  Participants  who are  employees or
directors at the occurrence of the change of control,  (1) all outstanding  SARs
and options will become  immediately  and fully vested and  exercisable in full,
(2) the restriction period on any restricted stock award will be accelerated and
the restrictions will expire, and (3) the target payout  opportunity  attainable
under the  performance  units will be deemed to have been  fully  earned for all
performance  periods as of the  effective  date of the change in control and the
holder  will  be paid a pro  rata  portion  of all  associated  targeted  payout
opportunities  (based on the number of  complete  and  partial  calendar  months
elapsed as of the change of control) in cash within  thirty days  following  the
change of control or in stock  effective  as of the change of control,  for cash
and stock-based performance units, respectively. The award may also provide that
it will remain  exercisable  for its original term whether or not  employment is
terminated at or following a change in control.  In general, a change in control
of the Company  occurs in any of four  situations:  (1) a person  other than the
Company or certain affiliated  companies or benefit plans becomes the beneficial
owner of 20% or more of the voting  power of the  Company's  outstanding  voting
securities (except acquisitions from the Company or in a transaction meeting the
requirements of the parenthetical exception in clause (3) below); (2) a majority
of  the  Board  of  Directors  is not  comprised  of the  members  of the  Board
immediately  following  August 29, 1997 and persons whose elections as directors
were approved by those directors or their approved  successors;  (3) the Company
merges or consolidates with another  corporation or entity (whether Concentra or
the other entity is the survivor),  or the Company and the holders of the voting
securities of such other corporation or entity (or the stockholders of Concentra
and such other  corporation  or entity)  participate  in a  securities  exchange
(other  than a  merger,  consolidation  or  securities  exchange  in  which  the
Company's  voting  securities  are  converted  into  or  continue  to  represent
securities  having the majority of voting  power in the  surviving  company,  in
which no  person  other  than  that  surviving  company  owns 20% or more of the
outstanding   shares  of  common  stock  or  voting   shares  of  the  surviving
corporation,  and in which at least a majority of the board of  directors of the
surviving corporation were members of the incumbent board of Concentra);  or (4)
Concentra  liquidates or sells all or  substantially  all of its assets,  except
sales to an entity having substantially the same ownership as Concentra.

     If a restructure  of Concentra  occurs that does not constitute a change in
control of Concentra,  the Committee may (but need not) cause  Concentra to take
any one or more of the following actions: (1) accelerate in whole or in part the
time of vesting and  exercisability  of any outstanding  stock options and stock
appreciation  rights  in order to  permit  those  stock  options  and SARs to be
exercisable before,  upon or after the completion of the restructure;  (2) grant
each optionholder  corresponding  cash or stock SARS; (3) accelerate in whole or
in part the  expiration  of some or all of the  restrictions  on any  restricted
stock  award;  (4) treat the  outstanding  performance  units as having fully or
partially  met their targets and pay, in full or in part,  the targeted  payout;
(5) if the  restructure  involves a  transaction  in which  Concentra is not the
surviving  entity,  cause the surviving entity to assume in whole or in part any
one or more of the  outstanding  awards under the Incentive Plan upon such terms
and provisions as the Committee  deems  desirable;  or (6) redeem in whole or in
part any one or more of the outstanding awards (whether or not then exercisable)
in  consideration  of a cash payment,  adjusted for withholding  obligations.  A
restructure  generally  is any merger of the  Company or the direct or  indirect
transfer of all or  substantially  all of the Company's assets (whether by sale,
merger, consolidation,  liquidation or otherwise) in one transaction or a series
of transactions.

     Without  stockholder  approval,  the Board of  Directors  may not amend the
Incentive Plan to increase  materially the aggregate  number of shares of Common
Stock  that may be issued  under the  Incentive  Plan  (except  for  adjustments
pursuant to the terms of the Incentive Plan). Otherwise,  the Concentra Board of
Directors  may at any  time and  from  time to time  alter,  amend,  suspend  or
terminate  the  Incentive  Plan in whole or in part and in any way,  subject  to
requirements  that may exist in stock exchange  rules or in securities,  tax and
other laws from time to time.  No award may be issued under the  Incentive  Plan
after August 29, 2007.


OTHER OUTSTANDING OPTIONS AND WARRANTS

         In addition to the options and awards  granted under the Incentive Plan
and  warrants to purchase  350,000  shares of Common Stock for $7.00 per Warrant
granted to  Creditanstalt-Bankverein  (of which 200,000 were  unexercised  as of
December  31,  1998),  the Company has as of December 31, 1998 issued or assumed
from its


                                       40



<PAGE>

predecessors or acquired  companies options or warrants to purchase an aggregate
of 2,525,564 shares of Common Stock pursuant to separate  agreements between the
Company  and the holders  thereof.  The  2,525,564  options  that are  currently
outstanding  have an average exercise price of $15.96 per share, and are subject
to various vesting provisions.

     Unexercised options and warrants,  and their exercise price, are subject to
adjustment  if the Company  issues  Common Stock for a price per share less than
the  exercise  price  or if  there  is a  subdivision  or  consolidation  of the
Company's  Common Stock,  the payment of a stock  dividend or other  increase or
decrease in the number of shares of Common  Stock  outstanding,  and the Company
does not receive compensation  therefor.  In addition,  the number (and type) of
securities  subject to an option or warrant  are  subject to  adjustment  if the
Company is party to a merger or consolidation.


401(K) PLAN

     The Company has a defined contribution  retirement plan which complies with
Section 401(k) of the Internal Revenue Code.  Substantially all employees of the
Company,  including  certain  officers and  Directors  of the Company,  who have
completed  six months of service are eligible to  participate  in the  Concentra
Managed Care, Inc. 401(k) Plan (the "Plan"). Generally, Employees may contribute
amounts up to a maximum of 15% of the employee's  compensation.  Under the Plan,
the  Company  has the  option  of  matching  up to 50% of  participants'  pretax
contributions up to a maximum of 6% of  compensation.  For fiscal year 1998, the
Company elected to match 50% of up to 4% of compensation.


EMPLOYEE STOCK PURCHASE PLAN

     Until March 2, 1999, the Company maintained an Employee Stock Purchase Plan
that permitted substantially all employees to acquire the Company's Common Stock
at the end of each  specified  period at a purchase price of 85% of the lower of
the fair market value at the beginning or the end of the  participation  period.
Periods  were  semi-annual  and  began on  January  1 and  July 1 of each  year.
Employees were allowed to designate up to 15% of their base compensation for the
purchase of Common Stock. The Option and Compensation Committee administered the
Employee  Stock  Purchase  Plan. On March 2, 1999,  the Company  terminated  the
Employee Stock Purchase Plan. The final period for which participating employees
acquired shares of the Company's common stock began on January 1, 1999 and ended
March 2, 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

John  K. Carlyle,  Concentra's non-employee  Chairman, has served as a member of
the Option and Compensation Committee since December, 1998.

                                       41


<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding the amount and
nature of the beneficial  ownership of the Common Stock as of March 15, 1999, by
(i) each  person  known by the Company to own  beneficially  more than 5% of any
class of the Company's outstanding voting securities, (ii) each of the Company's
directors,  (iii) each  currently-employed  officer of the Company  named in the
Summary  Compensation  Table  under  the  heading   "Compensation  of  Executive
Officers," and (iv) all current directors and executive  officers of the Company
as a group. Unless otherwise indicated, the Company believes that each person or
entity  named below has sole  voting and  investment  power with  respect to all
shares  shown as  beneficially  owned  by such  person  or  entity,  subject  to
community  property laws where  applicable and the  information set forth in the
footnotes to the table below.



<TABLE>
<CAPTION>
                                           STOCK OPTIONS
                                                AND
                                            CONVERTIBLE        SHARES
                                           SUBORDINATED     BENEFICIALLY     PERCENTAGE OF
           NAME                SHARES        NOTES(1)         OWNED (2)          CLASS
-------------------------   -----------   --------------   --------------   --------------
<S>                           <C>               <C>            <C>              <C>
Welsh, Carson, Anderson
& Stowe and affiliates        6,299,763         836,364        7,136,127        14.8%
320 Park Avenue
New York, NY 10022
Massachusetts Financial
Services Company              5,852,888         672,785        6,525,673        13.6%
500 Boylston
Boston, MA 02116
T. Rowe Price Associates      5,629,587               -        5,629,587        11.9%
100 E. Pratt Street
Baltimore, MD 21202
DIRECTORS
John K. Caryle                      510          75,000           75,510            *
George H. Conrades                1,326          51,971           53,297            *
Hon. Willis D. Gradison, Jr.      1,510           5,000            6,510            *
Robert A. Ortenzio               15,188          25,000           40,188            *
Mitchell T. Rabkin, M.D.          1,326          51,971           53,297            *
Richard D. Rehm, M.D.            10,000          38,750           48,750            *
Lois E. Silverman               641,512          10,000          651,512         1.4%
EXECUTIVE OFFICERS
Daniel J. Thomas                 33,367         369,000          402,367            *
James M. Greenwood               33,000         123,000          156,000            *
Richard A. Parr II               17,773          62,750           80,523            *
Joseph F. Pesce                  40,411         179,803          220,214            *
W. Tom Fogarty, M.D.             99,389         103,800          203,189            *
All directors and execu-
tive officers
as a group (14 persons)         921,859       1,160,338        2,082,197         4.3%
</TABLE>

--------
  * Less than 1%

(1) Includes  shares that may be acquired  within 60 days pursuant to conversion
    of convertible  subordinated  notes or pursuant to exercise of stock options
    awarded under incentive compensation plans.

(2) A person is  considered to  beneficially  own any shares (a) over which such
    person exercises sole or shared voting or investment  power, or (b) of which
    such person has the right to acquire beneficial ownership at any time within
    60 days of March 15, 1999 (i.e.  through the conversion of securities or the
    exercise  of stock  options).  Shares are deemed to be  outstanding  for the
    purposes of computing the  percentage  ownership of the person  holding such
    shares,  but are not  deemed  outstanding  for  purposes  of  computing  the
    percentage of any other person shown on the table.


                                       42



<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On March 2, 1999,  Concentra entered into the Merger Agreement with Yankee.
On March 24, 1999,  Concentra  entered into the Amended  Merger  Agreement  with
Yankee, amending the Merger Agreement. The Amended Merger Agreement contemplates
the Merger of Yankee with and into  Concentra.  As a result of the Merger,  each
outstanding  share of Concentra Common Stock will be converted into the right to
receive  $16.50 in cash.  The Merger is  conditioned  upon,  among other things,
approval by the  stockholders  of  Concentra,  receipt of financing  and certain
regulatory  approvals.  The  transaction  is structured to be accounted for as a
recapitalization.

     Lois E.  Silverman,  a Director of the Company,  is one of the trustees and
beneficiaries  of Colonial  Realty  Trust,  which leases  twelve  offices to the
Company for an annual aggregate  consideration of $700,000. The Company believes
that the rental  rates paid to  Colonial  Realty  Trust are fair  market  rental
rates.

     The Company is party to a Registration  Rights Agreement with Comprehensive
Rehabilitation  Associates  Inc., J.H.  Whitney & Co., Whitney 1990 Equity Fund,
L.P.,  Whitney  Subordinated  Debt Fund,  L.P.,  First  Union  Corporation,  Ms.
Silverman  and  Donald J.  Larson,  which  was  entered  into on March 8,  1994.
Pursuant to the Registration  Rights  Agreement,  the holders of at least 25% of
the shares of Common Stock of the Company  subject to the  Agreement  (excluding
Ms. Silverman and Mr. Larson) may require the Company to effect the registration
of the shares of Common  Stock of the Company  held by such  parties for sale to
the public on three occasions, subject to certain conditions and limitations. In
addition,  under the terms of the Registration Rights Agreement,  if the Company
proposes to register any of its  securities  under the  Securities  Act of 1933,
whether for its own account or otherwise, the parties to the Registration Rights
Agreement  (including  Ms.  Silverman  and Mr.  Larson) are  entitled to receive
notice of such  registration  and to include  their shares  therein,  subject to
certain  conditions and  limitations.  The Company has agreed to pay fees, costs
and  expenses  of any  registration  effected  on behalf of the  parties  to the
Registration   Rights   Agreement   (other  than   underwriting   discounts  and
commissions).

     W.  Tom  Fogarty,  M.D.,  an  executive  officer  of  the  Company,  is the
President,  a  director  and a member  of  Occupational  Health  Centers  of the
Southwest,  P.A. ("OHCSW"),  and several other Physician Groups. The Company has
entered into a 40 year management  agreement with each of the Physician  Groups.
OHCSW paid approximately  $119,091,000 in management fees to the Company in 1998
under its management agreement.

     The Company has entered into  employment  agreements with Daniel J. Thomas,
James M. Greenwood,  Richard A. Parr II, Joseph F. Pesce,  W. Tom Fogarty,  M.D.
and   Kenneth   Loffredo.   See   "Executive   Compensation-Other   Compensation
Arrangements" for a discussion of the terms of these agreements.


                                       43



<PAGE>

                                    PART IV


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

     (a) 1. Consolidated Financial Statements

     The following consolidated financial statements of the Company are included
in Item 8.


<TABLE>
<S>                                                                      <C>
     Report of Independent Public Accountants on Financial Statements    F-1
     Consolidated Balance Sheets-December 31, 1997 and 1998 ..........   F-2
     Consolidated Statements of Operations-Years Ended
      December 31, 1996, 1997 and 1998 ...............................   F-3
     Consolidated Statements of Cash Flows-Years Ended
      December 31, 1996, 1997 and 1998 ...............................   F-4
     Consolidated Statements of Stockholders' Equity-Years Ended
      December 31, 1996, 1997 and 1998 ...............................   F-5
     Notes to Consolidated Financial Statements ......................   F-6
</TABLE>

     2. Financial Statement Schedule

     The financial statement schedule,  Supplemental Schedule II - Valuation and
Qualifying Accounts, is filed with this report and appears on page S-1.

     The  Report  of  Independent  Public  Accountants  on  Financial  Statement
Schedules is filed with this report and appears on page S-2.

     All other  schedules for which  provision is made in Regulation  S-X of the
Securities   and  Exchange   Commission  are  not  required  under  the  related
instructions or are not applicable and, therefore, have been omitted.

     3. Exhibits:

     The following is a list of exhibits filed as part of the Form 10-K:



<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                               DESCRIPTION
-------- -----------------------------------------------------------------------
<S>      <C>
2.1       Agreement  and Plan of  Merger  dated  February  24,  1998  among  the
          Registrant  and Preferred  Payment Sys- tems,  Inc.  (incorporated  by
          reference  to Exhibit 2.2 to the  Registrant's  Annual  Report on Form
          10-K (File No. 000-22751) filed with the SEC on March 31, 1998)

2.2       Agreement  and Plan of  Merger  dated  March 2,  1999  between  Yankee
          Acquisition  Corp.  and the Registrant  (incorporated  by reference to
          Exhibit 2.1 to the  Registrant's  Current Report on Form 8-K (File No.
          000- 22751) filed with the SEC on March 3, 1999)

2.3       Amended and Restated Agreement and Plan of Merger dated March 24, 1999
          between Yankee  Acquisition Corp. and the Registrant  (incorporated by
          reference to Exhibit 2.1 to the  Registrant's  Current  Report on Form
          8-K (File No. 000-22751) filed with the SEC on March 29, 1999)

3.1       Amended and Restated  Certificate  of  Incorporation  dated August 27,
          1997  (incorporated  by reference  to Exhibit 3.1 to the  Registrant's
          Annual Report on Form 10-K (File No.  000-22751) filed with the SEC on
          March 31, 1998)

3.2       Bylaws of Registrant  (incorporated by reference to Exhibit 3.3 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

4.1       Form of Certificate of Common Stock,  par value $.01 per share, of the
          Registrant  (incorporated  by  refer-  ence  to  Exhibit  4.1  to  the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

4.2       Indenture  dated  December  24, 1996  between  OccuSystems  and United
          States  Trust  Company  of New York,  as  Trustee,  (the  "OccuSystems
          Indenture") relating to the 6% Convertible Subordinated Notes due 2001
          (incorporated by reference to Exhibit 4.1 to OccuSystems' Registration
          Statement  on Form S-3 (File No.  333-20933)  as filed with the SEC on
          January 31, 1997)

</TABLE>

                                       44



<PAGE>


4.3       First   Supplemental   Indenture   dated   August  29,  1997   between
          OccuSystems,  the  Registrant  and United  States Trust Company of New
          York, as Trust, relating to the 6% Convertible  Subordinated Notes due
          2001 (incor-  porated by reference to Exhibit 4.2 to the  Registrant's
          Annual Report on Form 10-K (File No.  00-22751)  filed with the SEC on
          March 31, 1998)

4.4       Indenture  dated as of March 16, 1998 between the Registrant and Chase
          Bank of Texas, N.A., as Trustee, (the "Concentra  Indenture") relating
          to the 4.5% Convertible  Subordinated  Notes due 2003 (incorporated by
          reference  to the  Registrant's  Current  Report on Form 8-K (File No.
          000-22751) filed with the SEC on March 30, 1998)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                DESCRIPTION
-------- -----------------------------------------------------------------------
<S>      <C>
4.5       Form of 6% Convertible  Subordinated  Note due 2001,  establishing the
          terms of the 6% Convertible  Subor- dinated Notes due 2001 pursuant to
          the OccuSystems  Indenture  (incorporated by reference to Exhibit A to
          the OccuSystems Indenture which Indenture is incorporated by reference
          to Exhibit  4.1 to  OccuSystems'  Registration  Statement  on Form S-3
          (File No. 333-20933) as filed with the SEC on January 31, 1997)

4.6       Form of 4.5% Convertible Subordinated Notes due 2003, establishing the
          terms of the 4.5% Convertible  Subordinated Notes due 2003 pursuant to
          the  Concentra  Indenture  (incorporated  by  reference  to the Regis-
          trant's Current Report on Form 8-K (File No. 000-22751) filed with the
          SEC on March 30, 1998)

4.7       Certificate of Designation of Series A Junior Participating  Preferred
          Stock  (incorporated  by reference to Exhibit 4.6 to the  Registrant's
          Annual Report on Form 10-K (File No.  000-22751) filed with the SEC on
          March 31, 1998)

4.8       Form  of  Right  Certificate  (included  as  Exhibit  B to the  Rights
          Agreement  filed as  Exhibit  10.2  hereto).  Pur- suant to the Rights
          Agreement,  printed Right  Certificates will not be delivered until as
          soon as  practicable  after the  Distribution  Date (as defined in the
          Rights Agreement)

4.9       Registration  Rights  Agreement dated as of March 11, 1998,  among the
          Registrant,  BT Alex.  Brown  Incor-  porated,  BancAmerica  Robertson
          Stephens,  Donaldson,  Lufkin & Jenrette  Securities  Corporation  and
          Piper  Jaffray Inc.  (incorporated  by  reference to the  Registrant's
          Current Report on Form 8-K (File No.  000-22751) filed with the SEC on
          March 30, 1998)

4.10      Registration  Rights  Agreement  dated  as of  March  8,  1994,  among
          Comprehensive  Rehabilitation  Associates,  Inc., J.H.  Whitney & Co.,
          Whitney 1990 Equity Fund, L.P., Whitney  Subordinated Debt Fund, L.P.,
          First  Union  Corporation,  Lois E.  Silverman  and  Donald J.  Larson
          (incorporated  by  reference  to  Exhibit  10.7 to CRA's  Registration
          Statement on Form S-1 (File No.  33-90426) filed with the SEC on March
          17, 1995)

10.1      Amended and Restated  Credit  Agreement dated as of February 20, 1998,
          between the Registrant,  as Bor- rower, and First Union National Bank,
          as Administrative  Agent, Fleet National Bank, as Documentation Agent,
          and  the  banks  and  financial  institutions  listed  as  signatories
          thereto, as amended by that certain letter agreement dated as of March
          9, 1998, and as further amended by that certain letter agreement dated
          as of March 12, 1998 (incorporated by reference to Exhibit 10.1 to the
          Registrant's  Annual  Report on Form 10-K (File No.  000-22751)  filed
          with the SEC on March 31, 1998)

10.2      Purchase  Agreement dated as of March 11, 1998,  among the Registrant,
          BT  Alex.  Brown   Incorporated,   BancAmerica   Robertson   Stephens,
          Donaldson, Lufkin & Jenrette Securities Corporation and Piper Jaffray,
          Inc.  (incorporated by reference to the  Registrant's  Current Form on
          Form 8-K (File No. 000-22751) filed with the SEC on March 30, 1998)

10.3      Rights  Agreement  dated September 29, 1997 between the Registrant and
          ChaseMellon Shareholder Ser- vices, L.L.C.  (incorporated by reference
          to Exhibit 1 to the  Registrant's  Registration  Statement on Form 8-A
          filed with the SEC on October 1, 1998)

10.4      Concentra   Managed  Care,   Inc.  1997   Long-Term   Incentive   Plan
          (incorporated   by   reference  to  Appendix  G  to  the  Joint  Proxy
          Statement/Prospectus  forming a part of the Registrant's  Registration
          Statement on Form S-4 (File No.  333-27105) filed with the SEC on July
          31, 1997)

10.5      Concentra  Managed  Care,  Inc.  1997  Employee  Stock  Purchase  Plan
          (incorporated   by   reference  to  Appendix  H  to  the  Joint  Proxy
          Statement/Prospectus  forming a part of the Registrant's  Registration
          Statement on Form S-4 (File No.  333-27105) filed with the SEC on July
          31, 1997)

10.6      CRA Managed Care, Inc. 1995 Employee Stock Purchase Plan (incorporated
          by reference to Exhibit 10.25 to CRA's Registration  Statement on Form
          S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)

</TABLE>

                                       45



<PAGE>


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
---------- ---------------------------------------------------------------------
<S>        <C>
10.7      CRA  Managed  Care,  Inc.  1994  Non-Qualified  Stock  Option Plan for
          Non-Employee  Directors  (incorporated by reference to Exhibit 10.3 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.8      CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration Restricted
          Stock Option Plan  (incorporated by reference to Exhibit 10.5 to CRA's
          Registration  Statement on Form S-1 (File No. 33-90426) filed with the
          SEC on March 17, 1995)

10.9      OccuSystems,  Inc. 1995  Long-Term  Incentive  Plan  (incorporated  by
          reference to Exhibit 10.10 to OccuSys- tems' Registration Statement on
          Form S-1 (File No. 33-79734) filed with the SEC on May 8, 1995)

10.10     First Amended and Restated OccuSystems,  Inc. and its Subsidiaries and
          Affiliates Stock Option and Restricted Stock Purchase Plan dated April
          28, 1992 (incorporated by reference to Exhibit 10.11 to Occu- Systems'
          Registration  Statement on Form S-1 (File No. 33-79734) filed with the
          SEC on May 8, 1995)

10.11     Employment  Agreement dated April 21, 1997, between the Registrant and
          Joseph F. Pesce  (incorporated  by  reference  to Exhibit  10.9 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.12     Employment  Agreement dated April 21, 1997, between the Registrant and
          Richard A. Parr II  (incorporated by reference to Exhibit 10.11 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.13     Employment  Agreement dated April 21, 1997, between the Registrant and
          W. Tom  Fogarty  (incorporated  by  reference to  Exhibit 10.13 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.14     Employment  Agreement dated April 21, 1997, between the Registrant and
          James M.  Greenwood  (incorpo-  rated by reference to Exhibit 10.15 to
          the  Registrant's  Registration  Statement  on Form S-4 (File No. 333-
          27105) filed with the SEC on July 31, 1997)

10.15     Indemnification  Agreement  dated  September  17,  1997,  between  the
          Registrant and Daniel J. Thomas (iden- tical  agreements were executed
          between the  Registrant  and each of the  following:  Joseph F. Pesce,
          Richard  A.  Parr II,  James M.  Greenwood,  W. Tom  Fogarty,  Kenneth
          Loffredo,  Mitchell  T.  Rabkin,  George  H.  Con-  rades,  Robert  A.
          Ortenzio,  Lois E.  Silverman,  Paul  B.  Queally,  John  K.  Carlyle)
          (incorporated by reference to Exhibit 10.17 to the Registrant's Annual
          Report on Form 10-K (File No.  000-22751)  filed with the SEC on March
          31, 1998)

10.16     Agreement  of  Acceptance  dated  as  of  July  29,  1997,  among  the
          Registrant,  Donald J. Larson and Lois E. Silverman  (incorporated  by
          reference to Exhibit 10.19 to the Registrant's  Registration Statement
          on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)

10.17     Software  License  Agreement  dated  February 10, 1995 between CRA and
          CompReview,  Inc.  (confidential  treatment granted)  (incorporated by
          reference  to  CRA's  Registration  Statement  on Form S-1  (File  No.
          33-90426) filed with the SEC on March 17, 1995)

10.18     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space  located at 168 U.S.  Route 1,
          Falmouth,  ME 04105  (incorporated  by reference  to Exhibit  10.10 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.19     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space  located at 46 Austin  Street,
          Newtonville,  MA 02160  (incorporated by reference to Exhibit 10.11 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.20     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located at 312 Union Wharf,
          Boston, MA 02109  (incorporated by reference to Exhibit 10.17 to CRA's
          Reg- istration  Statement on Form S-1 (File No.  33-90426)  filed with
          the SEC on March 17, 1995)

10.21     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial Realty Trust for office space located at 565 Turnpike Street,
          North Andover, MA 01845 (incorporated by reference to Exhibit 10.18 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.22     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space located at 15A Riverway Place,
          Bedford, NH 03110 (incorporated by reference to Exhibit 10.19 to CRA's
          Registration  Statement on Form S-1 (File No. 33-90426) filed with the
          SEC on March 17, 1995)


</TABLE>

                                       46



<PAGE>


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION
---------- ---------------------------------------------------------------------
<S>        <C>
10.23     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located  at 509  Stillwells
          Corner Road, Freehold,  NJ 07728 (incorporated by reference to Exhibit
          10.20 to CRA's Registration  Statement on Form S-1 (File No. 33-90426)
          filed with the SEC on March 17, 1995)

10.24     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space located at 732 Thimble  Shoals
          Blvd.,  Newport News, VA 23606  (incorporated  by reference to Exhibit
          10.21 to CRA's Registration  Statement on Form S-1 (File No. 33-90426)
          filed with the SEC on March 17, 1995)

10.25     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located at 10132 Colvin Run
          Road,  Suite A, Great Falls,  VA 22066  (incorporated  by reference to
          Exhibit  10.22 to CRA's  Registration  Statement on Form S-1 (File No.
          33-90426) filed with the SEC on March 17, 1995)

10.26     Occupational Medicine Center Management and Consulting Agreement dated
          December 31, 1993,  between Concentra Health Services,  Inc. (formerly
          OccuCenters,   Inc.)  ("CHS")  and  Occupational   Health  Centers  of
          Southwest,  P.A., a Texas  professional  association  (incorporated by
          reference to Exhibit 10.6 to OccuSys- tems' Annual Report on Form 10-K
          (File No. 0-24440) filed with the SEC on March 29, 1996)

10.27     Occupational Medicine Center Management and Consulting Agreement dated
          December  31, 1993,  between CHS and  Occupational  Health  Centers of
          Southwest,  P.A., a Arizona professional association  (incorporated by
          reference to Exhibit 10.7 to  OccuSystems'  Annual Report on Form 10-K
          (File No. 0-24440) filed with the SEC on March 29, 1996)

10.28     Occupational Medicine Center Management and Consulting Agreement dated
          December 31, 1993, between CHS and Occupational  Health Centers of New
          Jersey,  a  New  Jersey  professional  association   (incorporated  by
          reference to Exhibit 10.8 to  OccuSystems'  Registration  Statement on
          Form S-1 (File No. 33-01660) filed with the SEC on March 28, 1996)

10.29     Warrant  Agreement  dated  January  3, 1995  between  OccuSystems  and
          Creditanstalt-  Bankverein  (incorpora-  tion by  reference to Exhibit
          10.13 to  OccuSystems'  Registration  Statement  on Form S-1 (File No.
          33-01660) filed with the SEC on March 28, 1996)

10.30     Voting  Agreement dated May 15, 1997, by and between Lois E. Silverman
          and Donald J. Larson  (incorpo- rated by reference to Exhibit 10.34 to
          the Registrant's Annual Report on Form 10-K (File No. 000-22751) filed
          with the SEC on March 31, 1998)

10.31     Amendment  No. 1 to Rights  Agreement  dated March 2, 1999 between the
          Registrant and ChaseMellon Shareholder Services, L.L.C.  (incorporated
          by reference to Exhibit 4.1 to the Registrant's Current Report on Form
          8-K (File No. 000-22751) filed with the SEC on March 31, 1998)++

+10.32    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Joseph F. Pesce

+10.33    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Richard A. Parr II

+10.34    Employment Agreement dated January 12, 1999 between the Registrant and
          Daniel J. Thomas

+10.35    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and W. Tom Fogarty

+10.36    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and James M. Greenwood

 10.37    Employment  Agreement dated September 17, 1997, between the Registrant
          and Kenneth  Loffredo  (incorpo- rated by reference to Exhibit 10.1 to
          the Registrant's  Quarterly  Report on Form 10-Q (File No.  000-22751)
          filed with the SEC on November 13, 1998)

+10.38    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Kenneth Loffredo

10.39     Employment Agreement dated January 12, 1998 between the Registrant and
          Richard D. Rehm,  M.D.  (incorporated  by reference to Exhibit 10.1 to
          the Registrant's  Quarterly  Report on Form 10-Q (File No.  000-22751)
          filed with the SEC on August 13, 1998)

10.40     Employment  Agreement  dated  February 10, 1998 between the Registrant
          and Stephen  Read  (incorporated  by  reference to Exhibit 10.2 to the
          Registrant's  Quarterly Report on Form 10-Q (File No. 000-22751) filed
          with the SEC on August 13, 1998)
</TABLE>

                                       47



<PAGE>


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
---------- ---------------------------------------------------------------------
<S>        <C>
10.41     Indemnification  Agreement  dated May 13, 1998 between the  Registrant
          and Hon.  Willis  D.  Gradison,  Jr.  (identical  agreements  executed
          between the  Registrant  and Stephen Read (dated  December 16,  1997),
          Rich- ard D. Rehm, M.D.  (dated May 13, 1998),  Eliseo Ruiz III (dated
          May 11, 1998), Scott Henault (dated Sep- tember 17, 1997), Darla Walls
          (dated December 16, 1997),  Jeffrey R. Luber (dated December 16, 1997)
          and  Martha  Kuppens  (dated  December  16,  1997))  (incorporated  by
          reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form
          10-Q (File No. 000-22751) filed with the SEC on August 13, 1998.

+21.1     List of Subsidiaries

+23.1     Consent of Arthur Andersen LLP

+27.1     Financial Data Schedule
</TABLE>

--------
+ Filed herewith.

     (b) Reports on Form 8-K.


REPORTS ON FORM 8-K

     During the quarter  ended  December  31,  1998,  the  Registrant  filed the
following Current Reports on Form 8-K:

     (1) On November 20, 1998,  the Company  filed a Current  Report on Form 8-K
dated  November 18, 1998,  reporting  under Item 5 (Other  Events) the Company's
board of directors naming Daniel J. Thomas President and Chief Executive Officer
on a permanent basis.

     (2) On October 29,  1998,  the Company  filed a Current  Report on Form 8-K
dated October 29, 1998,  reporting  under Item 5 (Other Events) the earnings for
the quarter ended September 30, 1998 for the Company and the Company's formation
of a special committee to evaluate strategic alternatives in response to several
unsolicited  expressions of interest regarding the acquisition of some or all of
the Company's common stock.


                                       48



<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,  on the 31st day of
March, 1998.

                                        CONCENTRA MANAGED CARE, INC.


                                        By:   /s/ Joseph F. Pesce
                                          -------------------------------------
                                              Joseph F. Pesce

                                        Executive Vice President, Chief
                                        Financial Officer and
                                        Treasurer (Principal Financial and
                                        Accounting Officer)


     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 indicated.




<TABLE>
<CAPTION>
                SIGNATURE                                  TITLE                       DATE
-----------------------------------------   ----------------------------------   ----------------
<S>                                         <C>                                  <C>
           /s/ Daniel J. Thomas                 President, Chief Executive       March 29, 1999
-------------------------------------        Officer and Director (Principal
              Daniel J. Thomas                     Executive Officer)

                                                   
           /s/ Joseph F. Pesce               Executive Vice President, Chief     March _29, 1999
-------------------------------------         Financial Officer and Treasurer
             Joseph F. Pesce                      (Principal Financial and Account-
                                                       ing Officer)

           /s/ John K. Carlyle                    Chairman and Director          March 29, 1999
-------------------------------------
             John K. Carlyle
 
            /s/ George H. Conrades                       Director                March 29, 1999
-------------------------------------
            George H. Conrades

       /s/ Hon. Willis D. Gradison, Jr.                  Director                March 29, 1999
-------------------------------------
          Hon. Willis D. Gradison, Jr.

             /s/ Robert A. Ortenzio                      Director                March 29, 1999
-------------------------------------
            Robert A. Ortenzio

          /s/ Mitchell T. Rabkin, M.D.                   Director                March 29, 1999
-------------------------------------
            Mitchell T. Rabkin, M.D.

           /s/ Richard D. Rehm, M.D.                     Director                March 29, 1999
-------------------------------------
              Richard D. Rehm, M.D.

          /s/ Lois E. Silverman                          Director                March 29, 1999
-------------------------------------
            Lois E. Silverman
</TABLE>

 

                                       49



<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Concentra Managed Care, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets of  Concentra
Managed Care,  Inc. (a Delaware  corporation)  as of December 31, 1997 and 1998,
and  the  related  consolidated   statements  of  operations,   cash  flows  and
stockholders'  equity for each of the three years in the period  ended  December
31, 1998.  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 in  accordance  with
generally accepted auditing standards.  Those standards require that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Concentra Managed Care, Inc. as
of December 31, 1997 and 1998,  and the results of its  operations  and its cash
flows for each of the three years in the period  ended  December  31,  1998,  in
conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP



ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1999 (except with respect to
the matters discussed in Note 14, as to which the
date is March 26, 1999)



                                      F-1



<PAGE>

                         CONCENTRA MANAGED CARE, INC.

                          CONSOLIDATED BALANCE SHEETS





<TABLE>
<CAPTION>
                                                                                                    DECEMBER 31,
                                                                                         ----------------------------------
                                                                                               1997               1998
                                        ASSETS                                           ----------------   ---------------
<S>                                                                                      <C>                <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................................    $  12,576,000      $ 104,478,000
Marketable securities ................................................................                -          5,000,000
Accounts receivable, net of allowances of $20,460,000 and $21,991,000, respectively...      106,963,000        128,522,000
Prepaid expenses and other current assets ............................................       14,116,000         15,687,000
Prepaid and deferred income taxes ....................................................       12,096,000         14,019,000
                                                                                          -------------      -------------
    Total current assets .............................................................      145,751,000        267,706,000
Land .................................................................................        2,525,000          2,775,000
Buildings and improvements ...........................................................        5,747,000          6,814,000
Leasehold improvements ...............................................................       22,302,000         31,863,000
Computer hardware and software .......................................................       39,529,000         57,025,000
Furniture and equipment ..............................................................       33,951,000         40,937,000
                                                                                          -------------      -------------
Property and equipment, at cost ......................................................      104,054,000        139,414,000
Accumulated depreciation and amortization ............................................      (38,351,000)       (52,478,000)
                                                                                          -------------      -------------
 Property and equipment, net .........................................................       65,703,000         86,936,000
Other assets:
Goodwill, net ........................................................................      259,068,000        277,596,000
Assembled workforce and customer lists, net ..........................................        3,524,000          2,781,000
Marketable securities ................................................................                -         10,583,000
Other assets .........................................................................        8,925,000         11,561,000
                                                                                          -------------      -------------
                                                                                          $ 482,971,000      $ 657,163,000
                                                                                          =============      =============
                              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facilities ..........................................................    $  49,000,000      $           -
Current portion of long-term debt ....................................................        7,497,000             55,000
Accounts payable and accrued expenses ................................................       27,525,000         35,743,000
Accrued payroll and related expenses .................................................       20,022,000         25,973,000
Accrued and deferred income taxes ....................................................        4,589,000          3,565,000
                                                                                          -------------      -------------
    Total current liabilities ........................................................      108,633,000         65,336,000
Long-term debt, net of current portion ...............................................      150,103,000        327,870,000
Deferred income taxes ................................................................        7,713,000         13,575,000
Other liabilities ....................................................................       10,081,000         10,507,000
COMMITMENTS AND CONTINGENCIES (see Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock - $.01 par value; 20,000,000 authorized; none issued and
 outstanding .........................................................................                -                  -
Common stock - $.01 par value; 100,000,000 authorized; 43,567,686 and
 47,104,412 shares issued and outstanding, respectively ..............................          436,000            471,000
Paid-in capital ......................................................................      257,022,000        270,654,000
Accumulated other comprehensive income - unrealized gain on marketable securities ....                -             60,000
Retained deficit .....................................................................      (51,017,000)       (31,310,000)
                                                                                          -------------      -------------
  Total stockholders' equity .........................................................      206,441,000        239,875,000
                                                                                          -------------      -------------
                                                                                          $ 482,971,000      $ 657,163,000
                                                                                          =============      =============
</TABLE>


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

                                      F-2



<PAGE>

                         CONCENTRA MANAGED CARE, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,
                                                                           -----------------------------------------------
                                                                                 1996            1997            1998
                                                                           --------------- --------------- ---------------
<S>                                                                        <C>             <C>             <C>
REVENUE:
 Health Services .........................................................  $170,035,000    $212,237,000    $265,205,000
 Managed Care Services:
  Specialized cost containment ...........................................    83,784,000     142,919,000     183,734,000
  Field case management ..................................................   118,864,000     138,723,000     167,841,000
                                                                            ------------    ------------    ------------
    Total Managed Care Services ............................................ 202,648,000     281,642,000     351,575,000
                                                                            ------------    ------------    ------------
    Total revenue ........................................................   372,683,000     493,879,000     616,780,000
COST OF SERVICES:
 Health Services .........................................................   130,754,000     158,987,000     205,986,000
 Managed Care Services ...................................................   159,174,000     217,263,000     268,116,000
                                                                            ------------    ------------    ------------
    Total cost of services ...............................................   289,928,000     376,250,000     474,102,000
                                                                            ------------    ------------    ------------
     Total gross profit ..................................................    82,755,000     117,629,000     142,678,000
General and administrative expenses ......................................    33,155,000      40,008,000      45,530,000
Amortization of intangibles ..............................................     3,442,000       5,945,000       8,167,000
Non-recurring charge .....................................................       964,000      38,625,000      33,114,000
                                                                            ------------    ------------    ------------
    Operating income .....................................................    45,194,000      33,051,000      55,867,000
Interest expense .........................................................     3,741,000      12,667,000      18,021,000
Interest income ..........................................................      (859,000)     (2,297,000)     (4,659,000)
Other, net ...............................................................       836,000       1,619,000         711,000
                                                                            ------------    ------------    ------------
    Income before income taxes ...........................................    41,476,000      21,062,000      41,794,000
Provision for income taxes ...............................................    13,437,000      11,062,000      19,308,000
                                                                            ------------    ------------    ------------
Net income ...............................................................  $ 28,039,000    $ 10,000,000    $ 22,486,000
                                                                            ============    ============    ============
Pro forma net income (see Note 4) ........................................  $ 25,309,000    $  7,189,000
                                                                            ============    ============
Basic Earnings Per Share .................................................  $       0.69    $       0.23    $       0.48
                                                                            ============    ============    ============
Basic Pro Forma Earnings Per Share (see Note 4) ..........................  $       0.63    $       0.17
                                                                            ============    ============
 Weighted average common shares outstanding ..............................    40,411,000      42,774,000      46,451,000
                                                                            ============    ============    ============
Diluted Earnings Per Share ...............................................  $       0.65    $       0.22    $       0.47
                                                                            ============    ============    ============
Diluted Pro Forma Earnings Per Share (see Note 4) ........................  $       0.59    $       0.16
                                                                            ============    ============
 Weighted average common shares and common share equivalents outstanding .    43,344,000      46,895,000      47,827,000
                                                                            ============    ============    ============
</TABLE>


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

                                      F-3



<PAGE>

                         CONCENTRA MANAGED CARE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                         YEARS ENDED DECEMBER 31,
                                                                          ------------------------------------------------------
                                                                                1996               1997               1998
                                                                          ----------------   ----------------   ----------------
<S>                                                                       <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income ...........................................................    $   28,039,000     $   10,000,000     $  22,486,000
 Adjustments to reconcile net income to net cash provided by come
  (used in) operating activities: .....................................
 Depreciation of property and equipment ...............................         6,706,000         10,798,000        15,045,000
 Amortization and write-off of intangibles ............................         3,442,000          5,945,000         8,167,000
 Amortization of deferred compensation ................................                 -            562,000           805,000
 Amortization and write-off of start-up costs .........................           322,000          2,845,000                 -
 Amortization of deferred finance costs and debt discount .............            58,000            777,000         1,699,000
 Change in assets and liabilities:
  Accounts receivable .................................................       (14,967,000)       (27,381,000)      (19,993,000)
  Prepaid expenses and other assets ...................................        (5,330,000)       (15,827,000)        1,421,000
  Accounts payable, accrued expenses and income taxes .................        (2,675,000)        12,019,000         8,265,000
                                                                           --------------     --------------     -------------
   Net cash provided by (used in) operating activities ................        15,595,000           (262,000)       37,895,000
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisitions, net of cash acquired ...................................       (68,805,000)      (102,093,000)      (18,070,000)
 Purchase of property and equipment ...................................       (24,024,000)       (26,346,000)      (34,395,000)
 Sale (purchase) of investments, net ..................................       (12,045,000)        12,045,000       (15,523,000)
 Proceeds from sale of property and equipment and other ...............            21,000            626,000           440,000
                                                                           --------------     --------------     -------------
   Net cash used in investing activities ..............................      (104,853,000)      (115,768,000)      (67,548,000)
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 Borrowings (payments) under revolving credit facilities, net .........         1,400,000         43,300,000       (49,000,000)
 Proceeds from the issuance of long-term debt .........................       158,739,000         26,489,000       230,000,000
 Payment of deferred financing costs ..................................        (1,226,000)          (596,000)       (6,411,000)
 Repayments of long-term debt .........................................       (37,220,000)        (5,071,000)      (49,581,000)
 Net proceeds from the issuance of common stock under employee
  stock purchase and option plans .....................................        57,082,000         10,023,000        14,403,000
 Payments to dissenting shareholders ..................................                 -                  -       (15,047,000)
 Dividends and distributions to shareholders ..........................       (42,671,000)        (3,760,000)       (2,809,000)
                                                                           --------------     --------------     -------------
   Net cash provided by financing activities ..........................       136,104,000         70,385,000       121,555,000
                                                                           --------------     --------------     -------------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS .....................................................        46,846,000        (45,645,000)       91,902,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..........................        11,375,000         58,221,000        12,576,000
                                                                           --------------     --------------     -------------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................    $   58,221,000     $   12,576,000     $ 104,478,000
                                                                           ==============     ==============     =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Interest paid ........................................................    $    3,316,000     $   11,941,000     $  13,912,000
 Income taxes paid ....................................................    $    8,557,000     $   12,305,000     $  15,961,000
 Conversion of notes payable into common stock ........................    $      825,000     $      691,000     $  10,094,000
 Liabilities and debt assumed in acquisitions .........................    $    9,030,000     $   13,242,000     $   8,386,000
</TABLE>

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


                                      F-4



<PAGE>

                         CONCENTRA MANAGED CARE, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



<TABLE>
<CAPTION>
                                                     $0.01 PAR VALUE          PAID-IN
                                                       COMMON STOCK            CAPITAL
                                                -------------------------- ---------------
                                                    NUMBER
                                                   OF SHARES      VALUE
                                                -------------- -----------
 
<S>                                             <C>            <C>         <C>
BALANCE, DECEMBER 31, 1995 ....................  34,772,833     $347,000   $151,385,000
Sale of Common Stock ..........................   2,143,200       21,000     51,819,000
Common Stock issued in connection
 with acquisitions ............................     715,246        7,000      6,725,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................     683,076        7,000      7,735,000
Exercise of Common Stock warrants .............     151,111        2,000      1,062,000
Conversion of notes payable into
 Common Stock .................................     105,983        1,000        824,000
Conversion of debenture payable into
 Common Stock .................................   1,854,141       19,000     14,766,000
Dividends and shareholder distributions
 by pooled companies ..........................           -            -              -
Net income ....................................           -            -              -
                                                 ----------     --------   ------------
BALANCE, DECEMBER 31, 1996 ....................  40,425,590      404,000    234,316,000
Common Stock issued in connection
 with acquisitions ............................   2,162,995       22,000     11,441,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................     897,530        9,000     10,013,000
Amortization of deferred compensation .........           -            -        562,000
Conversion of notes payable into
 Common Stock .................................      81,571        1,000        690,000
Dividends and shareholder distributions
 by pooled companies ..........................           -            -              -
Net income ....................................           -            -              -
                                                 ----------     --------   ------------
BALANCE, DECEMBER 31, 1997 ....................  43,567,686      436,000    257,022,000
Comprehensive net income:
Net income ....................................           -            -              -
Unrealized gain on marketable securities                  -            -              -
                                                 ----------     --------   ------------
Comprehensive net income ......................           -            -              -
Common Stock issued in connection
 with acquisitions ............................     430,750        4,000      3,408,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................     841,260        9,000     14,394,000
Amortization of deferred compensation .........           -            -        805,000
Conversion of notes payable into
 Common Stock .................................   2,735,387       27,000     10,067,000
Dividends and shareholder distributions
 by pooled companies ..........................           -            -              -
Payments to dissenting shareholders ...........    (470,671)      (5,000)   (15,042,000)
                                                 ----------     --------   ------------
BALANCE, DECEMBER 31, 1998 ....................  47,104,412     $471,000   $270,654,000
                                                 ==========     ========   ============



<CAPTION>
                                                  ACCUMULATED
                                                     OTHER
                                                 COMPREHENSIVE       RETAINED       STOCKHOLDERS'
                                                     INCOME          DEFICIT           EQUITY
                                                --------------- ----------------- ----------------
 
<S>                                             <C>             <C>               <C>
BALANCE, DECEMBER 31, 1995 .................... $     -       ($ 42,349,000)      $109,383,000
Sale of Common Stock ..........................             -             -         51,840,000
Common Stock issued in connection
 with acquisitions ............................             -       407,000          7,139,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................             -             -          7,742,000
Exercise of Common Stock warrants .............             -             -          1,064,000
Conversion of notes payable into
 Common Stock .................................             -             -            825,000
Conversion of debenture payable into
 Common Stock .................................             -             -         14,785,000
Dividends and shareholder distributions
 by pooled companies ..........................             -   (42,671,000)       (42,671,000)
Net income ....................................             -    28,039,000         28,039,000
                                                      -------   -------------     ------------
BALANCE, DECEMBER 31, 1996 ....................             -   (56,574,000)       178,146,000
Common Stock issued in connection
 with acquisitions ............................             -      (969,000)        10,494,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................             -             -         10,022,000
Amortization of deferred compensation .........             -             -            562,000
Conversion of notes payable into
 Common Stock .................................             -             -            691,000
Dividends and shareholder distributions
 by pooled companies ..........................             -    (3,474,000)        (3,474,000)
Net income ....................................             -    10,000,000         10,000,000
                                                      -------   -------------     ------------
BALANCE, DECEMBER 31, 1997 ....................             -   (51,017,000)       206,441,000
Comprehensive net income:
Net income ....................................             -    22,486,000         22,486,000
Unrealized gain on marketable securities               60,000             -             60,000
                                                      -------   -------------     ------------
Comprehensive net income ......................        60,000    22,486,000         22,546,000
Common Stock issued in connection
 with acquisitions ............................             -        30,000          3,442,000
Common Stock issued under employee
 stock purchase and option plans and
 related tax benefit ..........................             -             -         14,403,000
Amortization of deferred compensation .........             -             -            805,000
Conversion of notes payable into
 Common Stock .................................             -             -         10,094,000
Dividends and shareholder distributions
 by pooled companies ..........................             -    (2,809,000)        (2,809,000)
Payments to dissenting shareholders ...........             -             -        (15,047,000)
                                                      -------   -------------     ------------
BALANCE, DECEMBER 31, 1998 ....................       $60,000 ($ 31,310,000)      $239,875,000
                                                      =======  ==============     ============
</TABLE>

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

                                      F-5



<PAGE>

                         CONCENTRA MANAGED CARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) BASIS OF PRESENTATION

     On August 29,  1997,  Concentra  Managed  Care,  Inc.  ("Concentra"  or the
"Company"), a Delaware corporation, was formed by the merger (the "1997 Merger")
of CRA Managed Care, Inc. ("CRA") and OccuSystems,  Inc.  ("OccuSystems").  As a
result of the 1997  Merger,  CRA  changed  its name to  Concentra  Managed  Care
Services,  Inc.  ("Managed Care Services") and OccuCenters,  Inc., the operating
subsidiary of OccuSystems,  changed its name to Concentra Health Services,  Inc.
("Health  Services").  The 1997 Merger was a tax-free  stock for stock  exchange
accounted for as a pooling of interests.  The Company  recorded a  non-recurring
charge of  $38,625,000  in the third  quarter of 1997  associated  with the 1997
Merger.   The  utilization  of  this  charge  through  December  31,  1998,  was
approximately  $11,569,000 for  professional  fees and services,  $16,216,000 in
costs  associated with personnel  reductions and the  consolidation of CRA's and
OccuSystems'  employee  benefits,  $5,945,000  in  facility  consolidations  and
closings, $2,541,000 for the write-off of start-up costs and $2,354,000 of other
charges.  At December 31, 1997,  approximately  $7,527,000 of the  non-recurring
charge  remains  primarily  related to  personnel  related  charges and facility
consolidations and closings.

     On February 24, 1998, the Company  acquired all of the  outstanding  common
stock of Preferred  Payment Systems,  Inc. ("PPS") of Naperville,  Illinois,  in
exchange for  approximately  7,100,000  shares of Concentra  common  stock,  the
assumption of PPS options  totaling  approximately  580,000  shares of Concentra
common stock, the payment of approximately $15,047,000 in cash to dissenting PPS
shareholders and the assumption of  approximately  $49,000,000 of debt which was
repaid at the time of the merger.  This merger was accounted for as a pooling of
interests.  In the first quarter of 1998, the Company  recorded a  non-recurring
charge  of  $12,600,000  primarily  associated  with  the  merger  of  PPS.  The
utilization  of  this  charge  through  December  31,  1998,  was  approximately
$5,136,000 for  professional  fees and services,  $2,355,000 in costs associated
with personnel  reductions,  $746,000 in facility  consolidations  and closings,
$1,627,000  associated  with the  write-off  of deferred  financing  fees on PPS
indebtedness  retired and $1,264,000 of other  non-recurring  costs. At December
31, 1998, approximately $1,472,000 of the non-recurring charge remains primarily
related to remaining  facility  lease  obligations.  PPS,  founded in 1990, is a
provider of retrospective bill review services for the group healthcare market.

     In the fourth quarter of 1998, the Company recorded a non-recurring  charge
of $20,514,000  primarily associated with the reorganization of its Managed Care
Services  division to improve  efficiency  through facility  consolidations  and
related headcount reductions,  to recognize an impairment loss on the intangible
related to an acquired  contract and costs  associated  with settling  claims on
other expired  contracts.  The  utilization of this charge through  December 31,
1998, was  approximately  $7,416,000 in charges related to the recognition of an
impairment loss on the intangible related to an acquired contract, $2,490,000 in
costs   associated   with  personnel   reductions  and  $1,140,000  in  facility
consolidations.   At  December  31,  1998,   approximately   $9,468,000  of  the
non-recurring  charge  remains  primarily  related to remaining  facility  lease
obligations  and  costs   associated  with  settling  claims  on  other  expired
contracts.

     The  financial  statements  as of December 31, 1997 and for the years ended
December  31,  1996 and 1997 have been  restated to reflect the merger of PPS in
accordance  with  Accounting   Principles   Board  Opinion  No.  16,   "Business
Combinations" ("APB 16").


(2) SIGNIFICANT ACQUISITIONS

     Managed Care Services has experienced a significant amount of its growth by
virtue of the  acquisitions  of FOCUS  HealthCare  Management,  Inc.  ("FOCUS"),
Prompt Associates,  Inc. ("PROMPT"),  First Notice Systems, Inc. ("FNS"),  About
Health,  Inc.  ("ABOUT HEALTH") and several other smaller  acquisitions.  Health
Services  has also  experienced  a  significant  amount of its  growth  from the
acquisition of practices,  including the acquisition of 16 occupational  medical
centers and  contracts to manage four  additional  medical  centers from Vencor,
Inc. ("VMC").

     On April 2, 1996,  the Company  purchased  FOCUS for  $21,000,000  in cash.
FOCUS,  based in  Brentwood,  Tennessee,  has  built  and  maintains  one of the
nation's largest workers'  compensation  preferred provider organization ("PPO")
networks and had annual revenues of approximately  $9,900,000 for the year ended
December 31, 1995.


                                      F-6



<PAGE>

     On October 29, 1996, the Company  purchased PROMPT for $30,000,000 in cash.
PROMPT,  which is based in Salt Lake City, Utah, is one of the leading providers
of hospital bill audit  services to the group health payor  community for claims
that fall outside of an indemnity carrier's, third-party administrator's ("TPA")
or health maintenance  organization's  ("HMO") network of hospital or outpatient
facilities and had annual  revenues of  approximately  $10,000,000  for the year
ended December 31, 1995.

     On June 4, 1997, the Company  purchased FNS for  $40,000,000 in cash.  FNS,
based in  Boston,  Massachusetts,  is a  leading  provider  of  outsourced  call
reporting  for first  notice of  loss/injury  to the  automobile  insurance  and
workers'  compensation  industries  and had  annual  revenues  of  approximately
$9,000,000 for the year ended December 31, 1996.
 
     PPS acquired  ABOUT HEALTH in a two-step  transaction on August 1, 1997 and
October 31, 1997 for $25,800,000 in cash and $9,733,000 in equity. ABOUT HEALTH,
based in Rockville,  Maryland, is a provider of specialized cost containment and
outsourcing   services  for  healthcare   payors  and  had  annual  revenues  of
approximately $10,000,000 for the year ended December 31, 1996.

     On  September  30, 1997,  the Company  purchased  16  occupational  medical
centers and the  management  of four  additional  medical  centers  from VMC for
approximately  $27,000,000 in cash. These medical centers had annual revenues of
approximately $23,000,000 for the year ended December 31, 1996.

     The  acquisitions  of FOCUS,  PROMPT,  FNS,  ABOUT HEALTH and VMC have been
accounted for by the Company as purchases  whereby the basis for  accounting for
their  assets and  liabilities  are based upon their fair values at the dates of
acquisition.  The  excess of the  purchase  price  over fair value of net assets
acquired  (goodwill and assembled  workforce and customer  lists, if applicable)
for the FOCUS,  PROMPT,  FNS, ABOUT HEALTH and VMC acquisitions was $19,900,000,
$29,550,000, $37,001,000, $34,291,000 and $29,585,000, respectively. Goodwill is
being  amortized  over thirty to forty year periods and assembled  workforce and
customer  lists  are  being   amortized  over  five-  and  seven-year   periods,
respectively.


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


(A) CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  accounts and
transactions are eliminated in consolidation.

     Physician and physical therapy services are provided at the Health Services
centers under management agreements with affiliated physician  associations (the
"Physician  Groups"),  which are organized  professional  corporations that hire
licensed  physicians and physical  therapists to provide medical services to the
centers'  patients.  Since Health  Services  effectively  controls the Physician
Groups,  Health Services results of operations reflect the revenues generated by
the  Physician  Groups  and the  costs  associated  with the  delivery  of their
services.  The financial  statements of the  Physician  Groups are  consolidated
because Health Services has unilateral control over the assets and operations of
the  Physician  Groups  and,  notwithstanding  the  lack of  technical  majority
ownership,  consolidation  of the  Physician  Groups  with  Health  Services  is
necessary to present fairly the financial  position and results of operations of
Health  Services due to the  existence of a  parent-subsidiary  relationship  by
means other than record  ownership of the Physician  Group's  voting stock.  The
shareholders  of the  Physician  Groups  are the  physician  leaders  of  Health
Services  and  are  employed  by  Health  Services  or one  of its  wholly-owned
subsidiaries.  Through a shareholder  agreement,  Health Services  restricts any
transfer of Physician  Group  ownership  without its consent and can require the
holder of such shares to transfer  ownership to a Health Services  designee upon
the occurrence of certain events,  including but not limited to the cessation of
employment.  Control of the  Physician  Groups is perpetual due to the nature of
the  relationship  and the  management  agreements  between  the  entities.  The
employed physicians do not control fee schedules,  payor contracts or employment
decisions regarding personnel.  The risk of loss for billed services provided by
the Physician  Groups resides  ultimately  with Health  Services as Concentra is
required to provide financial support on an as-needed basis.


(B) CASH AND CASH EQUIVALENTS

     The Company  considers all highly liquid debt  instruments  purchased  with
original maturities of three months or less to be cash equivalents. The carrying
amount approximates fair value due to the short maturity of those instruments.


                                      F-7



<PAGE>

(C) REVENUE RECOGNITION

     The Company  recognizes  revenue  primarily as services  have been rendered
based on time and expenses incurred. A certain portion of the Company's revenues
are derived from fee schedule  auditing  which is based on the number of charges
reviewed  and  based on a  percentage  of  savings  achieved  for the  Company's
customers. In these circumstances,  the customer is obligated to pay the Company
when the services have been rendered and the savings identified.  During the fee
schedule  audit  process  (i.e.,  medical bill  review),  each bill reviewed and
audited is returned to the customer  accompanied  by an  Explanation  of Benefit
("EOB").  The EOB  details  the total  savings  with  respect  to the bill being
reviewed as well as the amount owed to the  Company as a  percentage  of savings
identified and the line charge associated with the bill being reviewed.
 

     Insurance  claims are  screened  by PPS and PROMPT  prior to the  insurance
company's  internal  review  procedures  to  determine  if the claims  should be
further negotiated or are payable by the insurance company. During the insurance
company's review process, some claims have pre-existing PPO or HMO arrangements,
or other  pre-existing  conditions  and  disqualifying  situations.  When  these
situations  occur,  a refund  (chargeback)  is  requested  for the amounts  paid
(invoiced)  on these  claims.  PPS and  PROMPT's  policies are to record a sales
allowance  as an offset to  revenues  and  accounts  receivable  based  upon the
historical  tracking of  discounts  and  chargebacks  at the time the claims are
modeled.  A portion of the allowance for doubtful  accounts  attributable to PPS
and PROMPT is based on  historical  experience  of  ineligible  claims which are
either  charged  back or given a  negotiated  discount.  PPS and PROMPT  utilize
several methods to project  unpresented  discounts and  chargebacks  including a
tracking of the actual experience of contractual  discounts.  Other factors that
affect collectability and bad debts for each service line are also evaluated and
additional allowance amounts are provided as necessary.

     Accounts  receivable  at December 31, 1997 and 1998 include  $4,500,000  of
unbilled accounts receivable relating to services rendered during the period but
not invoiced  until after the  period-end.  These unbilled  accounts  receivable
relate  primarily  to field  case  management  services,  which are billed on an
hourly  basis,  whereby the Company has not yet provided a sufficient  amount of
services to warrant the generation of an invoice. The customers are obligated to
pay for the services once performed.  The Company  estimates  unbilled  accounts
receivable by tracking and monitoring its historical experience.


(D) DEPRECIATION

     The Company  provides  for  depreciation  on property and  equipment  using
straight-line  and accelerated  methods by charges to operations in amounts that
allocate the cost of depreciable assets over their estimated lives as follows:



<TABLE>
<CAPTION>
ASSET CLASSIFICATION                           ESTIMATED USEFUL LIFE
-------------------------------   -----------------------------------------------
<S>                               <C>
Furniture and fixtures                                7 Years
Office and computer equipment                       3 - 7 Years
Buildings and improvements                         30 - 40 Years
Leasehold improvements            The shorter of the life of lease or asset life
</TABLE>

(E) INTANGIBLE ASSETS

     The value of goodwill, assembled workforces and customer lists are recorded
at cost at the date of acquisition.  Goodwill, including any excess arising from
earn-out  payments,  is being  amortized  on a  straight-line  basis  over 30 to
40-year periods in accordance with  Accounting  Principles  Board Opinion No. 17
("APB No. 17"),  "Intangible  Assets". The Company believes that the life of the
core businesses acquired and the delivery of occupational healthcare services is
indeterminate  and  likely  to exceed 40 years.  The  assembled  workforces  and
customer  lists  are  being   amortized  over  five-  and  seven-year   periods,
respectively. As of December 31, 1997 and 1998, the Company recorded accumulated
amortization on intangible assets of $29,871,000 and $38,038,000, respectively.

     Subsequent to an acquisition,  the Company  continually  evaluates  whether
later events and  circumstances  have  occurred that indicate that the remaining
balance of goodwill may not be recoverable or that the remaining useful life may
warrant  revision.  When factors  indicate that goodwill should be evaluated for
possible  impairment,  the Company  uses an  estimate  of the  related  business
segment's  undiscounted  cash flows over the remaining  life of the goodwill and
compares it to the business segment's goodwill balance to determine whether the
 


                                      F-8



<PAGE>

goodwill is recoverable or if impairment  exists, in which case an adjustment is
made to the  carrying  value of the asset to reduce it to its fair  value  based
upon the present value of the future cash flows.  When an adjustment is required
the Company  evaluates the  remaining  goodwill  amortization  using the factors
outlined in APB No. 17.


(F) DEFERRED FINANCE COSTS

     The Company has capitalized costs associated primarily with the 6% and 4.5%
Convertible Subordinated Notes and the PPS indebtedness (written-off at the time
of the merger and  retirement of PPS  indebtedness)  and is amortizing  these as
interest  expense  over the life of the  notes.  Included  in  other  assets  at
December  31, 1997 and 1998 were  deferred  finance  costs,  net of  accumulated
amortization, of $4,515,000 and $7,592,000, respectively.


(G) DEFERRED START-UP COSTS

     Prior to the 1997 Merger,  Health  Services  capitalized the start-up costs
associated   with  the  internal   development  of  its  medical  centers  until
operational  and would  amortize  these  costs  over a  three-year  period.  The
American  Institute of Certified Public  Accountants issued Statement of Opinion
98-5,  "Accounting  for Start Up Costs" in April 1998, to change the  accounting
and  reporting  treatment  of  start-up  costs to require  start-up  costs to be
expensed  as  incurred.  As a  result  of  this  pending  change  in  accounting
principle,  the  Company  wrote-off  deferred  start-up  costs of  approximately
$2,541,000 and included this in the third quarter of 1997 non-recurring charge.
 


(H) FOREIGN CURRENCY TRANSLATION

     All assets and liabilities of the Company's Canadian offices are translated
at the year-end  exchange rate while revenues and expenses are translated at the
average  exchange rate for the year.  Cumulative  translation  adjustments  were
immaterial for the years ended December 31, 1996, 1997 and 1998.


(I) USE OF ESTIMATES

     The  preparation  of financial  statements  in  accordance  with  generally
accepted  accounting  principles  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 reported  amounts of revenues and expenses  during the reporting
period. Actual results could differ from those estimates.


(J) RECLASSIFICATIONS

     Certain  amounts  previously   reported  in  CRA's  and  OccuSystems'  1996
consolidated  financial statements and PPS' 1996 and 1997 consolidated financial
statements  have been  reclassified  to conform to the  presentation in the 1998
consolidated financial statements.


(K) NEW ACCOUNTING PRONOUNCEMENTS

     In the first  quarter  of 1998,  the  Company  adopted  the  provisions  of
Statement of Financial  Accounting  Standards No. 130, "Reporting  Comprehensive
Income" ("SFAS 130").  Comprehensive  income for the Company includes unrealized
gains on  marketable  securities  in  addition  to net income as reported in the
Company's   Consolidated   Statements  of   Stockholders'   Equity  and  in  the
Stockholders' Equity section of the Company's Consolidated Balance Sheets.

     In 1998,  the Company  adopted the  provisions  of  Statement  of Financial
Accounting  Standards No. 131,  "Disclosures about Segments of an Enterprise and
Related  Information" ("SFAS 131"). SFAS 131 requires the reporting of financial
and descriptive  information about a company's  reportable  operating  segments.
Operating  segments  are  components  of  an  enterprise's   separate  financial
information that is evaluated regularly by the chief operating decision maker in
deciding  how  to  allocate  resources  and in  assessing  performance  of  that
component.  The statement  requires  reporting  segment profit or loss,  certain
specific  revenue and expense items,  and segment assets.  See Note 13 - Segment
Information for disclosure


(4) PRO FORMA NET INCOME AND PRO FORMA EARNINGS PER SHARE

     Pro forma net income and basic and diluted pro forma earnings per share for
the years ended December 31, 1996 and 1997 have been calculated as if the merger
of PPS had been subject to federal and state income taxes


                                      F-9



<PAGE>

for  the  entire  period,  based  upon  an  effective tax rate indicative of the
statutory rates in effect.  Prior to its merger, PPS elected to be taxed as an S
corporation,  and accordingly, was not subject to federal and state income taxes
in certain jurisdictions.

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting   Standards  No.  128,  "Earnings  Per  Share"  ("SFAS  128"),  which
supersedes  Accounting Principles Board Opinion No. 15. SFAS 128 establishes new
accounting  standards for the presentation of earnings per share whereby primary
earnings per share is replaced with "Basic Earnings Per Share" and fully diluted
earnings per share is now called  "Diluted  Earnings Per Share".  In  accordance
with SFAS 128, Basic  Earnings Per Share has been computed by dividing  reported
net income by weighted  average common shares  outstanding and Diluted  Earnings
Per Share  has been  computed  assuming,  if  dilutive,  the  conversion  of the
Company's  convertible notes and the elimination of the related interest expense
and the exercise of stock options, net of their related income tax effect.


                                      F-10



<PAGE>

     Basic and diluted earnings per share for the years ended December 31, 1996,
1997 and 1998 are as follows:



<TABLE>
<CAPTION>
                                                                             1996               1997               1998
                                                                       ----------------   ----------------   ----------------
<S>                                                                    <C>                <C>                <C>
BASIC EARNINGS PER SHARE:
 Net income available to shareholders ..............................     $ 28,039,000       $ 10,000,000       $ 22,486,000
                                                                         ============       ============       ============
 Pro forma net income available to shareholders (1) ................     $ 25,309,000       $  7,189,000
                                                                         ============       ============
 Weighted average common shares outstanding ........................       40,411,000         42,774,000         46,451,000
                                                                         ============       ============       ============
 
 Basic earnings per share ..........................................     $       0.69       $       0.23       $       0.48
                                                                         ============       ============       ============
 Basic pro forma earnings per share (1) ............................     $       0.63       $       0.17
                                                                         ============       ============
 
DILUTED EARNINGS PER SHARE:
Net income available to shareholders ...............................     $ 28,039,000       $ 10,000,000       $ 22,486,000
 Interest on dilutive convertible notes, net of tax ................          290,000            308,000             52,000
                                                                         ------------       ------------       ------------
Diluted net income .................................................     $ 28,329,000       $ 10,308,000       $ 22,538,000
                                                                         ============       ============       ============
Pro forma net income available to shareholders (1) .................     $ 25,309,000       $  7,189,000
 Interest on dilutive convertible notes, net of tax ................          290,000            308,000
                                                                         ------------       ------------
Diluted pro forma net income (1) ...................................     $ 25,599,000       $  7,497,000
                                                                         ============       ============
Weighted average common shares outstanding .........................       40,411,000         42,774,000         46,451,000
 Dilutive options, warrants and notes payable ......................        2,026,000          1,399,000          1,028,000
 Dilutive convertible notes (2) ....................................          907,000          2,722,000            348,000
                                                                         ------------       ------------       ------------
Weighted average common shares and equivalents outstanding .........       43,344,000         46,895,000         47,827,000
                                                                         ============       ============       ============
Diluted earnings per share .........................................     $       0.65       $       0.22       $       0.47
                                                                         ============       ============       ============
Diluted pro forma earnings per share (1) ...........................     $       0.59       $       0.16
                                                                         ============       ============
</TABLE>

--------
(1) Pro forma net income and basic and diluted pro forma  earnings per share for
    the years ended  December 31, 1996 and 1997 have been  calculated  as if PPS
    had been subject to federal and state  income  taxes for the entire  period,
    based  upon an  effective  tax rate  indicative  of the  statutory  rates in
    effect.  Prior to its merger with the Company, PPS elected to be taxed as an
    S corporation and, accordingly,  was not subject to federal and state income
    taxes in certain jurisdictions.

(2) Excludes  common  stock  equivalents  of  3,291,243  shares of Common  Stock
    related to the 6% Convertible Subordinated Notes issued in December 1996 and
    5,575,758   shares  of  Common  Stock   related  to  the  4.5%   Convertible
    Subordinated  Notes issued in March and April 1998 as they are anti-dilutive
    for the applicable years presented.


(5) REVOLVING CREDIT FACILITIES

     On September 17, 1997,  the Company  entered into the  $100,000,000  Senior
Credit  Facility  with a syndicate  of five banks  ("Senior  Credit  Facility"),
replacing the $60,000,000  Managed Care Services Credit  Facility,  ("MCS Credit
Facility") and the  $60,000,000  Health Services  Credit  Facility,  ("HS Credit
Facility").  The Senior Credit Facility matures on September 17, 2002.  Interest
on  borrowings  under the Senior  Credit  Facility is payable,  at the Company's
option,  at the higher of the bank's prime rate of interest or the federal funds
rate  plus an  additional  percentage  of  0.5%,  or  LIBOR  plus an  additional
percentage of up to 1.25%,  depending on certain financial criteria. The Company
is required to pay a commitment  fee of 0.125% to 0.25% per annum,  depending on
certain financial criteria, on the unused portion of the Senior Credit Facility.


                                      F-11



<PAGE>

     On  February  23,  1998,  the  Company  signed an  amendment  to expand the
Company's  borrowing  capacity under the Senior Credit  Facility to $200,000,000
under  similar  terms  and  conditions  in order to  finance  the  repayment  of
$49,000,000 of PPS  outstanding  indebtedness  (the PPS Credit  Facility and 10%
Subordinated  Notes).  On March 11, 1998, the Senior Credit  Facility  borrowing
capacity was reduced to the original $100,000,000 amount.

     The Senior Credit Facility contains customary covenants, including, without
limitation,  restrictions on the incurrence of indebtedness, the sale of assets,
certain  mergers and  acquisitions,  the payment of dividends  on the  Company's
capital stock, the repurchase or redemption of capital stock,  transactions with
affiliates,  investments,  capital  expenditures  and  changes in control of the
Company.  Under the Senior  Credit  Facility,  the  Company is also  required to
satisfy certain financial covenants, such as cash flow, capital expenditures and
other  financial  ratio  tests  including  fixed  charge  coverage  ratios.  The
Company's  obligations  under the Senior Credit Facility are secured by a pledge
of stock in the Company's subsidiaries.

     As a result of the fourth quarter 1998  non-recurring  charge,  the Company
was not in compliance  with certain  leverage ratio  covenants  under the Senior
Credit  Facility in the fourth  quarter of 1998 and the Company  expects it will
not be in  compliance  with those  covenants in the first  quarter of 1999.  The
Company received a waiver on all financial  covenants  through the first quarter
of 1999. The Company does not have any borrowings  outstanding  under the Senior
Credit  Facility  and does not  anticipate  the need to borrow  under the Senior
Credit Facility for the next twelve months.

     At December 31, 1997,  the Company had  borrowings  under the Senior Credit
Facility of  $49,000,000,  at an average rate of interest of 6.94%.  At December
31, 1998,  the Company had no  borrowings  and  $3,050,000  of letters of credit
outstanding  under the Senior Credit Facility.  For the years ended December 31,
1996,  1997 and 1998,  the weighted  average  borrowings  under these  revolving
credit facilities were $8,184,000, $9,615,000 and $14,205,000, respectively, and
the weighted average interest rates were 6.94%, 7.31% and 7.69%, respectively.


(6) LONG-TERM DEBT

     Long-term debt consists of the following at December 31:




<TABLE>
<CAPTION>
                                                                              1997               1998
                                                                       -----------------   ----------------
<S>                                                                    <C>                 <C>
4.5% Convertible Subordinated Notes, interest at 4.5%, due March
 2003 ..............................................................     $           -      $ 230,000,000
6% Convertible Subordinated Notes, interest at 6%, due December
 2001 ..............................................................        97,750,000         97,750,000
Notes payable to various holders, interest ranging from 8.8% to 10%,
 payable in installments through 2005 ..............................           308,000            119,000
Obligations under capital leases ...................................           542,000             56,000
PPS indebtedness:
 PPS Term Loan .....................................................        42,000,000                  -
 5% Convertible Subordinated Notes due August 2006 .................        10,000,000                  -
 10% Subordinated Notes due August 2003 ............................         7,000,000                  -
                                                                         -------------      -------------
                                                                           157,600,000        327,925,000
Less: Current maturities ...........................................        (7,497,000)           (55,000)
                                                                         -------------      -------------
 Long-term debt, net of current maturities .........................     $ 150,103,000      $ 327,870,000
                                                                         =============      =============
</TABLE>

     On March 11, 1998, the Company issued a new issue of $200,000,000 aggregate
principal amount of 4.5% Convertible  Subordinated Notes due March 15, 2003 (the
"4.5%  Convertible  Subordinated  Notes").  On April 6, 1998,  the  underwriters
exercised  the  $30,000,000   overallotment   provision.  The  4.5%  Convertible
Subordinated Notes will be convertible into 5,575,758 shares of Common Stock, at
the  option  of  the  holder,  at  a  conversion  price  of  $41.25  per  share,
representing a conversion  premium of 25% over the previous day's closing price.
The 4.5% Convertible Subordinated Notes are general unsecured obligations of the
Company  ranking equal in right of payment with the 6% Convertible  Subordinated
Notes and all other  unsecured  indebtedness  of the Company.  In addition,  the
Company  is a  holding  company  that  conducts  all of its  operations  through
subsidiaries, and the 4.5% Convertible Subordinated Notes and the 6% Convertible
Subordinated  Notes  are  structurally  subordinate  to all  obligations  of the
Company's


                                      F-12



<PAGE>

subsidiaries.  The 4.5%  Convertible  Subordinated  Notes  were  sold  through a
private  placement under Rule 144A of the Securities Act of 1933, as amended and
have similar terms and conditions as the 6% Convertible Subordinated Notes.

     In December 1996,  Health Services issued an aggregate of up to $97,750,000
in  principal  amount of 6%  Convertible  Subordinated  Notes  ("6%  Convertible
Subordinated Notes"). The 6% Convertible  Subordinated Notes will be convertible
into 3,291,243 shares of Common Stock at the initial  conversion price of $29.70
per share  (equivalent to a conversion rate of 33.67 shares per $1,000 principal
amount of 6% Convertible  Subordinated Notes),  subject to adjustment in certain
events.  The notes are convertible into Common Stock at the option of the holder
on or after February  through  December  2001.  The 6% Convertible  Subordinated
Notes will mature on December 15, 2001 with interest being payable semi-annually
on June 15 and December 15 of each year, commencing on June 15, 1997.

     On August 31, 1996, PPS completed a series of transactions  involving funds
managed  by a  private  equity  firm  and  senior  officers  of PPS  (the  "1996
Transaction").  In connection with the 1996 Transaction, the private equity firm
invested $17,000,000 to acquire $10,000,000 in 5% Convertible Subordinated Notes
due August 2006 (the "5% Convertible  Subordinated Notes") and $7,000,000 of 10%
Subordinated  Notes due August  2003 (the "10%  Subordinated  Notes").  PPS also
entered into a credit facility with a syndicate of two banks, which provided for
$25,000,000 of senior debt,  $20,000,000 of which was in the form of a term loan
and  $5,000,000  of which was  available  pursuant to a line of credit.  PPS, in
turn,  used  the  net  proceeds  from  these  financing   transactions  to  make
distributions  to its  stockholders  in an  aggregate  amount  of  approximately
$36,000,000.

     On July 31, 1997, in connection  with the  acquisition of ABOUT HEALTH (see
Note 2), PPS entered into an amended and restated credit facility (as so amended
and  restated,  the "PPS Term Loan") to increase  the term loan portion by $26.5
million.  The Company is  obligated  to make  quarterly  principal  and interest
payments on the term loan  (bearing  interest  of 8.0% and 7.8% at December  31,
1996 and 1997,  respectively)  and  quarterly  interest  payments on the line of
credit  (bearing  interest  at 9.25%  and 9.0% at  December  31,  1996 and 1997,
respectively).

     The  10%  Subordinated  Notes  bear  interest  at 10%  per  annum,  payable
quarterly.  Beginning  February 2002, the Company is required to make semiannual
principal payments on the 10% Subordinated Notes of $1.7 million.  Under the 10%
Subordinated  Loan  Agreement,  the  Company  is  required  to  prepay  the  10%
Subordinated  Notes in whole  upon a  qualifying  public  offering,  sale of the
Company, or other change in control, as defined.

     The 5% Convertible  Subordinated  Notes are  convertible at any time by the
holder into 10,000 shares of PPS Redeemable Preferred Stock and 10,000 shares of
PPS Convertible Preferred Stock. The 5% Convertible Subordinated Notes mature in
August 2006,  subject to the right of the holders to accelerate  the maturity of
the  5%  Convertible  Subordinated  Notes  upon  a  public  equity  offering,  a
qualifying  sale of the Company,  or a merger  resulting in a change in majority
ownership of the Company. The 5% Convertible Subordinated Notes bear interest at
5%, 2% being payable quarterly and 3% being deferred and payable upon redemption
or maturity.

     On February  24,  1998,  in  connection  with the merger of PPS,  Concentra
repaid  $49,000,000 of PPS indebtedness  (the PPS Term Loan and 10% Subordinated
Notes) and the 5% Convertible  Subordinated  Notes were converted into 2,721,904
shares of Concentra Common Stock.


(7) FINANCIAL INSTRUMENTS

     Effective  December 31, 1995,  the Company  adopted  Statement of Financial
Accounting  Standards  No.  107,  "Disclosures  About  Fair  Value of  Financial
Instruments".  This  statement  requires  entities to disclose the fair value of
their financial  instruments,  both assets and liabilities,  on- and off-balance
sheet,  for which it is  practicable  to  estimate  fair  value.  The  following
describes the methods and assumptions  that were used to estimate the fair value
of each class of financial  instruments  for which it is practicable to estimate
that value.

     The  Company's  marketable  securities  are held as  available  for sale in
accordance  with the provisions of Statement of Financial  Accounting  Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".


                                      F-13



<PAGE>

     The  following  is a summary of  marketable  securities  with a maturity of
greater than 90 days as of December 31, 1998:



<TABLE>
<CAPTION>
                                                 AMORTIZED       UNREALIZED     UNREALIZED          FAIR
                                                    COST            GAINS        (LOSSES)          VALUE
                                              ---------------   ------------   ------------   ---------------
<S>                                           <C>               <C>            <C>            <C>
U.S. government securities ................    $ 10,523,000       $ 62,000      ($  2,000)     $ 10,583,000
Corporate debt securities .................       3,000,000              -              -         3,000,000
Other debt securities .....................       2,000,000              -              -         2,000,000
                                               ------------       --------       --------      ------------
                                               $ 15,523,000       $ 62,000      ($  2,000)     $ 15,583,000
                                               ============       ========       ========      ============
Marketable securities, noncurrent .........    $ 10,523,000       $ 62,000      ($  2,000)     $ 10,583,000
                                               ============       ========       ========      ============
</TABLE>

     The average maturity of the Company's marketable  securities as of December
31, 1998 was approximately 20 months.

     Financial   instruments   that   potentially   subject   the   Company   to
concentrations of credit risk are accounts receivable and marketable securities.
Mitigating  factors related to the Company's  accounts  receivable are that they
are spread  over a large  customer  base and various  product  lines the Company
offers.  Further, the Company does monitor the financial  performance and credit
worthiness of its large customers.  Mitigating  factors related to the Company's
marketable securities are that they are primarily U.S. government securities and
corporate bonds and notes,  with strong credit  ratings.  The Company limits the
amount of its  investment  exposure as to  institution,  maturity and investment
type.

     The carrying  amounts of cash and cash  equivalents,  accounts  receivable,
other current assets,  accounts payable,  and accrued expenses  approximate fair
value because of the short maturity of those instruments.  The credit facilities
approximate  fair value primarily due to the floating  interest rates associated
with those debt instruments.

     The fair  value of the  Company's  6%  Convertible  Subordinated  Notes was
$125,120,000  and $83,088,000 as of December 31, 1997 and 1998 and the Company's
4.5%  Convertible  Subordinated  Notes was $173,650,000 as of December 31, 1998.
The fair market values of the convertible  subordinated notes are the average of
the NASDAQ's bid and ask amounts as of the  respective  year end. As of December
31, 1997, the approximate fair value of the 5% Convertible Subordinated Notes is
$15,700,000.  Although the interest rate on the 10% Subordinated Notes is fixed,
the carrying value reasonably approximates the fair value at December 31, 1997.


(8) INCOME TAXES

     The  provision  for income taxes  consists of the  following  for the years
ended December 31:




<TABLE>
<CAPTION>
                         1996           1997           1998
                    -------------- -------------- --------------
<S>                 <C>            <C>            <C>
Current:
 Federal ..........  $11,429,000    $ 15,112,000   $11,252,000
 State ............    2,473,000       3,968,000     1,369,000
                     -----------    ------------   -----------
                      13,902,000      19,080,000    12,621,000
Deferred:
 Federal ..........     (214,000)     (6,873,000)    5,961,000
 State ............     (251,000)     (1,145,000)      726,000
                     -----------    ------------   -----------
                        (465,000)     (8,018,000)    6,687,000
                     -----------    ------------   -----------
Total .............  $13,437,000    $ 11,062,000   $19,308,000
                     ===========    ============   ===========
</TABLE>

                                      F-14



<PAGE>

     Significant  items  making up deferred  tax  liabilities  and  deferred tax
assets were as follows at December 31:




<TABLE>
<CAPTION>
                                                                                  1997            1998
                                                                             -------------   -------------
<S>                                                                          <C>             <C>
Deferred tax assets:
 Allowance for doubtful accounts .........................................    $ 4,624,000     $ 5,752,000
 Accrued vacation ........................................................      1,760,000       1,117,000
 Accrued self insurance ..................................................        580,000       1,220,000
 Acquired goodwill .......................................................      1,678,000       1,310,000
 Non-recurring accruals and reserves .....................................      5,107,000       5,255,000
 Net operating losses ....................................................        506,000               -
 Other ...................................................................        109,000       1,446,000
                                                                              -----------     -----------
  Deferred tax assets ....................................................    $14,364,000     $16,100,000
                                                                              ===========     ===========
Deferred tax liabilities:
 Book to tax depreciation ................................................    $ 1,716,000     $ 2,307,000
 Joint venture deferred liabilities ......................................              -       1,280,000
 Goodwill, principally due to differences in amortization periods ........      4,400,000       4,758,000
 Accounts receivable mark-to-market ......................................              -       1,596,000
 Research and development expense ........................................      1,520,000       4,864,000
 Other ...................................................................         77,000       1,331,000
                                                                              -----------     -----------
  Deferred tax liabilities ...............................................    $ 7,713,000     $16,136,000
                                                                              ===========     ===========
</TABLE>

     A reconciliation of the federal  statutory rate to the Company's  effective
tax rate was as follows for the years ended December 31:



<TABLE>
<CAPTION>
                                                         1996           %
                                                   --------------- ----------
<S>                                                <C>             <C>
Tax provision at federal statutory rate ..........  $ 14,309,000       34.5%
State taxes, net of federal income tax
 benefit .........................................     1,488,000        3.6
PPS S corporation status .........................    (2,441,000)      (5.9)
Non-deductible goodwill ..........................       367,000        0.9
Non-deductible non-recurring charges and
 acquisition costs ...............................             -          -
Other items, net .................................      (286,000)      (0.7)
                                                    ------------       ----
                                                    $ 13,437,000       32.4%
                                                    ============       ====



<CAPTION>
                                                         1997            %           1998           %
                                                   ---------------- ---------- --------------- ----------
<S>                                                <C>              <C>        <C>             <C>
Tax provision at federal statutory rate ..........   $  7,372,000       35.0%   $ 14,628,000       35.0%
State taxes, net of federal income tax
 benefit .........................................        925,000        4.4       1,766,000        4.2
PPS S corporation status .........................     (2,582,000)     (12.3)              -          -
Non-deductible goodwill ..........................      1,003,000        4.8       1,149,000        2.8
Non-deductible non-recurring charges and
 acquisition costs ...............................      4,064,000       19.3       1,815,000        4.3
Other items, net .................................        280,000        1.3         (50,000)      (0.1)
                                                     ------------      -----    ------------       ----
                                                     $ 11,062,000       52.5%   $ 19,308,000       46.2%
                                                     ============      =====    ============       ====
</TABLE>

     PPS'  shareholders  had elected S Corporation  taxing  status.  Thus,  PPS'
taxable income was taxed directly to its  shareholders.  PPS did pay state taxes
in  Illinois,  Pennsylvania,  California  and Utah based on its taxable  income.
Effective  with the merger with  Concentra,  PPS' taxable  income is included in
Concentra's consolidated income tax returns.


(9) STOCKHOLDERS' EQUITY


(A) PREFERRED STOCK


     The Board of Directors is authorized to issue shares of Preferred Stock, in
one or more series, and to fix for each such series the number of shares thereof
and voting powers and such preferences and relative, participating,  optional or
other special rights and such qualifications, limitations or restrictions as are
permitted by the Delaware General  Corporation Law. The Board of Directors could
authorize  the issuance of shares of Preferred  Stock with terms and  conditions
that could discourage a takeover or other  transaction that holders of some or a
majority of shares of Common Stock might  believe to be in their best  interests
or in which such holders  might receive a premium for their shares of stock over
the then  market  price of such  shares.  As of the date  hereof,  no  shares of
Preferred  Stock are  outstanding  and the  Board of  Directors  has no  present
intention  to issue  any  shares of  Preferred  Stock.  See Note 14  "Subsequent
Events" for related disclosure.


                                      F-15



<PAGE>

(B) STOCKHOLDER RIGHTS PLAN

     Shortly  after  the 1997  Merger,  on  September  17,  1997,  the  Board of
Directors declared,  pursuant to a rights agreement (the "Rights Agreement"),  a
dividend  distribution  of one common share  purchase  right  ("Right") for each
outstanding share of Common Stock. Each Right will entitle the registered holder
to  purchase  from  Concentra  one  thousandth  of a share  of  Series  A Junior
Participating  Preferred Stock, par value $.01 per share (the "Junior  Preferred
Shares"),  of  Concentra at a price per share to be  determined  by the Board of
Directors with the advice of its financial advisor about the long-term prospects
for the Company's  value (the "Purchase  Price"),  subject to  adjustment.  Each
thousandth of a Junior  Preferred Share will be  economically  equivalent to one
share  of  Concentra  Common  Stock.  The  Purchase  Price  is  expected  to  be
significantly higher than the trading price of the Common Stock. Therefore,  the
dividend will have no initial value and no impact on the consolidated  financial
statements  of  the  Company.  See  Note  14, "Subsequent  Events"  for  related
disclosure.


(C) COMMON STOCK

     At December 31, 1998,  the Company has  reserved  approximately  16,839,000
unissued  shares of its Common Stock for possible  issuance  under the Company's
stock  option  or  stock  purchase  plans  and for the  issuance  upon  possible
conversion of the Company's 6% and 4.5% Convertible Subordinated Notes.


(10) COMMITMENTS AND CONTINGENCIES

     The Company leases certain  corporate  office space,  operating and medical
facilities,  and office  and  medical  equipment  under  various  non-cancelable
operating and capital lease  agreements.  Certain  facility  leases  require the
Company to pay increases in operating  costs and real estate taxes. In addition,
the  Company  leases  certain  office  facilities  from  related  parties  under
operating  lease  agreements  that expire on various dates through  December 31,
2003. The Company made rental  payments of $726,000 to Colonial  Realty Trust, a
real estate  company owned by a shareholder  and board member of the Company for
each of the years ended  December 31, 1996,  1997 and 1998.  The  following is a
schedule of rent expense by major category for the years ended December 31:




<TABLE>
<CAPTION>
                                   1996           1997           1998
                              -------------- -------------- --------------
<S>                           <C>            <C>            <C>
Facilities ..................  $13,009,000    $17,406,000    $22,597,000
Office equipment ............    1,166,000      2,029,000      3,091,000
Automobiles .................    2,729,000      2,976,000      3,647,000
                               -----------    -----------    -----------
Total rent expense ..........  $16,904,000    $22,411,000    $29,335,000
                               ===========    ===========    ===========
</TABLE>

     The  following  is a  schedule  of  future  minimum  lease  payments  under
non-cancelable operating and capital leases for the years ending December 31:




<TABLE>
<CAPTION>
                                                      OPERATING LEASES
                                       ----------------------------------------------
                            CAPITAL       RELATED        UNRELATED
                             LEASES       PARTIES         PARTIES           TOTAL
                           ---------   ------------   --------------   --------------
<S>                        <C>         <C>            <C>              <C>
Year Ending December 31,
1999 ...................    $34,000     $  700,000     $22,681,000      $23,381,000
2000 ...................     22,000        700,000      18,231,000       18,931,000
2001 ...................          -        700,000      14,505,000       15,205,000
2002 ...................          -        700,000      12,592,000       13,292,000
2003 ...................          -        700,000       9,261,000        9,961,000
Thereafter .............          -              -       8,162,000        8,162,000
                            -------     ----------     -----------      -----------
                            $56,000     $3,500,000     $85,432,000      $88,932,000
                            =======     ==========     ===========      ===========
</TABLE>

     A  wholly-owned  subsidiary  of Health  Services has committed to guarantee
$21,408,000 in senior discount notes, plus interest,  issued by four development
corporations   (Concentra   Development   Corporation,   Concentra   Development
Corporation II,  Concentra/Sherrer  Development  Corporation and  Concentra/RDA,
Inc.). The stated principal amount of the notes total $42,768,000, which will be
their accreted value at their stated  maturity (two to five years after the date
of  issuance  of  each  note).   These  corporations  have  been  organized  and
capitalized  by a third  party to  develop  occupational  healthcare  centers in
selected  markets in the United  States.  Health  Services also has the right to
acquire


                                      F-16



<PAGE>

the developed  centers at fair market value in the future.  Health  Services has
entered into a management agreement with the development  corporations to manage
the healthcare centers' daily operations.

     The  Company is party to certain  claims and  litigation  initiated  in the
ordinary course of business. The Company is not involved in any legal proceeding
that it believes will result,  individually  or in the aggregate,  in a material
adverse effect upon its financial  condition or results of operations.  See Note
14, "Subsequent Events" for further claims and litigation disclosures.
 


(11) EMPLOYEE BENEFIT PLANS


(A) CONCENTRA 401(K) PLAN

     The Company has a defined  contribution plan (the "Concentra 401(k) Plan"),
formerly  the  Managed  Care  Services  401(k) Plan (the "MCS  Concentra  401(k)
Plan"),  pursuant  to which  employees  who are at least 21 years of age and who
have  completed  at least six months of service  are  eligible  to  participate.
Participants  in the  Concentra  401(k)  Plan may not  contribute  more than the
lesser  of a  specified  statutory  amount  or 15% of  his or her  pretax  total
compensation.   The  Concentra  401(k)  Plan  permits,  but  does  not  require,
additional  matching   contributions  of  up  to  50%  of  participants'  pretax
contributions  up to a maximum of 6% of compensation  by the Company.  Employees
are 100% vested in their own contributions while Company  contributions vest 20%
per year with  employees  being fully  vested  after five years.  For 1998,  the
Company  is  making  a  matching  contribution  of 50% of  participant's  pretax
contributions up to 4% of compensation.


(B) HEALTH SERVICES 401(K) PLAN

     Health Services'  defined  contribution  plan (the "HS 401(k) Plan") merged
into the  Concentra  401(k)  Plan as of July 1,  1998.  The HS  401(k)  Plan had
similar  terms to those of the  Concentra  401(k)  Plan.  There were no matching
contributions under the plan in 1996, 1997 and 1998.


(D) PPS 401(K) PLAN

     PPS'  defined  contribution  plan (the "PPS 401(k)  Plan")  merged into the
Concentra  401(k)  Plan as of August 1, 1998.  The PPS 401(k)  Plan had  similar
terms to those of the Concentra  401(k) Plan.  For the years ended  December 31,
1996 and 1997 and the  seven-month  period in 1998,  PPS elected to match 25% of
employee  contributions  up to 7% of gross  earnings.  The Company has  expensed
$910,000,  $1,053,000 and $1,508,000 for the years ended December 31, 1996, 1997
and 1998, respectively,  for matching contributions to the Concentra 401(k), the
MCS 401(k) and the PPS 401(k) Plans.
 


(12) STOCK PURCHASE PLAN AND STOCK OPTION PLANS


(A) CONCENTRA 1997 EMPLOYEE STOCK PURCHASE PLAN

     The Concentra 1997 Employee Stock Purchase Plan (the "1997 Purchase  Plan")
for employees of the Company  authorizes the issuance of up to 500,000 shares of
Common Stock  pursuant to the  exercise of  nontransferable  options  granted to
participating   employees.  The  1997  Purchase  Plan  is  administered  by  the
Compensation Committee of the Board of Directors.

     Under the terms of the 1997 Purchase  Plan, an employee must  authorize the
Company in writing to deduct an amount  (not less than 1% nor more than 15% of a
participant's base compensation and in any event not more than $25,000) from his
or her pay during six month  periods  commencing on January 1 and July 1 of each
year (each a "Purchase  Period").  The exercise price for shares purchased under
the 1997 Purchase Plan for each Purchase Period is the lesser of 85% of the fair
market  value of the  Common  Stock on the  first  or last  business  day of the
Purchase Period.  The fair market value will be the closing selling price of the
Common Stock as quoted.


(B) MANAGED CARE SERVICES AND HEALTH SERVICES EMPLOYEE STOCK PURCHASE PLANS

     Managed Care Services and Health Services each had employee stock purchase
plans under similar terms and conditions as those under the 1997 Purchase Plan.
 


                                      F-17



<PAGE>

     The Company issued the following  shares of Common Stock under the employee
stock purchase plans for each of the following purchase periods:


<TABLE>
<CAPTION>
                                             WEIGHTED
                                              AVERAGE
                                 NUMBER        PRICE
PURCHASE PERIODS ENDED         OF SHARES     PER SHARE
---------------------------   -----------   ----------
<S>                           <C>           <C>
December 31, 1995 .........      32,682      $ 10.49
June 30, 1996 .............      29,089      $ 10.59
December 31, 1996 .........      44,606      $ 22.18
June 30, 1997 .............      50,056      $ 21.38
December 31, 1997 .........      47,245      $ 24.86
June 30, 1998 .............      64,587      $ 22.10
December 31, 1998 .........     160,512      $  9.08
</TABLE>

(C) CONCENTRA 1997 LONG-TERM INCENTIVE PLAN

     Concentra  may grant  awards  with  respect to shares  under the  Company's
Long-term Incentive Plan (the "Concentra  Incentive Plan"). The awards under the
Concentra Incentive Plan include:  (i) incentive stock options qualified as such
under U.S.  federal  income tax laws,  (ii) stock options that do not qualify as
incentive  stock  options,  (iii)  stock  appreciation  rights  ("SARs"),   (iv)
restricted stock awards and (v) performance units.

     The number of shares of Common  Stock  that may be  subject to  outstanding
awards  under  the  Concentra  Incentive  Plan at any one  time is  equal to ten
percent of the total  number of  outstanding  shares of  Concentra  Common Stock
(treating as outstanding all shares of Common Stock issuable within 60 days upon
exercise  of  stock   options  or   conversion   or  exchange  of   outstanding,
publicly-traded  convertible or exchangeable  securities of Concentra) minus the
total number of shares of Common Stock subject to  outstanding  awards under the
Concentra  Incentive  Plan and any  future  stock-based  plan for  employees  or
directors of Company.  At December 31, 1998, the Company was authorized to award
grants of approximately 5,019,000 shares under the Concentra Incentive Plan. The
number of shares authorized under the Concentra Incentive Plan and the number of
shares  subject to an award under the Concentra  Incentive Plan will be adjusted
for stock splits, stock dividends, recapitalizations,  mergers and other changes
affecting the capital stock of Concentra.

     During 1997,  the Company  granted  restricted  stock for 357,000 shares of
Common Stock under the 1997  Incentive  Plan which were valued at  approximately
$9,903,000 based upon the market value of the shares at the time of issuance. As
of December 31, 1998,  93,000  shares of the  restricted  stock granted in 1997,
valued at  $2,806,000,  have been canceled due to  forfeiture.  During 1998, the
Company  granted  restricted  stock for 48,000  shares of Common Stock under the
1997 Incentive Plan which were valued at $1,413,000  based upon the market value
of the shares at the time of issuance.  The restricted stock grants vest 25% per
year beginning January 1, 2002. If the Company's  financial  performance exceeds
certain  established  performance  goals,  however,  the vesting of these shares
could accelerate whereby 33-1/3% of the shares could become vested on January 1,
2000 and each year  thereafter.  For the years ended December 31, 1997 and 1998,
the Company  recorded  amortization of $562,000 and $805,000,  respectively,  in
connection with the deferred  compensation  associated with the restricted stock
grants. During 1997 and 1998, the Company also granted 2,754 and 3,570 shares of
restricted stock to outside directors that vest over one year.

     After the 1997 Merger,  no additional awards were made under the former CRA
and  OccuSystems  stock  option  plans and only that  number of shares of Common
Stock  issuable  upon  exercise  of  awards  granted  under the  former  CRA and
OccuSystems  stock option plans as of the 1997 Merger were reserved for issuance
by the Company.

     In connection with the 1996 Transaction, PPS canceled all outstanding stock
options and  terminated  all  existing  stock  option  plans.  In return for the
cancellation of outstanding  options,  PPS made a cash payment to the holders of
these  options,  which  resulted  in  a  compensation  charge  of  approximately
$484,000.  Upon  the  cancellation  of the  options,  PPS  adopted  the 1996 PPS
Replacement  Stock Option Plan and the 1996 PPS Incentive  Stock Option Plan for
its key employees. The plan provided for the issuance of up to 325,000 shares of
PPS common stock.  The exercise price for the incentive  stock options could not
be less than the fair market  value of the  underlying  PPS common  stock on the
date of grant. After the merger, no additional awards were made under




                                      F-18



<PAGE>

the  former  PPS stock  option plans and outstanding PPS options were assumed by
the Concentra Incentive Plan  totaling approximately 580,000 shares of Concentra
common stock.

     A summary of the status for all  outstanding  options at December 31, 1996,
1997 and 1998 and changes  during the years then ended is presented in the table
below:




<TABLE>
<CAPTION>
                                                           WEIGHTED
                                           NUMBER        AVERAGE PRICE
                                         OF SHARES         PER SHARE
                                      ---------------   --------------
<S>                                   <C>               <C>
Balance December 31, 1995 .........       2,697,593        $   8.18
 Granted ..........................       1,959,777           18.07
 Exercised ........................        (633,143)           4.41
 Canceled .........................        (158,485)          13.79
                                          ---------        --------
Balance December 31, 1996 .........       3,865,742           13.59
 Granted ..........................       2,925,655           22.51
 Exercised ........................        (801,593)           9.02
 Canceled .........................        (268,017)          20.71
                                          ---------        --------
Balance December 31, 1997 .........       5,721,787           18.46
 Granted ..........................       2,945,570           21.43
 Exercised ........................        (696,473)           6.77
 Canceled .........................      (1,277,335)          24.53
                                         ----------        --------
Balance December 31, 1998 .........       6,693,549        $  20.21
                                         ==========        ========
</TABLE>

     The weighted  average fair market value of options granted in 1997 and 1998
were $25.89 and $21.95,  respectively.  A further  breakdown of the  outstanding
options at December 31, 1998 is as follows:




<TABLE>
<CAPTION>
                                                          WEIGHTED
                                           WEIGHTED        AVERAGE       EXERCISABLE     WEIGHTED
         RANGE OF            NUMBER OF      AVERAGE      CONTRACTUAL      NUMBER OF      AVERAGE
     EXERCISE PRICES          OPTIONS        PRICE      LIFE (YEARS)       OPTIONS        PRICE
-------------------------   -----------   ----------   --------------   -------------   ---------
<S>                         <C>           <C>              <C>           <C>             <C>
$ 0.00 - $12.39 .........    2,357,919     $  6.00         8.06            840,105       $  5.61
$12.74 - $23.13 .........    1,065,591       20.43         7.60            408,339         19.50
$23.17 - $27.88 .........      521,789       26.24         8.15            198,800         26.30
$29.44 - $32.63 .........    2,479,250       30.88         9.15            153,250         32.63
$32.75 - $33.88 .........      269,000       33.75         8.87             81,000         33.46
                             ---------     -------         ----            -------       -------
                             6,693,549     $ 20.21         8.43          1,681,494       $ 15.23
</TABLE>

(D) SFAS 123 DISCLOSURES


     The  Company  accounts  for these  plans  under APB No. 25,  under which no
compensation  cost has been  recognized  related  to stock  option  grants.  Had
compensation  cost for these plans been determined  consistent with Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  ("SFAS 123"),  the  Company's  net income,  pro forma net income,
earnings  per share and pro forma  earnings per share would have been reduced to
the following supplemental pro forma amounts:


                                      F-19



<PAGE>


<TABLE>
<CAPTION>
                                              1996               1997               1998
                                        ----------------   ----------------   ----------------
<S>                                     <C>                <C>                <C>
Net Income:
 As reported ........................     $ 28,039,000       $ 10,000,000     $22,486,000
 Supplemental pro forma .............     $ 22,555,000       $  3,612,000     $ 8,864,000
 Pro forma as reported (1) ..........     $ 25,309,000       $  7,189,000
 Supplemental pro forma (1) .........     $ 19,825,000       $    801,000
Basic Earnings Per Share:
 As reported ........................     $       0.69       $       0.23     $      0.48
 Supplemental pro forma .............     $       0.56       $       0.08     $      0.19
 Pro forma as reported (1) ..........     $       0.63       $       0.17
 Supplemental pro forma (1) .........     $       0.49       $       0.02
Diluted Earnings Per Share: .........
 As reported ........................     $       0.65       $       0.22     $      0.47
 Supplemental pro forma .............     $       0.53       $       0.08     $      0.19
 Pro forma as reported (1) ..........     $       0.59       $       0.16
 Supplemental pro forma (1) .........     $       0.46       $       0.02
</TABLE>

--------
   
(1) Pro forma  net income and  basic and diluted  pro forma  earnings  per share
    for the years ended  December 31, 1996 and 1997 have been  calculated  as if
    PPS had been  subject  to  federal  and state  income  taxes for the  entire
    period,  based upon an effective tax rate  indicative of the statutory rates
    in effect.  Prior to its merger with the Company, PPS elected to be taxed as
    an S  corporation,  and  accordingly,  was not  subject to federal and state
    income taxes in certain jurisdictions.

     Because  the method of  accounting  under SFAS 123 has not been  applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost  may  not be  representative  of  that  to be  expected  in  future  years.
Additionally,  the  1996,  1997 and 1998 pro  forma  amounts  include  $229,000,
$396,000 and $509,000,  respectively,  related to purchase  discounts offered on
employee  stock  purchase  plans.  The fair  value  of each  option  granted  is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions used for grants in 1996, 1997 and 1998, respectively:




<TABLE>
<CAPTION>
                                                                   1996         1997         1998
                                                                 --------    --------      ------
<S>                                                             <C>          <C>          <C>
Risk-free interest rates ....................................       5.25%        5.50%        5.18%
Expected volatility .........................................      45.29%       45.29%       78.91%
Expected dividend yield .....................................          -            -            -
Expected weighted average life of options in years ..........        3.4          3.7          3.0
</TABLE>

(13) SEGMENT INFORMATION

     Operating segments represent  components of the Company's business that are
evaluated  regularly by key  management  in assessing  performance  and resource
allocation.  The Company has determined that its reportable  segments consist of
its Health  Services,  Specialized  Cost  Containment  and Field Case Management
Groups. The following are the reportable segments:

     Health  Services  manages  occupational  healthcare  centers  at  which  it
provides  support  personnel,  marketing,  information  systems  and  management
services to its affiliated  physicians.  Health  Services owns all the operating
assets of the occupational healthcare centers, including leasehold interests and
medical equipment.

     Specialized  Cost  Containment  services  include  first  report of injury,
utilization  management  (precertification  and concurrent review) retrospective
medical bill review, telephonic case management, preferred provider organization
("PPO") network access,  independent medical examinations ("IMEs"), peer reviews
and hospital bill  auditing.  These  services are designed to reduce the cost of
workers' compensation claims, automobile accident injury claims and group health
claims.


                                      F-20



<PAGE>

     Field Case Management  provides services involving case managers and nurses
working on a one-on-one  basis with injured  employees and their various  health
care  professionals,  employers  and  insurance  company  adjusters to assist in
maximizing medical improvement and, where appropriate, to expedite the return to
work.

     The Health Services Group is managed  separately and has different economic
characteristics  from the Specialized Cost Containment and Field Case Management
groups, and is therefore shown as a separate reportable segment.  The Field Case
Management Group and certain operating segments included in the Specialized Cost
Containment Groups have similar economic  characteristics and may share the same
management  and/or  locations.  However,  the  Field  Case  Management  Group is
reported  as a  separate  segment  for  management  reporting  purposes  and  it
represents 58.7%, 49.3% and 47.7% of total Managed Care Services revenue for the
years ended December 31, 1996, 1997 and 1998, respectively.

     Revenues from individual customers,  revenues between business segments and
revenues, operating profit and identifiable assets of foreign operations are not
significant.

     The  Company's  Statements  of  Operations on a segment basis for the years
ended December 31, 1996, 1997 and 1998 were as follows:




<TABLE>
<CAPTION>
                                                 1996              1997              1998
                                           ---------------   ---------------   ---------------
<S>                                        <C>               <C>               <C>
Revenue:                                
 Health services .......................    $170,035,000      $212,237,000      $265,205,000
 Managed care services:
  Specialized cost containment .........      83,784,000       142,919,000       183,734,000
  Field case management ................     118,864,000       138,723,000       167,841,000
                                            ------------      ------------      ------------
  Total managed care services ..........     202,648,000       281,642,000       351,575,000
                                            ------------      ------------      ------------
                                             372,683,000       493,879,000       616,780,000
Gross profit margins:
 Health services .......................      39,281,000        53,250,000        59,219,000
 Managed care services:
  Specialized cost containment .........      23,630,000        42,907,000        60,440,000
  Field case management ................      19,844,000        21,472,000        23,019,000
                                            ------------      ------------      ------------
  Total managed care services ..........      43,474,000        64,379,000        83,459,000
                                            ------------      ------------      ------------
                                              82,755,000       117,629,000       142,678,000
Operating income before non-recurring
 charges(1):
 Health services .......................      20,706,000        32,857,000        35,082,000
 Managed care services .................      25,452,000        38,819,000        53,899,000
                                            ------------      ------------      ------------
                                              46,158,000        71,676,000        88,981,000
Non-recurring charge ...................         964,000        38,625,000        33,114,000
Interest expense .......................       3,741,000        12,667,000        18,021,000
Interest income ........................        (859,000)       (2,297,000)       (4,659,000)
Other expense, net .....................         836,000         1,619,000           711,000
                                            ------------      ------------      ------------
 Income before income taxes ............      41,476,000        21,062,000        41,794,000
Provision for income taxes .............      13,437,000        11,062,000        19,308,000
                                            ------------      ------------      ------------
 Net income ............................    $ 28,039,000      $ 10,000,000      $ 22,486,000
                                            ============      ============      ============
</TABLE>

--------
(1) Corporate-level  general and  administrative  expenses  are  reported in the
    Health  Services and Managed Care Services groups based on where general and
    administrative   activities   are  budgeted.   The  Company  does  not  make
    allocations of corporate level general and administrative expenses.


                                      F-21



<PAGE>

     The Company's segment  depreciation and amortization,  capital expenditures
and identifiable assets for the years ended December 31, 1996, 1997 and 1998 are
as follows:




<TABLE>
<CAPTION>
                                         1996               1997               1998
                                   ----------------   ----------------   ---------------
<S>                                <C>                <C>                <C>
Depreciation and amortization:
 Health services ...............    $   6,827,000      $   9,367,000      $  11,660,000
 Managed care services .........        3,321,000          7,376,000         11,552,000
                                    -------------      -------------      -------------
                                    $  10,148,000      $  16,743,000      $  23,212,000
                                    =============      =============      =============
Capital expenditures:
 Health services ...............    $  19,296,000      $  17,673,000      $  19,443,000
 Managed care services .........        4,728,000          8,673,000         14,952,000
                                    -------------      -------------      -------------
                                    $  24,024,000      $  26,346,000      $  34,395,000
                                    =============      =============      =============
Identifiable assets:
 Health services ...............    $ 260,619,000      $ 261,959,000      $ 309,788,000
 Managed care services .........      107,281,000        221,012,000        347,375,000
                                    -------------      -------------      -------------
                                    $ 367,900,000      $ 482,971,000      $ 657,163,000
                                    =============      =============      =============
</TABLE>

(14) SUBSEQUENT EVENTS

     On March 2, 1999,  Concentra  entered into a definitive  agreement to merge
(the "Merger") with Yankee Acquisition Corp. ("Yankee"), a corporation formed by
Welsh,  Carson,  Anderson & Stowe ("WCAS"),  a 14.8% stockholder of the Company.
Concentra's Board of Directors  unanimously  approved the transaction based upon
the recommendation of its special committee of the Board of Directors, which was
formed on October  29, 1998 to evaluate  strategic  alternatives  in response to
several unsolicited  expressions of interest regarding the possible  acquisition
of some or all of the  Company's  Common  Stock.  On March 24,  1999,  Concentra
entered  into an Amended and Restated  Agreement  and Plan of Merger with Yankee
(the "Amended  Merger  Agreement").  Pursuant to the Amended  Merger  Agreement,
Yankee  will  acquire  approximately  93% and funds  managed  by Ferrer  Freeman
Thompson & Co. ("FFT") will acquire  approximately 7% of the post-merger  shares
of common stock of the Company for $16.50 per share.  As a result of the Merger,
each  outstanding  share of Concentra  Common  Stock will be converted  into the
right to receive $16.50 in cash.

     In connection with the Merger,  effective March 2, 1999,  Concentra amended
its Rights Agreement.  The amendment  provides,  among other things, that Yankee
and its  affiliates  will not be deemed  an  Acquiring  Person  (as such term is
defined  in the Rights  Agreement)  and that the Rights  Agreement  will  expire
immediately prior to the effective time of the Merger.

     The transaction is valued at  approximately  $1,100,000,000,  including the
refinancing of $327,750,000 of the 6% and 4.5%  Convertible  Subordinated  Notes
which  contain  change in control  provisions  in the  related  indentures.  The
transaction  is  structured  to be accounted  for as a  recapitalization  and is
expected to be completed late in the second quarter of 1999. The  transaction is
conditioned upon, among other things, approval of the shareholders of Concentra,
receipt of financing and certain regulatory approvals.

     To finance the acquisition of the Company,  WCAS will invest  approximately
$350,000,000 in equity financing, including the value of shares already owned by
WCAS, and up to  $110,000,000 in subordinated  indebtedness.  Additionally,  FFT
will  invest  approximately  $30,000,000  in  equity.  WCAS  has  also  received
commitments  from various lenders to provide Yankee with  $190,000,000 in senior
subordinated notes, a $375,000,000 term loan and a $100,000,000 revolving credit
facility to replace the Company's existing Senior Credit Facility. Additionally,
Yankee would also utilize the  Company's  excess cash on hand at the time of the
merger to help  finance the  purchase  of the Common  Stock.  Subsequent  to the
exchange of shares for cash,  Yankee would merge with  Concentra  Managed  Care,
Inc. with Concentra Managed Care, Inc. surviving.

     As of March 26, 1999,  Concentra is aware of three  lawsuits that have been
filed by alleged  stockholders  of Concentra  relating to the Merger.  All three
lawsuits were filed in the Chancery Court for New Castle County,  Delaware. Each
of the lawsuits names  Concentra,  its directors and Yankee as  defendants.  The
plaintiff  in each  lawsuit  seeks to  represent a putative  class of all public
holders of Concentra common stock. The lawsuits allege, among other things, that
the  directors of  Concentra  breached  their  fiduciary  duties to  Concentra's
stockholders  by approving the Merger.  The lawsuits  seek,  among other things,
preliminary  and permanent  injunctive  relief


                                      F-22



<PAGE>

prohibiting consummation of the Merger, unspecified damages, attorneys' fees and
other relief. Concentra expects that these  lawsuits will be  consolidated  into
a single  action.  The Company intends to contest these lawsuits vigorously.

(15) SELECTED FINANCIAL DATA




<TABLE>
<CAPTION>
                                                FOR THE YEAR ENDED DECEMBER 31,
                                               ---------------------------------
                                                     1994             1995
                                               --------------- -----------------
<S>                                            <C>             <C>
STATEMENT OF OPERATIONS DATA:
Revenue ......................................  $223,499,000     $ 305,355,000
Gross profit .................................    37,093,000        62,435,000
Non-recurring charges ........................             -           898,000
Operating income .............................    15,928,000        29,446,000
Income before taxes ..........................    10,088,000        24,246,000
Provision for income taxes (1) ...............     8,751,000         7,771,000
Net income before extraordinary
 items (1) ...................................     1,337,000        16,475,000
Pro forma net income before
 extraordinary items (2) .....................                   $  13,845,000
Basic earnings per share before
 extraordinary items .........................                   $        0.48
Basic pro forma earnings per share
 before extraordinary items (2) ..............                   $        0.41
Basic weighted average shares
 outstanding .................................                      33,810,000
Diluted earnings per share before
 extraordinary items .........................                   $        0.46
Diluted pro forma earnings per share
 before extraordinary items (2) ..............                   $        0.39
Diluted weighted average shares
 outstanding .................................                      35,939,000
BALANCE SHEET:
Working capital ..............................  $ 19,117,000     $  21,971,000
Total assets .................................   113,672,000       188,530,000
Total debt ...................................    83,785,000        34,639,000
Total stockholders' equity (deficit) .........    (5,820,000)      109,383,000



<CAPTION>
                                                          FOR THE YEAR ENDED DECEMBER 31,
                                               -----------------------------------------------------
                                                      1996              1997              1998
                                               ----------------- ----------------- -----------------
<S>                                            <C>               <C>               <C>
STATEMENT OF OPERATIONS DATA:
Revenue ......................................   $ 372,683,000     $ 493,879,000     $ 616,780,000
Gross profit .................................      82,755,000       117,628,000       142,678,000
Non-recurring charges ........................         964,000        38,625,000        33,114,000
Operating income .............................      45,194,000        33,051,000        55,867,000
Income before taxes ..........................      41,476,000        21,062,000        41,794,000
Provision for income taxes (1) ...............      13,437,000        11,062,000        19,308,000
Net income before extraordinary
 items (1) ...................................      28,039,000        10,000,000     $  22,486,000
Pro forma net income before
 extraordinary items (2) .....................   $  25,309,000     $   7,189,000
Basic earnings per share before
 extraordinary items .........................   $        0.69     $        0.23     $        0.48
Basic pro forma earnings per share
 before extraordinary items (2) ..............   $        0.63     $        0.17
Basic weighted average shares
 outstanding .................................      40,411,000        42,774,000        46,451,000
Diluted earnings per share before
 extraordinary items .........................   $        0.65     $        0.22     $        0.47
Diluted pro forma earnings per share
 before extraordinary items (2) ..............   $        0.59     $        0.16
Diluted weighted average shares
 outstanding .................................      43,344,000        46,895,000        47,827,000
BALANCE SHEET:
Working capital ..............................   $ 116,439,000     $  37,118,000     $ 202,370,000
Total assets .................................     367,900,000       482,971,000       657,163,000
Total debt ...................................     142,229,000       206,600,000       327,925,000
Total stockholders' equity (deficit) .........     178,146,000       206,441,000       239,875,000
</TABLE>

--------
(1) Prior to its  recapitalization in March of 1994, CRA had elected to be taxed
    as an "S"  corporation.  In connection  with its  recapitalization,  CRA was
    required to change from an "S" to a "C" corporation. This change resulted in
    CRA  recording  an  incremental  tax  provision of  $3,772,000  in the first
    quarter of 1994. The Company's pro forma net income for 1994 would have been
    $3,466,000 higher had CRA had been subject to federal and state income taxes
    during the entire period based upon an effective tax rate  indicative of the
    statutory rate in effect during the period.

(2) Pro forma net income and basic and  diluted  pro forma  earnings  per share,
    where applicable, for the years ended December 31, 1994, 1995, 1996 and 1997
    have been  calculated as if PPS had been subject to federal and state income
    taxes for the entire period,  based upon an effective tax rate indicative of
    the  statutory  rates in effect.  Prior to its merger with the Company,  PPS
    elected to be taxed as an S corporation, and accordingly, was not subject to
    federal and state income taxes in certain jurisdictions.


                                      F-23



<PAGE>

(16) SELECTED QUARTERLY OPERATING RESULTS (UNAUDITED)

     The  following  table sets forth  certain  unaudited  quarterly  results of
operations  for  each  of  the  eight  quarters  ended  December  31,  1998.  In
management's  opinion,  this unaudited information has been prepared on the same
basis  as  the  annual   financial   statements  and  includes  all  adjustments
(consisting  only  of  normal  recurring   adjustments)  necessary  for  a  fair
presentation  of the  information  for  the  quarters  presented,  when  read in
conjunction with the financial  statements and notes thereto included  elsewhere
in this  document.  The  operating  results for any quarter are not  necessarily
indicative of results for any subsequent quarter.




<TABLE>
<CAPTION>
                                                                           QUARTER ENDED
                                            ---------------------------------------------------------------------------
                                                MARCH 31,            JUNE 30,         SEPTEMBER 30,       DECEMBER 31,
                                                   1998                1998                1998               1998
                                            -----------------   -----------------   -----------------   ---------------
<S>                                         <C>                 <C>                 <C>                 <C>
Revenue .................................     $ 145,544,000       $ 158,884,000       $ 158,902,000      $153,450,000
Cost of services ........................       111,046,000         117,722,000         119,927,000       125,407,000
                                              -------------       -------------       -------------      ------------
Gross profit ............................        34,498,000          41,162,000          38,975,000        28,043,000
General and administrative expenses              10,699,000          11,294,000          11,883,000        11,654,000
Amortization ............................         2,027,000           2,048,000           2,063,000         2,029,000
Non-recurring charge ....................        12,600,000                   -                   -        20,514,000
                                              -------------       -------------       -------------      ------------
Operating income (loss) .................         9,172,000          27,820,000          25,029,000        (6,154,000)
Other expense, net ......................         3,758,000           3,423,000           3,584,000         3,308,000
Provision (benefit) for income taxes.....         4,567,000          10,236,000           9,000,000        (4,495,000)
                                              -------------       -------------       -------------      ------------
Net income (loss) .......................     $     847,000       $  14,161,000       $  12,445,000      ($ 4,967,000)
                                              =============       =============       =============      ============
Basic earnings (loss) per share .........             $0.02               $0.30               $0.26            ($0.11)
Diluted earnings (loss) per share .......             $0.02               $0.30               $0.26            ($0.11)
</TABLE>


<TABLE>
<CAPTION>
                                                                              QUARTER ENDED
                                              -----------------------------------------------------------------------------
                                                  MARCH 31,            JUNE 30,         SEPTEMBER 30,        DECEMBER 31,
                                                     1997                1997                1997                1997
                                              -----------------   -----------------   -----------------   -----------------
<S>                                           <C>                 <C>                 <C>                 <C>
Revenue ...................................     $ 107,142,000       $ 120,728,000        $131,212,000       $ 134,797,000
Cost of services ..........................        83,162,000          91,600,000          97,123,000         104,365,000
                                                -------------       -------------        ------------       -------------
Gross profit ..............................        23,980,000          29,128,000          34,089,000          30,432,000
General and administrative expenses                 9,033,000           9,980,000          10,311,000          10,684,000
Amortization ..............................         1,235,000           1,165,000           1,576,000           1,969,000
Non-recurring charge ......................                 -                   -          38,625,000                   -
                                                -------------       -------------        ------------       -------------
Operating income (loss) ...................        13,712,000          17,983,000         (16,423,000)         17,779,000
Other expense, net ........................         1,903,000           2,466,000           3,346,000           4,274,000
Provision for income taxes ................         4,106,000           5,395,000          (3,342,000)          4,903,000
                                                -------------       -------------        ------------       -------------
Net income (loss) .........................     $   7,703,000       $  10,122,000       ($ 16,427,000)      $   8,602,000
                                                =============       =============        ============       =============
Pro forma net income (loss) (1) ...........     $   7,080,000       $   9,440,000       ($ 17,548,000)      $   8,217,000
                                                =============       =============        ============       =============
Basic earnings (loss) per share ...........             $0.18               $0.24              ($0.38)              $0.20
Basic pro forma earnings (loss)
 per share (1) ............................             $0.17               $0.22              ($0.41)              $0.19
Diluted earnings (loss) per share .........             $0.17               $0.22              ($0.38)              $0.18
Diluted pro forma earnings (loss)
 per share (1) ............................             $0.15               $0.21              ($0.41)              $0.17
</TABLE>

--------
(1) Pro forma net income (loss) and basic and diluted pro forma earnings  (loss)
    per share for the four quarters ended December 31, 1997 have been calculated
    as if PPS had been  subject to federal and state income taxes for the entire
    period,  based upon an effective tax rate  indicative of the statutory rates
    in effect.  Prior to its merger with the Company, PPS elected to be taxed as
    an S  corporation,  and  accordingly,  was not  subject to federal and state
    income taxes in certain jurisdictions.


                                      F-24



<PAGE>

                                                        SUPPLEMENTAL SCHEDULE II


                          CONCENTRA MANAGED CARE, INC.
                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998




<TABLE>
<CAPTION>
                            BEGINNING        CHARGED                        NET DEDUCTIONS        ENDING
                             BALANCE        TO INCOME      ACQUISITIONS      FROM RESERVES        BALANCE
                          -------------   -------------   --------------   ----------------   --------------
<S>                       <C>             <C>             <C>              <C>                <C>
Accounts Receivable
 Allowance:
                  1996     $ 7,517,000     $ 8,978,000      $5,089,000      $  (9,953,000)     $11,631,000
                  1997      11,631,000      23,861,000       7,874,000        (22,906,000)      20,460,000
                  1998      20,460,000      29,147,000       1,968,000        (29,584,000)      21,991,000

Non-recurring Charges:
                  1996     $         -     $   964,000      $        -      $    (964,000)     $         -
                  1997               -      38,625,000               -        (31,098,000)       7,527,000
                  1998       7,527,000      33,114,000               -        (29,701,000)      10,940,000
</TABLE>

 

                                      S-1



<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE


To the Stockholders and Board of
Directors of Concentra Managed Care, Inc.

We have audited in accordance with generally  accepted auditing  standards,  the
financial  statements of Concentra Managed Care, Inc. and have issued our report
thereon dated  February 2, 1999 (except with respect to the matter  discussed in
Note 14,  as to which the date is March  26,  1999).  Our audit was made for the
purpose  of forming an  opinion  on the basic  financial  statements  taken as a
whole. The schedule listed in the index of the financial  statement schedules is
presented  for the  purpose  of  complying  with  the  Securities  and  Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP



ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1999

                                      S-2



<PAGE>

                               INDEX TO EXHIBITS



<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           DESCRIPTION
-------- -----------------------------------------------------------------------
<S>      <C>
2.1       Agreement  and Plan of  Merger  dated  February  24,  1998  among  the
          Registrant  and Preferred  Payment Sys- tems,  Inc.  (incorporated  by
          reference  to Exhibit 2.2 to the  Registrant's  Annual  Report on Form
          10-K (File No. 000-22751) filed with the SEC on March 31, 1998)

2.2       Agreement  and  Plan  of  Merger  dated  March 2, 1999  between Yankee
          Acquisition  Corp. and  the  Registrant (incorporated  by reference to
          Exhibit 2.1 to  the  Registrant's Current Report on Form 8-K (File No.
          000-22751) filed with the SEC on March 31, 1998)

2.3       Amended and Restated Agreement and Plan of Merger dated March 24, 1999
          between Yankee Acquisition Corp. and the Registrant (incorporated  by
          reference to Exhibit 2.1 to the Registrant's Current Report on Form
          8-K (File No.000-22751) filed with the SEC on March 29, 1999)


3.1       Amended and Restated  Certificate  of  Incorporation  dated August 27,
          1997  (incorporated  by reference  to Exhibit 3.1 to the  Registrant's
          Annual Report on Form 10-K (File No.  000-22751) filed with the SEC on
          March 31, 1998)

3.2       Bylaws of Registrant  (incorporated by reference to Exhibit 3.3 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

4.1       Form of Certificate of Common Stock,  par value $.01 per share, of the
          Registrant  (incorporated  by  refer-  ence  to  Exhibit  4.1  to  the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

4.2       Indenture  dated  December  24, 1996  between  OccuSystems  and United
          States  Trust  Company  of New York,  as  Trustee,  (the  "OccuSystems
          Indenture") relating to the 6% Convertible Subordinated Notes due 2001
          (incorporated by reference to Exhibit 4.1 to OccuSystems' Registration
          Statement  on Form S-3 (File No.  333-20933)  as filed with the SEC on
          January 31, 1997)

4.3       First   Supplemental   Indenture   dated   August  29,  1997   between
          OccuSystems,  the  Registrant  and United  States Trust Company of New
          York, as Trust, relating to the 6% Convertible  Subordinated Notes due
          2001 (incor-  porated by reference to Exhibit 4.2 to the  Registrant's
          Annual Report on Form 10-K (File No.  00-22751)  filed with the SEC on
          March 31, 1998)

4.4       Indenture  dated as of March 16, 1998 between the Registrant and Chase
          Bank of Texas, N.A., as Trustee, (the "Concentra  Indenture") relating
          to the 4.5% Convertible  Subordinated  Notes due 2003 (incorporated by
          reference  to the  Registrant's  Current  Report on Form 8-K (File No.
          000-22751) filed with the SEC on March 30, 1998)

4.5       Form of 6% Convertible  Subordinated  Note due 2001,  establishing the
          terms of the 6% Convertible  Subor- dinated Notes due 2001 pursuant to
          the OccuSystems  Indenture  (incorporated by reference to Exhibit A to
          the OccuSystems Indenture which Indenture is incorporated by reference
          to Exhibit  4.1 to  OccuSystems'  Registration  Statement  on Form S-3
          (File No. 333-20933) as filed with the SEC on January 31, 1997)

4.6       Form of 4.5% Convertible Subordinated Notes due 2003, establishing the
          terms of the 4.5% Convertible  Subordinated Notes due 2003 pursuant to
          the  Concentra  Indenture  (incorporated  by  reference  to the Regis-
          trant's Current Report on Form 8-K (File No. 000-22751) filed with the
          SEC on March 30, 1998)

4.7       Certificate of Designation of Series A Junior Participating  Preferred
          Stock  (incorporated  by reference to Exhibit 4.6 to the  Registrant's
          Annual Report on Form 10-K (File No.  000-22751) filed with the SEC on
          March 31, 1998)

4.8       Form  of  Right  Certificate  (included  as  Exhibit  B to the  Rights
          Agreement  filed as  Exhibit  10.2  hereto).  Pur- suant to the Rights
          Agreement,  printed Right  Certificates will not be delivered until as
          soon as  practicable  after the  Distribution  Date (as defined in the
          Rights Agreement)

4.9       Registration  Rights  Agreement dated as of March 11, 1998,  among the
          Registrant,  BT Alex.  Brown  Incor-  porated,  BancAmerica  Robertson
          Stephens,  Donaldson,  Lufkin & Jenrette  Securities  Corporation  and
          Piper  Jaffray Inc.  (incorporated  by  reference to the  Registrant's
          Current Report on Form 8-K (File No.  000-22751) filed with the SEC on
          March 30, 1998)

</TABLE>




<PAGE>


<TABLE>
<CAPTION>
 EXHIBIT
NUMBER                                DESCRIPTION
-------- -----------------------------------------------------------------------
<S>      <C>
4.10      Registration  Rights  Agreement  dated  as of  March  8,  1994,  among
          Comprehensive  Rehabilitation  Associates,  Inc., J.H.  Whitney & Co.,
          Whitney 1990 Equity Fund, L.P., Whitney  Subordinated Debt Fund, L.P.,
          First  Union  Corporation,  Lois E.  Silverman  and  Donald J.  Larson
          (incorporated  by  reference  to  Exhibit  10.7 to CRA's  Registration
          Statement on Form S-1 (File No.  33-90426) filed with the SEC on March
          17, 1995)

10.1      Amended and Restated  Credit  Agreement dated as of February 20, 1998,
          between the Registrant,  as Bor- rower, and First Union National Bank,
          as Administrative  Agent, Fleet National Bank, as Documentation Agent,
          and  the  banks  and  financial  institutions  listed  as  signatories
          thereto, as amended by that certain letter agreement dated as of March
          9, 1998, and as further amended by that certain letter agreement dated
          as of March 12, 1998 (incorporated by reference to Exhibit 10.1 to the
          Registrant's  Annual  Report on Form 10-K (File No.  000-22751)  filed
          with the SEC on March 31, 1998)

10.2      Purchase  Agreement dated as of March 11, 1998,  among the Registrant,
          BT  Alex.  Brown   Incorporated,   BancAmerica   Robertson   Stephens,
          Donaldson, Lufkin & Jenrette Securities Corporation and Piper Jaffray,
          Inc.  (incorporated by reference to the  Registrant's  Current Form on
          Form 8-K (File No. 000-22751) filed with the SEC on March 30, 1998)

10.3      Rights  Agreement  dated September 29, 1997 between the Registrant and
          ChaseMellon Shareholder Ser- vices, L.L.C.  (incorporated by reference
          to Exhibit 1 to the  Registrant's  Registration  Statement on Form 8-A
          filed with the SEC on October 1, 1998)

10.4      Concentra   Managed  Care,   Inc.  1997   Long-Term   Incentive   Plan
          (incorporated   by   reference  to  Appendix  G  to  the  Joint  Proxy
          Statement/Prospectus  forming a part of the Registrant's  Registration
          Statement on Form S-4 (File No.  333-27105) filed with the SEC on July
          31, 1997)

10.5      Concentra  Managed  Care,  Inc.  1997  Employee  Stock  Purchase  Plan
          (incorporated   by   reference  to  Appendix  H  to  the  Joint  Proxy
          Statement/Prospectus  forming a part of the Registrant's  Registration
          Statement on Form S-4 (File No.  333-27105) filed with the SEC on July
          31, 1997)

10.6      CRA Managed Care, Inc. 1995 Employee Stock Purchase Plan (incorporated
          by reference to Exhibit 10.25 to CRA's Registration  Statement on Form
          S-1 (File No. 33-90426) filed with the SEC on March 17, 1995)

10.7      CRA  Managed  Care,  Inc.  1994  Non-Qualified  Stock  Option Plan for
          Non-Employee  Directors  (incorporated by reference to Exhibit 10.3 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.8      CRA Managed Care, Inc. 1994 Non-Qualified Time Acceleration Restricted
          Stock Option Plan  (incorporated by reference to Exhibit 10.5 to CRA's
          Registration  Statement on Form S-1 (File No. 33-90426) filed with the
          SEC on March 17, 1995)

10.9      OccuSystems,  Inc. 1995  Long-Term  Incentive  Plan  (incorporated  by
          reference to Exhibit 10.10 to OccuSys- tems' Registration Statement on
          Form S-1 (File No. 33-79734) filed with the SEC on May 8, 1995)

10.10     First Amended and Restated OccuSystems,  Inc. and its Subsidiaries and
          Affiliates Stock Option and Restricted Stock Purchase Plan dated April
          28, 1992 (incorporated by reference to Exhibit 10.11 to Occu- Systems'
          Registration  Statement on Form S-1 (File No. 33-79734) filed with the
          SEC on May 8, 1995)

10.11     Employment  Agreement dated April 21, 1997, between the Registrant and
          Joseph F. Pesce  (incorporated  by  reference  to Exhibit  10.9 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.12     Employment  Agreement dated April 21, 1997, between the Registrant and
          Richard A. Parr II  (incorporated by reference to Exhibit 10.11 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.13     Employment  Agreement dated April 21, 1997, between the Registrant and
          W. Thomas Fogarty  (incorporated  by reference to Exhibit 10.13 to the
          Registrant's  Registration  Statement on Form S-4 (File No. 333-27105)
          filed with the SEC on July 31, 1997)

10.14     Employment  Agreement dated April 21, 1997, between the Registrant and
          James M.  Greenwood  (incorpo-  rated by reference to Exhibit 10.15 to
          the  Registrant's  Registration  Statement  on Form S-4 (File No. 333-
          27105) filed with the SEC on July 31, 1997)

</TABLE>




<PAGE>


<TABLE>
<CAPTION>
  EXHIBIT
NUMBER                               DESCRIPTION
---------- ---------------------------------------------------------------------
<S>        <C>
10.15     Indemnification  Agreement  dated  September  17,  1997,  between  the
          Registrant and Daniel J. Thomas (iden- tical  agreements were executed
          between the  Registrant  and each of the  following:  Joseph F. Pesce,
          Richard  A.  Parr II,  James M.  Greenwood,  W. Tom  Fogarty,  Kenneth
          Loffredo,  Mitchell  T.  Rabkin,  George  H.  Con-  rades,  Robert  A.
          Ortenzio,  Lois E.  Silverman,  Paul  B.  Queally,  John  K.  Carlyle)
          (incorporated by reference to Exhibit 10.17 to the Registrant's Annual
          Report on Form 10-K (File No.  000-22751)  filed with the SEC on March
          31, 1998)

10.16     Agreement  of  Acceptance  dated  as  of  July  29,  1997,  among  the
          Registrant,  Donald J. Larson and Lois E. Silverman  (incorporated  by
          reference to Exhibit 10.19 to the Registrant's  Registration Statement
          on Form S-4 (File No. 333-27105) filed with the SEC on July 31, 1997)

10.17     Software  License  Agreement  dated  February 10, 1995 between CRA and
          CompReview,  Inc.  (confidential  treatment granted)  (incorporated by
          reference  to  CRA's  Registration  Statement  on Form S-1  (File  No.
          33-90426) filed with the SEC on March 17, 1995)

10.18     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space  located at 168 U.S.  Route 1,
          Falmouth,  ME 04105  (incorporated  by reference  to Exhibit  10.10 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.19     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space  located at 46 Austin  Street,
          Newtonville,  MA 02160  (incorporated by reference to Exhibit 10.11 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.20     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located at 312 Union Wharf,
          Boston, MA 02109  (incorporated by reference to Exhibit 10.17 to CRA's
          Reg- istration  Statement on Form S-1 (File No.  33-90426)  filed with
          the SEC on March 17, 1995)

10.21     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial Realty Trust for office space located at 565 Turnpike Street,
          North Andover, MA 01845 (incorporated by reference to Exhibit 10.18 to
          CRA's  Registration  Statement on Form S-1 (File No.  33-90426)  filed
          with the SEC on March 17, 1995)

10.22     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space located at 15A Riverway Place,
          Bedford, NH 03110 (incorporated by reference to Exhibit 10.19 to CRA's
          Registration  Statement on Form S-1 (File No. 33-90426) filed with the
          SEC on March 17, 1995)

10.23     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located  at 509  Stillwells
          Corner Road, Freehold,  NJ 07728 (incorporated by reference to Exhibit
          10.20 to CRA's Registration  Statement on Form S-1 (File No. 33-90426)
          filed with the SEC on March 17, 1995)

10.24     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty Trust for office space located at 732 Thimble  Shoals
          Blvd.,  Newport News, VA 23606  (incorporated  by reference to Exhibit
          10.21 to CRA's Registration  Statement on Form S-1 (File No. 33-90426)
          filed with the SEC on March 17, 1995)

10.25     Lease  Agreement  dated  January 1, 1994  between the  Registrant  and
          Colonial  Realty  Trust for office  space  located at 10132 Colvin Run
          Road,  Suite A, Great Falls,  VA 22066  (incorporated  by reference to
          Exhibit  10.22 to CRA's  Registration  Statement on Form S-1 (File No.
          33-90426) filed with the SEC on March 17, 1995)

10.26     Occupational Medicine Center Management and Consulting Agreement dated
          December 31, 1993,  between Concentra Health Services,  Inc. (formerly
          OccuCenters,   Inc.)  ("CHS")  and  Occupational   Health  Centers  of
          Southwest,  P.A., a Texas  professional  association  (incorporated by
          reference to Exhibit 10.6 to OccuSys- tems' Annual Report on Form 10-K
          (File No. 0-24440) filed with the SEC on March 29, 1996)

10.27     Occupational Medicine Center Management and Consulting Agreement dated
          December  31, 1993,  between CHS and  Occupational  Health  Centers of
          Southwest,  P.A., a Arizona professional association  (incorporated by
          reference to Exhibit 10.7 to  OccuSystems'  Annual Report on Form 10-K
          (File No. 0-24440) filed with the SEC on March 29, 1996)

10.28     Occupational Medicine Center Management and Consulting Agreement dated
          December 31, 1993, between CHS and Occupational  Health Centers of New
          Jersey,  a  New  Jersey  professional  association   (incorporated  by
          reference to Exhibit 10.8 to  OccuSystems'  Registration  Statement on
          Form S-1 (File No. 33-01660) filed with the SEC on March 28, 1996)

</TABLE>




<PAGE>


<TABLE>
<CAPTION>
  EXHIBIT
NUMBER                               DESCRIPTION
----------- --------------------------------------------------------------------
<S>         <C>
10.29     Warrant  Agreement  dated  January  3, 1995  between  OccuSystems  and
          Creditanstalt-  Bankverein  (incorpora-  tion by  reference to Exhibit
          10.13 to  OccuSystems'  Registration  Statement  on Form S-1 (File No.
          33-01660) filed with the SEC on March 28, 1996)

10.30     Voting  Agreement dated May 15, 1997, by and between Lois E. Silverman
          and Donald J. Larson  (incorpo- rated by reference to Exhibit 10.34 to
          the Registrant's Annual Report on Form 10-K (File No. 000-22751) filed
          with the SEC on March 31, 1998)

10.31     Amendment  No. 1 to Rights  Agreement  dated March 2, 1999 between the
          Registrant and ChaseMellon Shareholder Services, L.L.C.  (incorporated
          by reference to Exhibit 4.1 to the Registrant's Current Report on Form
          8-K (File No. 000-22751) filed with the SEC on March 31, 1998)

10.32+    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Joseph F. Pesce

10.33+    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Richard A. Parr II

10.34+    Employment Agreement dated January 12, 1999 between the Registrant and
          Daniel J. Thomas

10.35+    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and W. Tho- mas Fogarty

10.36+    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and James M. Greenwood

10.37     Employment  Agreement dated September 17, 1997, between the Registrant
          and Kenneth  Loffredo  (incorpo- rated by reference to Exhibit 10.1 to
          the Registrant's  Quarterly  Report on Form 10-Q (File No.  000-22751)
          filed with the SEC on November 13, 1998)

10.38+    Amendment No. 1 to Employment Agreement dated January 12, 1999 between
          the Registrant and Kenneth Loffredo

10.39     Agreement  and Plan of  Merger  dated  March 2,  1999  between  Yankee
          Acquisition  Corp.  and the Registrant  (incorporated  by reference to
          Exhibit 2.1 to the  Registrant's  Current Report on Form 8-K (File No.
          000- 22751) filed with the SEC on March 3, 1999)

10.40     Amended and Restated Agreement and Plan of Merger dated March __, 1999
          between Yankee  Acquisition Corp. and the Registrant  (incorporated by
          reference to Exhibit 2.1 to the  Registrant's  Current  Report on Form
          8-K (File No. 000-22751) filed with the SEC on March __, 1999)

10.41     Employment Agreement dated January 12, 1998 between the Registrant and
          Richard D. Rehm,  M.D.  (incorporated  by reference to Exhibit 10.1 to
          the Registrant's  Quarterly  Report on Form 10-Q (File No.  000-22751)
          filed with the SEC on August 13, 1998)

10.42     Employment  Agreement  dated  February 10, 1998 between the Registrant
          and Stephen  Read  (incorporated  by  reference to Exhibit 10.2 to the
          Registrant's  Quarterly Report on Form 10-Q (File No. 000-22751) filed
          with the SEC on August 13, 1998)

10.43     Indemnification  Agreement  dated May 13, 1998 between the  Registrant
          and Hon.  Willis  D.  Gradison,  Jr.  (identical  agreements  executed
          between the  Registrant  and Stephen Read (dated  December 16,  1997),
          Rich- ard D. Rehm, M.D.  (dated May 13, 1998),  Eliseo Ruiz III (dated
          May 11, 1998), Scott Henault (dated Sep- tember 17, 1997), Darla Walls
          (dated December 16, 1997),  Jeffrey R. Luber (dated December 16, 1997)
          and  Martha  Kuppens  (dated  December  16,  1997))  (incorporated  by
          reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form
          10-Q (File No. 000-22751) filed with the SEC on August 13, 1998

21.1+     List of Subsidiaries

23.1+     Consent of Arthur Andersen LLP

27.1+     Financial Data Schedule
</TABLE>

+ Filed herewith.