##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

|  |  |                                                                                                                                           
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2002, or
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from

 to             

COMMISSION FILE NO.:
0-19786PHYCOR, INC.(Exact Name of Registrant as Specified in Its Charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|TENNESSEE                                                      |  | 62-1344801                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|30 BURTON HILLS BOULEVARD, SUITE 400
NASHVILLE, TENNESSEE      |  | 37215                               
|(Address of Principal Executive Offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code: (615) 665-9066




(Former name, former address and former fiscal year, if changed since last report)


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

As of May 13, 2002, 73,234,105 shares of the registrants common stock
were outstanding.





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TABLE OF CONTENTS



|                               |                                                                                               |                                                      |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | Consolidated Balance Sheets                         
|                               |                                                                                               | Consolidated Statements of Operations               
|                               |                                                                                               | Consolidated Statements of Cash Flows               
|                               |                                                                                               | Consolidated Statements of Cash Flows (continued)   
|                               |                                                                                               | Notes to Unaudited Consolidated Financial Statements
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|FORWARD-LOOKING STATEMENTS    
|                               | Item 3. Quantitative and Qualitative Disclosure about Market Risk                            
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 3. Defaults Upon Senior Securities                                                      
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements

PHYCOR, INC. AND SUBSIDIARIES
(Debtors-in-Possession)




Consolidated Balance
SheetsMarch 31, 2002 (unaudited) and December 31, 2001
(All amounts are expressed in thousands)


|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |   |          |  
|---------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------- | ------------------------------------------- | ---------- | ---- | -------- | ----- | ---------- | - | -------- | -
|                                                           |                                                                   |                                                                                                                               |         |                                             |            | 2002 |          | 2001 
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|ASSETS                                                     |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|Current assets:                                            |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|                                                           |                                                                   | Cash and cash equivalents  unrestricted                                                                                      |         | $                                           | 22,285     |      |          | $     | 21,471     |  
|                                                           |                                                                   | Cash and cash equivalents  restricted                                                                                        |         |                                             | 30,544     |      |          |       | 30,256     |  
|                                                           |                                                                   | Accounts receivable, net                                                                                                      |         |                                             | 2,068      |      |          |       | 2,068      |  
|                                                           |                                                                   | Prepaid expenses and other current assets                                                                                     |         |                                             | 9,149      |      |          |       | 13,444     |  
|                                                           |                                                                   | Notes receivable, current installments                                                                                        |         |                                             | 1,095      |      |          |       | 1,077      |  
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|                                                           |                                                                   |                                                                                                                               |         | Total current assets                        |            |      | 65,141   |       |            |   | 68,316   |  
|Property and equipment, net                                |                                                                   |                                                                                                                               | 5,617   |                                             |            |      | 5,793    |      
|Intangible assets, net                                     |                                                                   |                                                                                                                               | 35,042  |                                             |            |      | 32,710   |      
|Notes receivable, excluding current installments           |                                                                   |                                                                                                                               | 13,001  |                                             |            |      | 13,099   |      
|Other assets                                               |                                                                   |                                                                                                                               | 816     |                                             |            |      | 1,091    |      
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|                                                           |                                                                   |                                                                                                                               |         | Total assets                                |            | $    | 119,617  |       |            | $ | 121,009  |  
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                      |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|Liabilities not subject to compromise                      |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|                                                           | Current liabilities:                                              |                                                                                                                               |         |                                             |            |      |          |       |           
|                                                           |                                                                   | Current installments of long-term debt and capital leases                                                                     |         | $                                           | 477        |      |          | $     | 518        |  
|                                                           |                                                                   | Current installments of convertible subordinated notes and debentures                                                         |         |                                             |           |      |          |       | 313,020    |  
|                                                           |                                                                   | Accounts payable                                                                                                              |         |                                             | 2,300      |      |          |       | 2,003      |  
|                                                           |                                                                   | Salaries and benefits payable                                                                                                 |         |                                             | 4,712      |      |          |       | 3,797      |  
|                                                           |                                                                   | Incurred but not reported claims payable                                                                                      |         |                                             | 26,905     |      |          |       | 26,474     |  
|                                                           |                                                                   | Current portion of accrued restructuring reserves                                                                             |         |                                             | 1,550      |      |          |       | 12,817     |  
|                                                           |                                                                   | Other accrued expenses and current liabilities                                                                                |         |                                             | 19,952     |      |          |       | 51,520     |  
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|                                                           |                                                                   |                                                                                                                               |         | Total current liabilities                   |            |      | 55,896   |       |            |   | 410,149  |  
|                                                          
|                                                           | Long-term debt and capital leases, excluding current installments |                                                                                                                               |         | 1,336                                       |            |      |          | 1,024 |           
|                                                           | Accrued restructuring reserves, excluding current portion         |                                                                                                                               |         |                                            |            |      |          | 9,266 |           
|                                                           | Other liabilities                                                 |                                                                                                                               |         | 575                                         |            |      |          |      |           
|Liabilities subject to compromise                          |                                                                   |                                                                                                                               | 363,336 |                                             |            |      |         |      
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|                                                           |                                                                   |                                                                                                                               |         | Total liabilities                           |            |      | 421,143  |       |            |   | 420,439  |  
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|Minority interest in earnings of consolidated partnerships |                                                                   |                                                                                                                               | 1,159   |                                             |            |      | 1,315    |      
|                                                          
|Shareholders deficit:                                     |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|                                                           |                                                                   | Preferred stock, no par value, 10,000 shares authorized                                                                       |         |                                             |           |      |          |       |           |  
|                                                           |                                                                   | Common stock, no par value; 250,000 shares authorized; issued and
outstanding 73,234 shares in 2002 and 73,237 shares in 2001 |         |                                             | 834,168    |      |          |       | 834,168    |  
|                                                           |                                                                   | Accumulated deficit                                                                                                           |         |                                             | (1,136,853 | )    |          |       | (1,134,913 | )
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|                                                           |                                                                   |                                                                                                                               |         | Total shareholders deficit                 |            |      | (302,685 | )     |            |   | (300,745 | )
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  
|Commitments
and contingencies                              |                                                                   |                                                                                                                               |         |                                             |            |      |          |      
|                                                           |                                                                   |                                                                                                                               |         | Total liabilities and shareholders deficit |            | $    | 119,617  |       |            | $ | 121,009  |  
|                                                           |                                                                   |                                                                                                                               |         |                                             |            |      |          |       |            |  

See accompanying notes to consolidated financial statements.

2



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PHYCOR, INC. AND SUBSIDIARIES
(Debtors-in-Possession)




Consolidated Statements of OperationsThree months ended March 31, 2002 and 2001
(All amounts are expressed in thousands, except for earnings per share)
(Unaudited)


|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |        |         |  
|----------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ------ | ------- | -
|                                                                              |                                                                                                                       |                                                                 |        | 2002   |        | 2001
|                                                                              |                                                                                                                       |                                                                 |        |        |        |     
|Net revenue                                                                   |                                                                                                                       | $                                                               | 72,977 |        |        | $    | 85,284 |       
|Operating expenses:                                                           |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              | Cost of provider services                                                                                             |                                                                 |        | 52,663 |        |      |        | 46,878 |        
|                                                                              | Salaries, wages and benefits                                                                                          |                                                                 |        | 11,632 |        |      |        | 18,353 |        
|                                                                              | Supplies                                                                                                              |                                                                 |        | 451    |        |      |        | 2,658  |        
|                                                                              | Purchased medical services                                                                                            |                                                                 |        |       |        |      |        | 312    |        
|                                                                              | Other expenses                                                                                                        |                                                                 |        | 3,925  |        |      |        | 22,736 |        
|                                                                              | General corporate expenses                                                                                            |                                                                 |        | 984    |        |      |        | 4,563  |        
|                                                                              | Rents and lease expense                                                                                               |                                                                 |        | 1,365  |        |      |        | 2,816  |        
|                                                                              | Depreciation and amortization                                                                                         |                                                                 |        | 943    |        |      |        | 3,177  |        
|                                                                              | Recovery of asset revaluation and restructuring                                                                       |                                                                 |        |       |        |      |        | (962   | )      
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              |                                                                                                                       | Net operating expenses                                          |        |        | 71,963 |      |        |        | 100,531 |  
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              |                                                                                                                       | Income (loss) from operations                                   |        |        | 1,014  |      |        |        | (15,247 | )
|Other (income) expense:                                                       |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              | Interest income                                                                                                       |                                                                 |        | (730   | )      |      |        | (938   | )      
|                                                                              | Interest expense (excludes postpetition contractual interest of $2.7
million on prepetition debt obligations in 2002) |                                                                 |        | 1,619  |        |      |        | 4,561  |        
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              |                                                                                                                       | Income (loss) before reorganization costs and minority interest |        |        | 125    |      |        |        | (18,870 | )
|Reorganization costs                                                          |                                                                                                                       |                                                                 | 1,931  |        |        |      | 569    |       
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              |                                                                                                                       | Loss before minority interest                                   |        |        | (1,806 | )    |        |        | (19,439 | )
|Minority interest in earnings of consolidated partnerships                    |                                                                                                                       |                                                                 | 134    |        |        |      | 658    |       
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              |                                                                                                                       | Net loss                                                        |        | $      | (1,940 | )    |        | $      | (20,097 | )
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|Loss per share:                                                               |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              | Basic                                                                                                                 |                                                                 | $      | (0.03  | )      |      | $      | (0.27  | )      
|                                                                              | Diluted                                                                                                               |                                                                 | $      | (0.03  | )      |      | $      | (0.27  | )      
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       
|Weighted average number of shares and dilutive share equivalents
outstanding: |                                                                                                                       |                                                                 |        |        |        |      |        |       
|                                                                              | Basic                                                                                                                 |                                                                 |        | 73,234 |        |      |        | 73,250 |        
|                                                                              | Diluted                                                                                                               |                                                                 |        | 73,234 |        |      |        | 73,250 |        
|                                                                              |                                                                                                                       |                                                                 |        |        |        |      |        |       

See accompanying notes to consolidated financial statements.

3



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PHYCOR, INC. AND
SUBSIDIARIES
(Debtors-in-Possession)




Consolidated Statements of Cash FlowsThree months ended March 31, 2002 and 2001
(All amounts are expressed in thousands)
(Unaudited)


|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |         |         |        |  
|----------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------------------------------------------------- | ------ | ------ | ------ | ------- | ------- | ------- | ------ | -
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        | 2002   |        | 2001   
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |        
|Cash flows from operating activities:           |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |        
|                                                | Net loss                                                                                                           |                                                                                                 | $                                                | (1,940                                                                       | )      |        | $      | (20,097 | )      
|                                                | Adjustments to reconcile net loss before reorganization items to net cash
provided (used) by operating activities: |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    | Depreciation and amortization                                                                   |                                                  |                                                                              | 943    |        |        |         | 3,177   |        
|                                                |                                                                                                                    | Minority interests                                                                              |                                                  |                                                                              | 134    |        |        |         | 658     |        
|                                                |                                                                                                                    | Recovery of asset revaluation and restructuring expenses                                        |                                                  |                                                                              |       |        |        |         | (962    | )      
|                                                |                                                                                                                    | Write down of notes receivable                                                                  |                                                  |                                                                              |       |        |        |         | 4,264   |        
|                                                |                                                                                                                    | Accretion of convertible subordinated notes                                                     |                                                  |                                                                              | 641    |        |        |         | 1,688   |        
|                                                |                                                                                                                    | Increase (decrease) in cash, net of effects of acquisitions and dispositions
due to changes in: |                                                  |                                                                              |        |        |        |         |         |        
|                                                |                                                                                                                    |                                                                                                 | Accounts receivable, net                         |                                                                              |        |       |        |         |         | 6,235   |       
|                                                |                                                                                                                    |                                                                                                 | Prepaid expenses and other current assets        |                                                                              |        | 4,297  |        |         |         | 5,533   |       
|                                                |                                                                                                                    |                                                                                                 | Accounts payable                                 |                                                                              |        | 535    |        |         |         | (3,606  | )     
|                                                |                                                                                                                    |                                                                                                 | Incurred but not reported claims payable         |                                                                              |        | (106   | )      |         |         | 5,005   |       
|                                                |                                                                                                                    |                                                                                                 | Accrued restructuring reserves                   |                                                                              |        | (211   | )      |         |         | (2,249  | )     
|                                                |                                                                                                                    |                                                                                                 | Other accrued expenses and current liabilities   |                                                                              |        | (594   | )      |         |         | (1,376  | )     
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    |                                                                                                 |                                                  | Net cash provided (used) by operating activities before
reorganization items |        |        | 3,699  |         |         |         | (1,730 | )
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|Operating cash flows from reorganization items: |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |        
|                                                |                                                                                                                    | Interest received on cash accumulated because of Chapter 11 proceeding                          |                                                  |                                                                              | 7      |        |        |         |        |        
|                                                |                                                                                                                    | Professional fees paid for services rendered in connection with reorganization                  |                                                  |                                                                              | (1,256 | )      |        |         | (569    | )      
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    |                                                                                                 |                                                  | Net cash used by reorganization items                                        |        |        | (1,249 | )       |         |         | (569   | )
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    |                                                                                                 |                                                  | Net cash provided (used) by operating activities                             |        |        | 2,450  |         |         |         | (2,299 | )
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|Cash flows from investing activities:           |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |        
|                                                |                                                                                                                    | Dispositions (acquisitions), net                                                                |                                                  |                                                                              | (1,387 | )      |        |         | 54,610  |        
|                                                |                                                                                                                    | Purchase of property and equipment                                                              |                                                  |                                                                              | (130   | )      |        |         | (140    | )      
|                                                |                                                                                                                    | Proceeds from other assets                                                                      |                                                  |                                                                              | 493    |        |        |         | 469     |        
|                                                |                                                                                                                    | Change in restricted cash held for sale                                                         |                                                  |                                                                              |       |        |        |         | 3,906   |        
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    |                                                                                                 | Net cash (used) provided by investing activities |                                                                              |        | (1,024 | )      |         |         | 58,845  |       
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|Cash flows from financing activities:           |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |        
|                                                |                                                                                                                    | Repayment of long-term borrowings                                                               |                                                  |                                                                              | (18    | )      |        |         | (47,935 | )      
|                                                |                                                                                                                    | Repayment of obligations under capital leases                                                   |                                                  |                                                                              | (16    | )      |        |         | (49     | )      
|                                                |                                                                                                                    | Distributions of minority interests                                                             |                                                  |                                                                              | (290   | )      |        |         | (1,207  | )      
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|                                                |                                                                                                                    |                                                                                                 | Net cash used by financing activities            |                                                                              |        | (324   | )      |         |         | (49,191 | )     
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|Net increase in cash and cash equivalents       |                                                                                                                    |                                                                                                 | 1,102                                            |                                                                              |        |        | 7,355  |        
|Cash and cash equivalents  beginning of period |                                                                                                                    |                                                                                                 | 51,727                                           |                                                                              |        |        | 927    |        
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        
|Cash and cash equivalents  end of period       |                                                                                                                    | $                                                                                               | 52,829                                           |                                                                              |        | $      | 8,282  |        
|                                                |                                                                                                                    |                                                                                                 |                                                  |                                                                              |        |        |        |         |        

See accompanying notes to consolidated financial statements.

4



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##### Table of Contents



PHYCOR, INC. AND SUBSIDIARIES
(Debtors-in-Possession)




Consolidated Statements of Cash Flows (continued)Three months ended March 31, 2002 and 2001
(All amounts are expressed in thousands)
(Unaudited)


|                                                                     |                                                                        |                                  |   |        |        |      |        |        |        | 
|-------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------- | - | ------ | ------ | ---- | ------ | ------ | ------ | 
|                                                                     |                                                                        |                                  |   | 2002   |        | 2001
|                                                                     |                                                                        |                                  |   |        |        |     
|SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES:                       |                                                                        |                                  |   |        |        |      |        |       
|Effects of dispositions and acquisitions, net:                       |                                                                        |                                  |   |        |        |      |        |       
|                                                                     | Assets acquired, net of cash                                           |                                  | $ | (3,243 | )      |      | $      |       |       
|                                                                     | Liabilities assumed (paid), including deferred purchase price payments |                                  |   | 1,856  |        |      |        | (67    | )     
|                                                                     | Cash received from disposition of clinic assets, net                   |                                  |   |       |        |      |        | 54,677 |       
|                                                                     |                                                                        |                                  |   |        |        |      |        |        |       
|                                                                     |                                                                        | Dispositions (acquisitions), net |   | $      | (1,387 | )    |        | $      | 54,610 | 
|                                                                     |                                                                        |                                  |   |        |        |      |        |        |       
|SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |                                                                        |                                  |   |        |        |      |        |       
|Notes receivable received from disposition of assets                 |                                                                        | $                                |  |        |        | $    | 12,000 |       
|                                                                     |                                                                        |                                  |   |        |        |      |        |        |       

See accompanying notes to consolidated financial statements.

5



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##### Table of Contents



PHYCOR, INC. AND SUBSIDIARIES
(Debtors-in-Possession)




Notes to Unaudited Consolidated Financial StatementsThree months ended March 31, 2002 and 2001


|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In the opinion of management, the unaudited interim consolidated
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals, that are necessary for a
fair presentation of the financial position and the results of operations
for the interim periods presented. The results of operations for any
interim period are not necessarily indicative of results for the full
year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Annual Report
on Form 10-K for the year ended December 31, 2001 for
PhyCor, Inc. (the Company).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | On January 31, 2002, the Company and 47 of its subsidiaries
(collectively, the filing entities are referred to as the Debtors)
filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code (the Bankruptcy Filings) with the United States
Bankruptcy Court for the Southern District of New York (the Bankruptcy
Court) (Case No. 02-40278 (PCB)). On that date, the Debtors also filed a
joint plan of reorganization (as and to the extent subsequently amended,
the Plan), which sets forth the manner in which claims against, and
interests in, the Debtors will be treated following their emergence from
bankruptcy, as well as a disclosure statement. The final disclosure
statement has not yet been submitted to the Bankruptcy Court for
approval. The Companys independent practice association (IPA)
management operating subsidiaries are not part of the Chapter 11 case and
have continued paying, in the ordinary and normal course of business, all
wages, benefits and other employee obligations as well as all outstanding
and ongoing accounts payable to their vendors.
|   
|    |  | The Company elected to seek Chapter 11 protection to attempt to realign
its capital structure and to preserve the value of its remaining
businesses for its creditors. Prior to the Bankruptcy Filings, the
Company had been in negotiations regarding the reorganization with an
informal committee of holders of the Companys 4.5% convertible
subordinated debentures (Notes) and Warburg, Pincus Equity Partners,
L.P. (Warburg, Pincus), which through its affiliates
holds all of the Companys
zero coupon convertible subordinated notes (Zero Coupon Notes). The
Company filed the Plan with the support of certain of these creditors,
which collectively hold approximately two-thirds of its outstanding
indebtedness. The Plan is subject to a number of conditions, including
approval by certain of the Companys creditors and confirmation by the
Bankruptcy Court. Creditors who do not vote in favor of the Plan may
challenge its confirmation. Resolution of any such challenges could
result in delays and increased expense as well as failure of the Plan.                                                 
|   
|    |  | If the Plan is confirmed, the Debtors general unsecured creditors,
including the holders of the Notes (Bondholders) and Warburg, Pincus,
will receive shares of the reorganized companys common stock or, in
certain instances, cash in an amount equal to approximately 11.9% of
their claims in full satisfaction of their claims. Under the terms of
the Plan, the Companys outstanding and authorized common stock, options,
warrants and rights to purchase preferred stock will be cancelled and
holders of these securities will not receive any consideration, either in
cash or in newly issued stock. The Company currently has outstanding
approximately 73,230,000 shares of common stock and options and warrants
to purchase approximately 2,506,000 and 348,000 shares of common stock,
respectively, all of which will be cancelled for no consideration.
Finally, under the terms of the Plan, the Company anticipates that there
will be fewer than 300 shareholders of                                                                                                                                            

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | record upon consummation. If that is the case, the securities of the
reorganized company will not be publicly traded and the reorganized
company will be a privately-held company not subject to the reporting
obligations of the Securities and Exchange Commission. In the event
the Plan is not confirmed, the Company may not be able to continue as
a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Except as may be otherwise determined by the Bankruptcy Court, the
automatic stay protection afforded by the Bankruptcy Filings prevents any
creditor or other third party from taking any action in connection with
any default under prepetition obligations of the Debtors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The accompanying consolidated financial statements for the three months
ended March 31, 2002, have been prepared in accordance with American
Institute of Certified Public Accountants Statement of Position 90-7
Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code (SOP 90-7) and generally accepted accounting principles
applicable to a going concern, which assumes that assets will be realized
and liabilities will be discharged in the normal course of business. The
consolidated financial statements do not include adjustments to reflect
the possible future effects on the recoverability and classification of
recorded assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.                                                                       
|
| |  | Liabilities Subject to Compromise on the Companys consolidated balance
sheet reflect the Debtors liabilities incurred prior to the Petition
Date. These liabilities, consisting primarily of the Notes, including
accrued interest, the Zero Coupon Notes, accrued restructuring reserves
and various accounts payable, represent the Companys estimate of known
or potential claims to be resolved in connection with the Bankruptcy
Filings. Such claims remain subject to future adjustments based on
negotiations, actions of the Bankruptcy Court, further developments with
respect to disputed claims, treatment under the Plan and other events.
The following table summarizes the principal categories of claims
classified as Liabilities Subject to Compromise, at March 31, 2002, as
a result of the Bankruptcy Filings (in thousands):

|                                                   |                                         |   |         |         | 
|-------------------------------------------------- | --------------------------------------- | - | ------- | ------- | 
|Notes                                              |                                         | $ | 196,500 |        
|                                                  
|                                                  
|                                                  
|                                                  
|Accrued interest on Notes through January 31, 2002 |                                         |   | 13,203  |        
|                                                  
|                                                  
|                                                  
|                                                  
|Zero Coupon Notes                                  |                                         |   | 117,161 |        
|                                                  
|                                                  
|                                                  
|                                                  
|Accrued restructuring reserves                     |                                         |   | 20,322  |        
|                                                  
|                                                  
|                                                  
|                                                  
|Accrued expenses and vendor liabilities            |                                         |   | 16,150  |        
|                                                   |                                         |   |         |        
|                                                   | Total liabilities subject to compromise |   | $       | 363,336 | 
|                                                   |                                         |   |         |        

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys ability to continue as a going concern is dependent upon,
among other things, confirmation of the Plan, future profitable
operations, the ability to generate sufficient cash flow from operations,
and financing arrangements to meet obligations. During the first
quarters of 2002 and 2001, the Company incurred approximately $1.9
million and $0.6 million, respectively, of legal, accounting, consulting
and other fees in connection with the Companys financial reorganization.
|
| |  | In accordance with SOP 90-7, condensed consolidated financial statements
for the Debtors for the quarter ended March 31, 2002 are as follows (in
thousands):                                                                                                                                                                                                                                                                                                                                            

Debtors Condensed Consolidated Balance Sheet

|                                                 |                                          |                                             |          |       |         | 
|------------------------------------------------ | ---------------------------------------- | ------------------------------------------- | -------- | ----- | ------- | 
|Current assets:                                  |                                          |                                             |          |      
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents  unrestricted |                                             | $        | 7,173 |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Cash and cash equivalents  restricted   |                                             |          | 2,400 |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Other current assets                     |                                             |          | 1,828 |        
|                                                 |                                          |                                             |          |       |        
|                                                 |                                          | Total current assets                        |          |       | 11,401  | 
|                                                
|                                                
|                                                
|                                                
|Property and equipment, net                      |                                          |                                             | 562      |      
|                                                
|                                                
|                                                
|                                                
|Intangible assets, net                           |                                          |                                             | 13,731   |      
|                                                
|                                                
|                                                
|                                                
|Notes receivable, excluding current installments |                                          |                                             | 6,395    |      
|                                                
|                                                
|                                                
|                                                
|Other assets                                     |                                          |                                             | 3        |      
|                                                 |                                          |                                             |          |       |        
|                                                 |                                          | Total assets                                |          | $     | 32,092  | 
|                                                 |                                          |                                             |          |       |        
|Liabilities not subject to compromise            |                                          | $                                           | 2,808    |      
|                                                
|                                                
|                                                
|                                                
|Liabilities subject to compromise                |                                          |                                             | 363,336  |      
|                                                 |                                          |                                             |          |       |        
|                                                 |                                          | Total liabilities                           |          |       | 366,144 | 
|                                                 |                                          |                                             |          |       |        
|Shareholders deficit                            |                                          |                                             | (334,052 | )    
|                                                 |                                          |                                             |          |       |        
|                                                 |                                          | Total liabilities and shareholders deficit |          | $     | 32,092  | 
|                                                 |                                          |                                             |          |       |        

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Debtors Condensed Consolidated Statement of Operations

|                                                                  |                               |   |                                  |                                       |   |        |        |  
|----------------------------------------------------------------- | ----------------------------- | - | -------------------------------- | ------------------------------------- | - | ------ | ------ | -
|Net revenue                                                       |                               | $ | 357                              |                                      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Operating expenses:                                               |                               |   |                                  |                                      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | General corporate expenses    |   |                                  | 966                                   |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Rents and lease expense       |   |                                  | 73                                    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Depreciation and amortization |   |                                  | 388                                   |  
|                                                                  |                               |   |                                  |                                      
|                                                                  |                               |   | Net operating expenses           |                                       |   | 1,427  |       
|                                                                  |                               |   |                                  |                                      
|                                                                  |                               |   | Loss from operations             |                                       |   | (1,070 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Other (income) expense:                                           |                               |   |                                  |                                      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest income               |   |                                  | (309                                  | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Interest expense              |   |                                  | 1,479                                 |  
|                                                                  |                               |   |                                  |                                      
|                                                                  |                               |   | Loss before reorganization costs |                                       |   | (2,240 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Reorganization costs                                              |                               |   | 1,931                            |                                      
|                                                                  |                               |   |                                  |                                      
|                                                                  |                               |   | Net loss                         |                                       | $ | (4,171 | )     
|                                                                  |                               |   |                                  |                                      
|Debtors Condensed Consolidated Statement of Cash Flows           |                               |   |                                  |                                      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Net cash used by operating activities before reorganization items |                               |   | (396                             | )                                    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Net cash used by reorganization items                             |                               |   | (1,249                           | )                                    
|                                                                  |                               |   |                                  |                                      
|                                                                  |                               |   |                                  | Net cash used by operating activities |   |        | (1,645 | )
|                                                                  |                               |   |                                  |                                      
|Net cash provided by investing activities                         |                               |   | 87                               |                                      
|                                                                  |                               |   |                                  |                                      
|Net decrease in cash and cash equivalents                         |                               |   | (1,558                           | )                                    
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|Cash and cash equivalents  beginning of period                   |                               |   | 11,131                           |                                      
|                                                                  |                               |   |                                  |                                      
|Cash and cash equivalents  end of period                         |                               | $ | 9,573                            |                                      
|                                                                  |                               |   |                                  |                                      

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | New Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations (Statement 141), and Statement
No. 142, Goodwill and Other Intangible Assets (Statement 142).
Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet in order to be recognized
and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for separately.
Statement 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of
Statement 142. Statement 142 also requires that intangible assets with
definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with Statement of Financial Accounting Standard No. 144,
Accounting for Impairment or Disposal of Long-Lived Assets (Statement
144) as discussed below.

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|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  | The Companys adoption of Statement 142, as of January 1, 2002, did not
result in any impairment charges. Goodwill existing at June 30, 2001 is
no longer amortized but instead is assessed for impairment at least
annually. For the three months ended March 31, 2001, excluding
amortization of goodwill of approximately $1.1 million, the net loss
would have been $19.0 million and loss per share would have been $0.26.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In August 2001, the FASB issued Statement 144 which supersedes both
FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of (Statement 121) and
the accounting and reporting provisions of Accounting Principles Board
Opinion No. 30, Reporting the Results of OperationsReporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (Opinion 30), for the
disposal of a segment of a business. Statement 144 retains the
fundamental provisions stated in Statement 121 for recognizing and
measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale while also resolving
significant implementation issues associated with Statement 121. For
example, Statement 144 provides guidance on how a long-lived asset that
is used as part of a group should be evaluated for impairment,
establishes criteria for when a long-lived asset is held for sale, and
prescribes the accounting for a long-lived asset that will be disposed of
other than by sale. Statement 144 retains the basic provisions of
Opinion 30 on how to present discontinued operations in the income
statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). Unlike Statement 121, an
impairment assessment under Statement 144 will never result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment
under Statement 142.
|   
|    |  | The Company adopted the provisions of Statement 144 for the quarter
ending March 31, 2002 with no impact on the Companys financial
statements because the impairment assessment under Statement 144 is
largely unchanged from Statement 121.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) |  | Net Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Net revenue of the Company is comprised of IPA management revenue (IPA
Management Revenue), contract management services revenue, and, prior to
2002, included net clinic service agreement revenue and other operating revenue.
As a result of the Companys divestiture of its remaining multi-specialty
medical clinic assets in April 2001 and its healthcare decision-support
services subsidiary, CareWise, Inc. (CareWise), in May 2001, net
revenue in 2002 will be primarily comprised of IPA Management Revenue, as
it was in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | IPA Management Revenue consists of fees paid by IPAs to the Company for
management services and payments for healthcare costs, usually made under
capitated arrangements, and is recognized in the month that management
services are provided. In addition, the Company may receive a share of
surplus, if any, of capitated revenue of the IPAs in excess of healthcare
claims expense. Revenue from such surpluses is recognized at the time
that the Company can readily determine the amount of those surpluses,
which usually occurs when the surplus is received. PrimeCare Medical
Network, Inc. (PMNI), a wholly-owned subsidiary of PrimeCare
International, Inc. (PrimeCare), which is a wholly-owned subsidiary of
the Company, and the Companys owned IPAs are exposed to losses if the
cost of physician professional services exceeds the capitated payments
received from healthcare payors. PMNI also assumes some risk for
institutional (hospital) costs. Any loss on a capitated contract is
recorded when the Company determines that such loss is probable and
reasonably estimable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Clinic service agreement revenue was equal to the net revenue of the
clinics less amounts retained by physician groups. Net clinic revenue
recorded by the physician groups was recorded at established rates
reduced by provisions for doubtful accounts and contractual adjustments.
Contractual adjustments arose as a result of the terms of certain
reimbursement and managed care contracts. Such adjustments represented
the difference between charges at established rates and estimated
recoverable amounts and were recognized in the period the services were
rendered. Any differences between estimated contractual adjustments and
actual final settlements under reimbursement contracts were recognized as
contractual adjustments in the year final settlements were determined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |  |                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other operating revenue consists of revenue relating to CareWise which
was sold in May 2001 and revenue from contract management services.
Revenue from contract management services is recorded when the services
are provided in accordance with a fee schedule that is contractually
determined.
|
| |  | The following represents amounts included in the determination of net
revenue for the three months ended March 31, 2002 and 2001 (in
thousands):                                                                                                                                                   

|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |        |        |        |         | 
|--------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------- | ----------------------------------------------------- | ------ | ----- | ------- | ------ | ------ | ------ | ------- | 
|                                                    |                                                           |                                                              |                                                         |                                                       |        | 2002  |         | 2001  
|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |       
|IPA revenue:                                        |                                                           | $                                                            | 126,005                                                 |                                                       |        | $     | 151,475 |       
|                                                    | Gross other revenue and, in 2001, physician group revenue |                                                              |                                                         | 1,519                                                 |        |       |         | 31,413 |       
|                                                    | Less:                                                     |                                                              |                                                         |                                                       |        |       |         |        |       
|                                                    |                                                           | Provisions for doubtful accounts and contractual adjustments |                                                         |                                                       |       |       |         |        | 10,334 |       
|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |       
|                                                    |                                                           |                                                              | Net other revenue and, in 2001, physician group revenue |                                                       |        | 1,519 |         |        |        | 21,079 |        
|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |       
|                                                    |                                                           |                                                              |                                                         | Net IPA, other, and, in 2001, physician group revenue |        |       | 127,524 |        |        |        | 172,554 | 
|Less amounts retained by physician groups and IPAs: |                                                           |                                                              |                                                         |                                                       |        |       |         |       
|                                                    |                                                           | Physician groups                                             |                                                         |                                                       |       |       |         |        | 4,783  |       
|                                                    |                                                           | Clinic technical employee compensation                       |                                                         |                                                       |       |       |         |        | 815    |       
|                                                    |                                                           | IPAs                                                         |                                                         |                                                       | 54,547 |       |         |        | 81,672 |       
|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |       
|                                                    |                                                           |                                                              |                                                         | Net revenue                                           |        | $     | 72,977  |        |        | $      | 85,284  | 
|                                                    |                                                           |                                                              |                                                         |                                                       |        |       |         |       

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) |  | Asset Revaluation and Restructuring                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | In the first quarter of 2002, the Company had no asset revaluation or
restructuring charges. In the first quarter of 2001, the Company
recorded a net asset revaluation and restructuring recovery of
approximately $1.0 million. This recovery included a net pre-tax asset
revaluation charge of approximately $0.3 million, which was comprised of
a $3.6 million asset revaluation charge less recovery of $3.3 million of
certain asset revaluation charges recorded previously. In addition, this
recovery included a net restructuring recovery of $1.3 million, which was
comprised of a $0.5 million restructuring charge less recovery of $1.8
million of certain restructuring charges recorded in prior years which
will not be utilized.
|   
|    |  | Substantially all obligations relating to the accrued restructuring
reserves are subject to compromise as a result of the Bankruptcy Filings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |  | The following table summarizes the restructuring payment activity for the
first quarter of 2002 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                              |          |   |                   |     |             |   |       |     |       |   |       |      |   |   |        |      |  
|----------------------------- | -------- | - | ----------------- | --- | ----------- | - | ----- | --- | ----- | - | ----- | ---- | - | - | ------ | ---- | -
|                              |          |   | Facility &        |     | Severance & |   | Other |     |       |   |      
|                              |          |   | Lease Termination |     | Related     |   | Exit  |     |       |   |      
|                              |          |   | Costs             |     | Costs       |   | Costs |     | Total
|                              |          |   |                   |     |             |   |       |     |      
|Balances at December 31, 2001 |          | $ | 18,143            |     |             | $ | 1,685 |     |       | $ | 2,255 |      |   | $ | 22,083 |     
|                              | Payments |   |                   | (85 | )           |   |       | (11 | )     |   |       | (115 | ) |   |        | (211 | )
|                              |          |   |                   |     |             |   |       |     |       |   |       |      |   |   |        |     
|Balances at March 31, 2002    |          | $ | 18,058            |     |             | $ | 1,674 |     |       | $ | 2,140 |      |   | $ | 21,872 |     
|                              |          |   |                   |     |             |   |       |     |       |   |       |      |   |   |        |     

|    |  |                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) |  | Commitments and Contingencies                                                                                                                                                                                                                                                            
|   
|    |  | (a)     Employment Agreements                                                                                                                                                                                                                                                            
|   
|    |  | The employment agreement effective on the Petition Date with the
Companys Chief Executive Officer and President and employment agreements
with certain of its management employees, include, among other terms,
various non-competition provisions and salary and benefits continuation.
|   
|    |  | (b)     Medical Pathways Management Corporation (Medical Pathways)
Contingent Consideration                                                                                                                                                                                            
|   
|    |  | Effective March 1, 2002, the Company, through its wholly-owned subsidiary
North American Medical Management California, Inc. (NAMM California),
acquired certain assets and the management contracts                                                                                   

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | of seven IPAs from Medical Pathways for consideration totaling
$3.2 million including deferred payments and the assumption of
certain liabilities. Pursuant to certain Medical
Pathways transaction agreements, NAMM California is obligated to make
additional payments if particular operating parameters are achieved as a
result of the acquired management contracts. Maximum contingent payments
related to these agreements is expected to approximate $4.5 million and
will be paid at various dates through May 30, 2005. Such liability, if
any, will be recorded in the period in which the outcome of the
contingency becomes known. Any payment made will be allocated among the
assets acquired and will not immediately be charged as an expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | (c)     Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | As a result of the Bankruptcy Filings, all current litigation against the
Debtors is stayed. Litigation is continuing, however, against the
Companys subsidiaries that did not seek protection under Chapter 11.
All judgments against the Debtors will be treated as claims under the
Plan. Additional information regarding the Bankruptcy Filings and the
Plan is set forth in Note 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Stayed Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company and certain of its current and former officers and directors,
Joseph C. Hutts, Derril W. Reeves, Thompson S. Dent, Richard D. Wright
and John K. Crawford (only Mr. Dent and Mr. Hutts currently serve as the
Companys directors) have been named defendants in 10 securities fraud
class actions filed in state and federal courts in Tennessee between
September 8, 1998 and June 24, 1999. The factual allegations of the
complaints in all 10 actions are substantially identical and assert that
during various periods between April 22, 1997 and September 22, 1998,
(the Class Period) the defendants issued false and misleading
statements which materially misrepresented the Companys earnings and
financial condition and the Companys clinic operations and
misrepresented and failed to disclose various other matters concerning
the Companys operations in order to conceal the alleged failure of the
Companys business model. Plaintiffs further assert that the alleged
misrepresentations caused the Companys securities to trade at inflated
levels while the individual defendants sold shares of the Companys stock
at such levels. The Company and the individual defendants have reached a
settlement with the plaintiff class which will resolve all of the claims
in the consolidated actions. On March 12, 2002, the parties filed with
the United States District Court for the Middle District of Tennessee
(the District Court) a Memorandum of Understanding which outlines the
proposed settlement, the terms of which include the payment of $3.4
million to be paid by insurance proceeds in exchange for complete
releases of all defendants and dismissal of the consolidated cases with
prejudice. In connection with the Bankruptcy Filings, an Amended
Stipulation and Order of the Bankruptcy Court lifting the automatic stay
for purposes of allowing the settlement process to proceed in the
District Court was entered on April 12, 2002. Fully executed settlement
documents were filed with the District Court on April 12, 2002 and any
opt-outs or objections to the settlement must be filed with the District
Court on or before July 8, 2002. The final hearing on the settlement is
scheduled for July 20, 2002. The reorganized company will take whatever
steps are necessary to complete the settlement of the litigation.
Subject to approval by the District Court, KPMG LLP, the Companys
independent public auditors, has also settled the claims against it in the
litigation.
|
| |  | The same Class Period and the same factual allegations made in the
federal court consolidated class actions are alleged in a separate
derivative action filed in the Chancery Court for Davidson County,
Tennessee, Parul Patel v. Joseph C. Hutts, et. al.,Case No. 99-2353-I.
By Order entered October 14, 1999, the derivative action was stayed
pending the outcome of the federal consolidated class actions. Although
Mr. Patel has not agreed to settle his claim as a part of the proposed
federal court settlement, it is a condition of the settlement agreement
that under the terms of the Plan, which is subject to creditor and court
approval, Mr. Patels interest as a common stockholder be cancelled and
his litigation claim be discharged. In addition, the Company will not
pursue any alleged claims made in the Patelaction against the Companys
current and former officers and directors. Finally, under the terms of
the Plan, the Company is releasing any claims it may have against its
current and former officers and directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On August 31, 1999, two relators brought an action in the United States
District Court for the District of Hawaii under the False Claims Act and
for employment related claims against Straub Clinic and Hospital, Inc.
(Straub), PhyCor of Hawaii, Inc., and the Company. This matter had
been under seal until                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | September 2000. On September 20, 2000, the United States government
declined to intervene in the matter. The Company sold PhyCor of Hawaii,
Inc. to Straub in November 2000 and Straub is defending the claims
against PhyCor of Hawaii, Inc. The Company lost its motion to dismiss
the claims against it and it is defending itself in the litigation.
Trial was set for June 12, 2002, however, as a result of the Bankruptcy
Filings, the case is stayed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | As a result of the Companys decision to exit its IPA market in Houston,
Texas, a number of providers in the market have brought actions naming
several parties, including one of the Companys IPA-management
subsidiaries and the Company, alleging breach of contract, breach of
fiduciary duty, and fraud, among other matters. Several million dollars
have been claimed in these cases. The Company believes the plaintiffs
have sued the wrong party and that the claims are generally excessive.
In addition, as a result of the Companys financial condition, the
Company has been unable to meet certain contractual obligations
including, but not limited to, certain ongoing lease obligations and
severance obligations to former employees. There can be no assurance
that we will meet existing or additional contractual obligations in the
future. Several parties have sent the Company letters alleging breach of
contract and threatening to bring claims, and several suits have been
filed. The litigation has been stayed and the claims will be handled
through the bankruptcy process.                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In a case which was filed in the Circuit Court of the 11th Judicial
Circuit in and for Miami-Dade County, Florida, Busch Drive Ltd. and Lime
Street Ltd., the landlords of the Companys formerly affiliated physician
group, First Coast Medical Group, P.A., claimed the Company guaranteed
the lease obligations of the physician group. The judge in that case has
entered judgments in favor of the landlords in the aggregate amount of
$2,474,510. The Company has a liability recorded in the amount of the
judgment at March 31, 2002. This judgment will be dealt with as a claim
under the Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Active Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The following is a summary of material litigation to which certain of the
Companys ongoing operating subsidiaries who are not part of the
Bankruptcy Filings are parties, and accordingly,
this litigation is not stayed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | As previously disclosed in the case of United States of America ex rel.
William R. Benz v. PrimeCare International, Inc. and Prem Reddy, in the
United States District Court, Central District of California, the jury
returned a verdict in favor of the plaintiff in the amount of $4.6
million. The judgment of $4.6 million was recorded as other operating
expenses in the second quarter of 2000. The Company entered into a
settlement agreement with Mr. Benz which subsequently received court
approval. In exchange for PrimeCare paying Mr. Benz $2.7 million (of
which $0.7 million was paid during the second quarter of 2001 and the
remainder was paid during July 2001), all claims were dropped by Mr. Benz
against the Company and its affiliates. Mr. Benz has not settled with
Dr. Reddy, and Dr. Reddy continues to maintain that PrimeCare and several
of its managed IPAs has an indemnification obligation to him. In March
2002, the Company was granted a demurrer with respect to Dr. Reddys
claim for indemnity, and accordingly, his claim will be dismissed with
prejudice. Dr. Reddy has not appealed this decision as of the date
hereof.                                                                                                                                                                                                                                                                                                      
|
| |  | The IPAs managed by PrimeCare, the physicians employed by those IPAs, and
in some cases PMNI, are parties to several medical malpractice and/or
managed care liability cases which the Company believes will be
adjudicated within applicable insurance coverage limits. In addition,
many of our California subsidiaries and affiliated IPAs have been sued on
business claims such as breach of contract, misrepresentation, fraud, and
deceit. The plaintiffs in these suits are seeking millions of dollars in
damages, and the Company is vigorously defending these suits. One such
case was recently tried in the Superior Court of the State of California
for the County of Riverside. On December 31, 2001, the jury awarded the
plaintiff damages jointly against PrimeCare and PMNI in the amount of $3
million based upon its breach of contract claim; $208,189 against
PrimeCare on its constructive fraud claim; and $5,000 in punitive damages
against PrimeCare. PrimeCare was awarded $296,190 on its cross-complaint. The Company does not agree with this
decision and has appealed and the plaintiff has cross-appealed. PMNI
obtained a $5 million appellate bond secured by a letter of credit to
enable it to pursue the appeal. The Company has a liability recorded
equal to the amount of this judgment at March 31, 2002. There can be no
assurance that the Company will be successful with this appeal or in
other pending litigation. Additional

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | damage awards at the levels the plaintiffs have demanded could have a
material adverse effect on the Companys ongoing operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In addition, the Company and PrimeCare have been named in litigation
involving PrimeCare operations that were not transferred to the Company
when the Company acquired PrimeCare. In one such case in Oklahoma, the
plaintiff is alleging that a former PrimeCare subsidiary (which the
Company did not acquire) is guilty of breach of contract, conversion, and
fraud, and is seeking damages in excess of $2 million plus punitive
damages. Since filing the litigation, the plaintiff has filed for
bankruptcy relief. In the other such case in Florida, the plaintiff is
seeking approximately $250,000 in damages. Although the Company did not
own PrimeCare at the time of the alleged incidents, the Company may have
liability for the actions of these entities and may not have indemnity
rights against Dr. Reddy, the former owner who is also a co-defendant.
It is not possible to determine the amount of the Companys exposure or
that of its subsidiaries in these cases, but judgment against the Company
could have a material adverse effect on the Companys ongoing operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Certain litigation is pending against the Companys formerly affiliated
physician groups and the Companys managed IPAs. The Company has not
assumed any liability in connection with such litigation. Claims against
the physician groups and IPAs could result in substantial damage awards
to the claimants which may exceed applicable insurance coverage limits.
Although we may not be parties to such litigation, a substantial
financial obligation of the physician group or IPA could threaten its
viability or its ability to pay our fees. While there can be no
assurance that the physician groups and IPAs will be successful in any
such litigation, at this time, the Company does not believe any such
litigation will have a material adverse effect on its operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | (d)     Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company maintains managed healthcare errors and omissions insurance
on a claims made basis for all of its managed care operations and
officers and directors liability insurance. These policies expired on
September 1 and September 11, 2001, respectively, but each was extended
until September 1, 2002. Upon a change of control, including the change
of control anticipated as a result of the approval of the Companys Plan
by the Bankruptcy Court, these policies will terminate. Insurance
coverage under such policies is contingent upon a policy being in effect
when a claim is made, regardless of when the events which caused the
claim occurred. In addition, the Company maintains a separate healthcare
errors and omissions insurance policy and a medical malpractice insurance
policy for most of its California operations. These policies expire
August 18, 2003. The Company also maintains property and casualty,
general liability, workers compensation and some umbrella coverage on an
occurrence basis. In addition, the Company is named as an additional
insured on medical malpractice policies of some of its formerly
affiliated physician groups. In other cases, however, the Company has no
insurance for malpractice claims brought against such physician groups.
There are known claims and incidents that may result in the assertion of
additional claims, as well as claims from unknown incidents that may be
asserted. The Company is not aware of any claims against management or
its formerly affiliated physician groups which might have a material
adverse impact on its financial position. The cost and availability of
insurance coverage has varied widely in recent years. The Company
believes its insurance policies are adequate in amount and coverage for
its current operations. There can be no assurance, however, that the
coverage is sufficient to cover all future claims or will continue to be
available after the consummation of the Plan or at a reasonable cost.
All claims against the Debtors which filed for
bankruptcy will be barred after the effective date of the Plan.
|
| |  | (e)     Letters of Credit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | At March 31, 2002, letters of credit totaling $2.25 million were
outstanding under a commercial bank credit facility. The $2.25 million
letters of credit secure malpractice insurance deductibles and bonds
required for third party administrator licenses. In addition, a $5.0
million letter of credit secures an appellate bond of the same amount.
See Note 5(c) for further description of this letter of credit. During
the first quarter of 2002, a letter of credit for $0.4 million expired
and, in April 2002, letters of credit totaling $0.5 million were drawn.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (f)     Financing Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Currently, the Company is providing management services under management
agreements that, generally, do not obligate the Company to provide
capital. However, under one management agreement, the Company is
obligated, if requested to do so, to provide lease financing for the
acquisition of equipment to be used in the groups operation of up to
$750,000 annually through September 30, 2005. The lease rate is the
prime rate, and the physician group has the sole discretion whether to
use the Company as the source of capital for leased equipment. No such
financing has been requested to date.




Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a Tennessee corporation which was incorporated in 1988. We are a
medical network management company that develops and manages independent
practice associations (IPAs), manages physician hospital organizations
(PHOs), provides contract management services to physician networks owned by
health systems, and provides management and consulting services to independent
medical organizations.

North American Medical Management, Inc. (NAMM), one of our wholly-owned
subsidiaries, through its subsidiaries, manages IPAs in northern and southern
California, Kansas, and Tennessee and manages PHOs and IPAs in Illinois. NAMMs
subsidiary, North American Medical Management California, Inc. (NAMM
California), manages our IPAs in California, and its affiliate, PrimeCare
Medical Network, Inc. (PMNI), owns certain of these IPAs. PMNI holds a
limited Knox-Keene license in California. This license allows PMNI to contract
with payors to assume risk under certain managed care contracts and then
delegate that risk to certain of our IPAs. Through NAMM California, effective
March 1, 2002, we acquired management contracts of seven additional IPAs from
Medical Pathways Management Corporation (Medical Pathways). Finally, through
our PhySys division, we provide management and support services to two of our
formerly affiliated multi-specialty clinics and to the physician networks of
two health systems. In addition, PhySys offers consulting services to
independent medical organizations through limited engagements.

Filings Under Chapter 11 of the Bankruptcy Code

On January 31, 2002 (the Petition Date), we and 47 of our subsidiaries
(collectively, the filing entities are referred to as the Debtors) filed
voluntary petitions for relief under Chapter 11 of the United States Bankruptcy
Code (the Bankruptcy Filings) with the United States Bankruptcy Court for the
Southern District of New York (the Bankruptcy Court) (Case No. 02-40278
(PCB)). On the Petition Date, the Debtors also filed a joint plan of
reorganization (as and to the extent subsequently amended, the Plan), which
sets forth the manner in which claims against, and interests in, them
will be treated following their emergence from bankruptcy, as well as a
disclosure statement. The final disclosure statement has not yet been
submitted to the Bankruptcy Court for approval. Our IPA management operating
subsidiaries are not part of the Bankruptcy Filings and have continued paying,
in the ordinary and normal course of business, all wages, benefits and other
employee obligations as well as all outstanding and ongoing accounts payable to
their vendors.

We elected to seek Chapter 11 protection to attempt to realign our capital
structure and to preserve the value of our remaining businesses for our
creditors. We negotiated the Plan with an informal committee of holders of our
4.5% convertible subordinated debentures (the Notes) and Warburg, Pincus
Equity Partners, L.P. (Warburg, Pincus), which through its affiliates holds
all of our zero coupon convertible subordinated notes (Zero Coupon Notes).
These creditors collectively hold approximately two-thirds of our outstanding
indebtedness. The Plan is subject to a number of conditions, including approval
by certain of our creditors and confirmation by the Bankruptcy Court.
Creditors who do not vote in favor of the Plan may challenge its confirmation.
Resolution of any such challenges could result in delays and increased expense
as well as failure of the Plan.

If the Plan is
confirmed, the Debtors general unsecured creditors, including the
holders of the Notes (Bondholders) and Warburg, Pincus, will receive shares
of the reorganized companys common stock or, in certain instances, cash in an
amount equal to approximately 11.9% of their claims in full satisfaction of
their claims. Under the terms of the Plan, our outstanding and authorized
common stock, options, warrants and rights to

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purchase preferred stock will be cancelled and holders of these securities
will not receive any consideration, either in cash or in newly issued stock.
We currently have outstanding approximately 73,230,000 shares of common stock
and options and warrants to purchase approximately 2,506,000 and 348,000 shares
of common stock, respectively, all of which will be cancelled for no
consideration. Finally, under the terms of the Plan, we anticipate that there
will be fewer than 300 shareholders of record upon consummation. If that is the
case, the securities of the reorganized company will not be publicly traded and
the reorganized company will be a privately-held company not subject to the
reporting obligations of the Securities and Exchange Commission (the SEC).
 In the event the Plan is not confirmed, we may not be able to
continue as a going concern.

Independent Practice Associations

IPAs And PHOs

Through our IPAs and PHOs, we currently provide healthcare-related
services to approximately 798,000 commercial equivalent members (CEMs) in
four states. Approximately 239,000 of these CEMs are enrolled in Medicare+
Choice Plans offered by payors to individuals who qualify for Medicare
benefits. The payor contracts entered into on behalf of our IPAs and
PHOs are based on
capitated fee arrangements. Under capitation arrangements, healthcare providers
bear the risk, subject to certain loss limits, that the aggregate cost of
providing medical services to members will exceed the payments received.
Currently, we operate 23 IPAs through our NAMM subsidiaries in California. Our
California operations include approximately 646,000 CEMs and constitute over 90% of our
ongoing revenue. Our next largest market is Chicago, Illinois where we provide
services to approximately 134,000 CEMs. These operations constitute 3% of our revenue. In
the first quarter of 2002 and 2001, revenue from IPA and PHO operations
constituted approximately 98% and 82% of our total revenue, respectively. We
anticipate that revenue from IPA and PHO operations will continue to constitute
the vast majority of our revenue in the future.

NAMM. Through its subsidiaries, NAMM manages 23 IPAs in California, one
IPA in Kansas, two IPAs in Tennessee, and two IPAs and six PHOs in Illinois. Seven of the
IPA contracts in California were acquired, effective March 1, 2002, from
Medical Pathways and expanded our service area into Los Angeles, Orange and San
Luis Obispo counties. Eight of the California IPAs are owned by PMNI and a few
are owned by a physician who also serves as medical director of our California
operations. These IPAs are consolidated in our consolidated financial
statements. These IPAs contract with PMNI to have access to payor contracts.

The management agreements for the IPAs which contract with PMNI provide
for NAMM California to receive a percentage of revenue that is no less than its
cost to manage plus the surplus remaining after distributions to physicians.
The management agreements for the PHOs and IPAs which do not contract with PMNI
provide for the NAMM subsidiary to receive fees based upon either a percentage
of revenue collected by the IPAs or a per member per month payment, plus a
share of surplus, if any, of capitated revenue of the IPAs or PHOs in excess of
any healthcare claims expense. These IPAs contract directly with payors, and
these contracts typically provide that the payor may terminate the agreement
without cause on 120 days notice. The loss by an IPA or PHO of any significant
payor contract would have a material adverse effect on the revenue and
financial condition of the NAMM managing entity and potentially on our ongoing
operations as a whole.

PMNI. In connection with certain of our California operations, PMNI
contracts with payors primarily on a capitated basis (i.e., fixed payment per
payor plan member per month). Payors delegate to PMNI the administrative and
financial responsibility for credentialing, medical management, capitation
management, and claims adjudication and payment. PMNI contracts with our owned
IPAs to perform physician services. Contractually, PMNI is at risk if the cost
of physician professional services exceeds the capitated payments received from
payors. Through its contracts with various hospitals, PMNI also assumes some
risk for the institutional (hospital) costs.

PMNI is subject to a significant level of state oversight, including a
requirement to maintain a defined level of tangible net equity by the
California Department of Managed Healthcare (the DMHC) because it holds a
limited Knox-Keene license in California. A Knox-Keene license is a license
issued by the State of California that allows an entity to assume limited risk
under certain managed care contracts. The license renews annually provided
PMNI complies with the renewal requirements. If PMNI lost its limited
Knox-Keene license, it would no longer be able to enter these risk contracts
and, accordingly, our revenue would decline materially. In addition, pursuant
to the Knox-Keene requirements, PMNI, as a condition to receipt of its license,
agreed not to make any distributions of cash to us if any such distribution
would cause PMNI to fail to be in compliance with the Knox-Keene requirements.

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During the third quarter of 2000, PMNI reached an agreement with the DMHC
regarding the funding of certain cash reserve requirements for claims payment.
PMNI was in compliance with such requirements as of March 31, 2002. As of that
date, PMNI had restricted cash reserves of $26.7 million and outstanding
healthcare claims and liabilities of $21.5 million.

Future Prospects For IPA Business. We intend to continue to pursue the
growth of NAMM and PMNI. We are seeking to contract with additional payors and
to add additional physicians to our managed IPAs. PMNI currently operates
primarily in the San Bernadino and Riverside counties in California. Through
the Medical Pathways acquisition, we expanded NAMM Californias service area
into Los Angeles, Orange and San Luis Obispo counties. We believe that we will
be able to add physicians and members within these counties as a result of our
marketing efforts and those of payors with which we contract. We are also
seeking to develop additional management relationships with IPAs to enhance
both capitated and non-capitated managed care contracting systems. There is no
assurance, however, that we will be successful in these efforts.

Physician Affiliations

Service, Management and Consulting Agreements

Through our PhySys division, we provide support services to health systems
and independent medical organizations. Our strategy is to assist these
organizations to improve the operations of their physician networks by offering
them a range of services to address their needs. Pursuant to these
affiliations, we provide management services to physician networks for a fee,
but do not acquire the assets or employ the personnel of the physician groups,
except certain key employees, and do not have any ongoing obligation to provide
capital to the affiliated groups. We may choose to negotiate an investment in
these groups in the future, and may do so through a joint venture. To date,
however, we have not invested any capital in these groups and have no
commitment to do so. This modified structure enables the physician group or
health system to benefit from our management expertise while retaining control
of its employees and decisions regarding future capital investment.

Rome and Suffolk Agreements. We have support services contracts with two
of our formerly affiliated multi-specialty clinics: the Harbin Clinic in Rome,
Georgia and the Lakeview Medical Center in Suffolk, Virginia. Our fee under
each of the Rome and Suffolk agreements is a fixed monthly fee plus
reimbursement of certain expenses. We do not employ the personnel at these
clinics and do not own any of the assets of either clinic. Under the Rome
agreement, we are obligated to provide lease financing of up to $750,000
annually through September 30, 2005 for the acquisition of equipment to be used
in the groups operation. The lease rate is the prime rate, and the group has
the sole discretion whether to use us as its source of capital for leased
equipment. No such financing has been requested to date. The Rome agreement
terminates on September 30, 2007, subject to earlier termination for various
reasons. The Suffolk agreement terminates on November 30, 2005, subject to
earlier termination without cause upon 90 days notice and payment of a
termination fee. Under the Suffolk agreement, the physician group may offset,
against any obligation it has to us, amounts that we owe to the physician group
under a promissory note, dated January 1, 1998, in the principal amount of
$173,783. We assigned the obligations under this note to our wholly-owned
subsidiary, SynerPhy of Suffolk, Inc. Our subsidiary which contracts with the
Harbin Clinic is part of the bankruptcy proceeding, however, our Suffolk
subsidiary is not. We do not anticipate that the Bankruptcy Filings will
negatively impact these relationships.

Rockford Health Agreement. Through PhySys, we also provide management
services to the physician networks of certain health systems. Currently, this
division provides management and support services to a 110-physician group
affiliated with the Rockford Health System, a healthcare delivery system
serving northern Illinois and southern Wisconsin. Under the agreement, we
receive a fixed annual fee, payable monthly, and reimbursement of various
expenses. We are obligated to provide Rockford with an executive director, a
controller, and an analyst to perform the required management and support
services. The Rockford agreement terminates on December 31, 2002, and we will
receive a termination fee at such time.

Mercy Health Agreement. PhySys also provides services to MedClinic of
Sacramento, a 120-member physician group affiliated with the Mercy Health
System in Sacramento, California. We are obligated to provide an executive
director and a financial officer to perform services for Mercy Health. The Mercy
Health agreement terminates
June 30, 2004 subject to earlier termination by either party in certain
circumstances, including termination prior to June 30, 2002 for any reason.

Future Plans For Service Arrangements. We are pursuing additional
management services relationships with other health systems and physician
groups, but there can be no assurance that we will enter into arrangements
similar to those with Rockford and Mercy Health in the future or that any such
arrangements will be successful. Finally, through PhySys, we offer consulting
services to independent medical organizations through limited engagements.

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Results of Operations

The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in the Companys Consolidated
Statements of Operations.

|                             |                                                 |                                                                 |       |      |      |    |       |      |       |   
|---------------------------- | ----------------------------------------------- | --------------------------------------------------------------- | ----- | ---- | ---- | -- | ----- | ---- | ----- | --
|Three Months Ended March 31, |                                                 | 2002                                                            |       | 2001
|                             |                                                 |                                                                 |       |     
|Net revenue                  |                                                 |                                                                 | 100.0 | %    |      |    | 100.0 | %   
|Operating expenses:          |                                                 |                                                                 |       |      |      |    |       |     
|                             | Cost of provider services                       |                                                                 |       | 72.2 |      |    |       | 55.0 |      
|                             | Salaries, wages and benefits                    |                                                                 |       | 15.9 |      |    |       | 21.5 |      
|                             | Supplies                                        |                                                                 |       | 0.6  |      |    |       | 3.1  |      
|                             | Purchased medical services                      |                                                                 |       |     |      |    |       | 0.4  |      
|                             | Other expenses                                  |                                                                 |       | 5.4  |      |    |       | 26.7 |      
|                             | General corporate expenses                      |                                                                 |       | 1.3  |      |    |       | 5.3  |      
|                             | Rents and lease expense                         |                                                                 |       | 1.9  |      |    |       | 3.3  |      
|                             | Depreciation and amortization                   |                                                                 |       | 1.3  |      |    |       | 3.7  |      
|                             | Recovery of asset revaluation and restructuring |                                                                 |       |     |      |    |       | (1.1 | )    
|                             |                                                 |                                                                 |       |      |      |    |       |      |      
|                             |                                                 | Net operating expenses                                          |       |      | 98.6 |    |       |      | 117.9 |   
|                             |                                                 |                                                                 |       |      |      |    |       |      |      
|                             |                                                 | Income (loss) from operations                                   |       |      | 1.4  |    |       |      | (17.9 | ) 
|Interest income              |                                                 |                                                                 | (1.0  | )    |      |    | (1.1  | )   
|Interest expense             |                                                 |                                                                 | 2.2   |      |      |    | 5.3   |     
|                             |                                                 |                                                                 |       |      |      |    |       |      |      
|                             |                                                 | Income (loss) before reorganization costs and minority interest |       |      | 0.2  |    |       |      | (22.1 | ) 
|Reorganization costs         |                                                 |                                                                 | 2.7   |      |      |    | 0.7   |     
|                             |                                                 |                                                                 |       |      |      |    |       |      |      
|                             |                                                 | Loss before minority interest                                   |       |      | (2.5 | )  |       |      | (22.8 | ) 
|Minority interest            |                                                 |                                                                 | 0.2   |      |      |    | 0.8   |     
|                             |                                                 |                                                                 |       |      |      |    |       |      |      
|                             |                                                 | Net loss                                                        |       |      | (2.7 | )% |       |      | (23.6 | )%
|                             |                                                 |                                                                 |       |      |      |    |       |      |      

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Net revenue decreased $12.3 million, or 14.4%, to $73.0 million for the
first quarter of 2002 from $85.3 million for the first quarter of 2001. The
decrease is primarily the result of the sale or disposal of certain operating
units which had generated revenue in the first quarter of 2001, but not in the
first quarter of 2002. Approximately $8.2 million of the decrease was related
to the dispositions of the assets of our formerly affiliated multi-specialty
clinics which were completed in April 2001. Approximately $3.8 million of the
decrease related to the sale of our healthcare decision-support services
subsidiary, CareWise, Inc. (CareWise), on May 25, 2001. In addition,
approximately $2.0 million of the decrease related to the disposition of our
management services operation in Denver in August 2001 and decreases in fees
from various consulting arrangements.

Partially offsetting the decrease in total net revenue, net revenue from
IPAs (IPA net revenue) increased $1.7 million, or 2.4%, to $71.5 million for
the first quarter of 2002 from $69.8 million for the first quarter of 2001.
The net increase in IPA net revenue resulted from an approximate $3.4 million
increase, or 5.0%, from IPA markets operating during both the first quarter of
2002 and 2001 and a $1.7 million decrease as a result of the operations
discontinued in the Florida, Texas and Nevada markets in 2001. The same
store IPA net revenue increased to $71.5 million for the first quarter of 2002
from $68.1 million for the first quarter of 2001 primarily as the result of
increased enrollment and rates in NAMM Californias IPAs.

Cost of provider services as a percentage of net revenue increased during
the first quarter of 2002 compared to the first quarter of 2001 because our
NAMM California operations comprised 93% of our total net revenue in the first
quarter of 2002 compared to 80% in the first quarter of 2001. NAMM California
operates in a capitated fee environment and must provide medical care for its
members utilizing services obtained from non-affiliated providers. The cost of
provider services expense represents medical expenses paid to non-IPA
affiliated healthcare providers. Cost of provider services expense was 77% of
NAMM Californias total net revenue in the first quarter of 2002 and 2001.
Because net revenue from our NAMM California operations increased as a
percentage of our total net revenue, the cost of provider services expense also
increased as a percentage of our total net revenue. Other operating expenses
decreased as a percentage of net revenue for the first quarter of 2002 compared
to the first

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quarter of 2001 primarily because in 2001 we recorded approximately $8.1
million in expense related to the discount of a certain notes receivable and
decreases in estimated net realizable value of three other notes receivable
totaling approximately $4.3 million.

General corporate expenses, rents and lease expense and depreciation and
amortization decreased as a percentage of net revenue in the first quarter of
2002 compared to the first quarter of 2001 because of the continued downsizing
of our corporate office space and personnel and corresponding
reduction in operating costs. Furthermore,
amortization expense decreased as a result of our adoption of the provisions of
Statement of Financial Accounting Standard No. 142, effective January
1, 2002, which eliminated the amortization of goodwill in 2002. The decrease
in interest expense as a percentage of net revenue is primarily because of our
discontinuance of accruing interest expense related to our Notes and Zero
Coupon Notes as of the Petition Date.

We have recorded a full valuation allowance on net deferred tax assets
because realization of such assets in the future is uncertain.

Asset Revaluation and Restructuring

General

In the first quarter of 2002, we had no asset revaluation or restructuring
charges. In the first quarter of 2001, we recorded a net asset revaluation and
restructuring recovery of approximately $1.0 million. This net recovery
included a net pre-tax asset revaluation charge of approximately $300,000,
which was comprised of a $3.6 million asset revaluation charge less recovery of
$3.3 million of certain asset impairment charges recorded in prior years. The
net recovery also included a net restructuring reserve recovery of
approximately $1.3 million, which was comprised of a $500,000 restructuring
charge less recovery of $1.8 million of restructuring reserves recorded in
prior years which will not be utilized.

Restructuring Charges

During the first quarter of 2002 we paid approximately $85,000 in facility
and lease termination costs, $11,000 in severance costs and $115,000 in other
exit costs related to prior year charges. At March 31, 2002, accrued
restructuring reserves totaled approximately $21.9 million, which included
$18.1 million in facility and lease termination costs, $1.7 million in
severance costs and $2.1 million in other exit costs. Substantially all
obligations related to the accrued restructuring reserves are subject to
compromise as a result of the Bankruptcy Filings.

In the first quarter of 2001, we adopted and implemented restructuring
plans and recorded a net pre-tax restructuring reserve recovery of
approximately $1.3 million. This recovery was comprised of a $500,000
restructuring charge related to the anticipated disaffiliation with of one of
our multi-specialty groups and the recovery of approximately $1.8 million
related to restructuring charges recorded in prior years which will not be
utilized.

Critical Accounting Policies

During the three months ended March 31, 2002, there were no material
changes to our critical accounting policies as
described in our Annual Report on Form 10-K for the year ended December 31, 2001.

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Liquidity and Capital Resources

Bankruptcy

As previously described herein, on the Petition Date, the Debtors filed
the Bankruptcy Filings and the Plan, which sets forth the manner in which
claims against, and interests in, them will be treated following their emergence
from bankruptcy, as well as a disclosure statement. The final disclosure
statement has not yet been submitted to the Bankruptcy Court for approval. We
elected to seek Chapter 11 protection in an attempt to realign our capital
structure and to preserve the value of our remaining businesses for our
creditors. We filed the Plan with the support of certain creditors, which
collectively hold approximately two-thirds of our outstanding indebtedness. The
Plan is subject to a number of conditions, including approval by certain of our
creditors and confirmation by the Bankruptcy Court. Creditors who do not vote
in favor of the Plan may challenge its confirmation. Resolution of any such
challenges could result in delays and increased expense as well as failure of
the Plan.

If the Plan is
confirmed, the Debtors general unsecured creditors, including the
Bondholders and Warburg, Pincus, will receive shares of the reorganized
companys common stock or, in certain instances, cash in an amount equal to
approximately 11.9% of their claims in full satisfaction of their claims.
Under the terms of the Plan, our outstanding and authorized common stock,
options, warrants and rights to purchase preferred stock will be cancelled and
holders of these securities will not receive any consideration, either in cash
or in newly issued stock. Finally, under the terms of the Plan, we anticipate
that there will be fewer than 300 shareholders of record upon consummation. If
that is the case, the securities of the reorganized company will not be
publicly traded and the reorganized company will be a privately-held company
not subject to the reporting obligations of the SEC. In the event the
Plan is not confirmed, we may not be able to continue as a going
concern.

The Debtors are currently operating as debtors-in-possession subject to
the jurisdiction of the Bankruptcy Court. On February 1, 2002, the Bankruptcy
Court granted authority to the Debtors, among other things, to pay prepetition
and post-petition employee wages, salaries, benefits and other employee
obligations. The Bankruptcy Court also entered an order approving the
rejection of certain executory contracts and lease obligations. The Debtors
continue to pay post-petition obligations in the ordinary course of business.

Under the Bankruptcy Code, actions to collect prepetition indebtedness,
including pending litigation against the Debtors, are stayed and other
contractual obligations may not be enforced against the Debtors. In addition,
the Debtors may reject executory contracts and lease obligations. Parties
affected by these rejections may file claims with the Bankruptcy Court in
accordance with the reorganization process. If the Debtors are able to
reorganize successfully, substantially all unsecured liabilities as of the
Petition Date would be discharged under the Plan.

General

As a result of the Bankruptcy Filings, the principal and interest due
under the Notes and the Zero Coupon Notes are subject to compromise. As of
March 31, 2002, we had $52.8 million in cash and cash equivalents, including
$30.5 million of restricted cash and cash equivalents, compared to $51.7
million and $30.3 million, respectively, at December 31, 2001. Restricted cash
and cash equivalents primarily include amounts held by PMNI, the use of which
is restricted to operations of PMNI to meet regulatory deposit requirements.

Our operations, before reorganization items, provided $3.7 million of cash
flow in 2002 compared to using $1.7 million of cash flow in 2001, an increase
of $5.4 million. The increase in cash flow from operations before
reorganization items resulted primarily from lower corporate costs because of
the continued downsizing of our corporate office space and personnel
and the corresponding reduction in operating
costs between the first quarter of 2001 and the first quarter of 2002. Cash
flow from operations for our NAMM subsidiaries in the first quarter of 2002
remained constant compared to the first quarter of 2001 generating
approximately $4.0 million.

The former employment
agreements with Mr. Thompson S. Dent, our Chairman, and Mr. Tarpley B. Jones,
our Chief Executive Officer and President, provided for the payment of bonuses
aggregating up to a maximum of $2.25 million upon the repayment of borrowings
under the bank credit facility with Citicorp (the Citicorp
Credit Facility). Approximately $200,000 of the bonuses was
earned in

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2000, and the remainder was earned during the first quarter of 2001, of
which all amounts were paid in 2001. On the Petition Date, these agreements
were superseded by Mr. Dents separation agreement
(Dent Separation Agreement) and Mr. Jones new
employment agreement (Jones Employment Agreement). On February 25, 2002, a creditor filed a motion to
reconsider the February 15, 2002 order of the Bankruptcy Court authorizing us
to assume the Dent Separation Agreement and the Jones Employment Agreement. We
have opposed this motion as we believe that the assumption of these agreements
was a proper exercise of our business judgment.

Effective March 1,
2002, we acquired, through NAMM California, certain assets and the
management contracts of seven IPAs from Medical Pathways for
consideration totaling $3.2 million including deferred payments and
the assumption of certain liabilities. Pursuant to certain Medical
Pathways transaction agreements, NAMM California is obligated to make
additional payments if particular operating parameters are achieved
as a result of the acquired management contracts. Maximum contingent
payments related to these agreements is expected to approximate $4.5
million and will be paid at various dates through May 30, 2005.
Such liability, if any, will be recorded in the period in which the
outcome of the contingency becomes known.

We expect to make approximately $1.5 million in capital expenditures in
2002, which we anticipate will be funded from operating cash flow and
unrestricted cash reserves. Excluding the consideration related to the
acquisition of assets in the Medical Pathways transaction, we paid
approximately $100,000 for capital expenditures in the first quarter of 2002.

During 2000, we
resolved outstanding Internal Revenue Service (IRS) examinations for the years 1996
through 1998. The IRS examination resulted in an adjustment to the 1998 loss
carryback and accordingly, we repaid approximately $1.2 million plus interest,
as a result of revisions in the alternative minimum tax calculation. The tax
years 1996 through 1998 have been closed with respect to all issues without a
material financial impact. Additionally, two subsidiaries are currently under
examination for the 1995 and 1996 tax years. We acquired the stock of these
subsidiaries during 1996. We have agreed to settle the audit of one of these
subsidiaries for approximately $27,000 plus interest, subject to approval by
the Bankruptcy Court and hope to mediate a settlement of the other audit with
the IRS. For the years under audit, and potentially, for subsequent years, any
such adjustments could result in material cash payments by us. We cannot
determine at this time the resolution of these matters, however, we do not
believe the resolution of these matters will have a material adverse effect on
our financial condition, although there can be no assurance as to the outcome
of these matters.

As of
December 31, 2001, we had approximately $702.4 million in
federal net operating loss carryforwards (NOLs). It is expected that the NOLs
will be reduced by the amount of indebtedness discharged under the Plan,
estimated to be approximately $309 million. In addition, the NOLs will be
reduced by approximately $17.9 million which equals the amount of interest
paid during the past three years to creditors who will become shareholders of
the reorganized company under the Plan. Our ability to utilize the remaining
NOLs will be subject to limitations because of the ownership change that will
result from the Plan unless qualified creditors, as defined in the Tax Code,
will own 50% or more of the stock of the reorganized company. Although we
expect that qualified creditors will own 50% or more of the reorganized company
and intend to file our tax returns consistent with this belief, there can be no
assurance that an audit of one or more tax returns filed for 1998 and later tax
years would not result in a reduction in the amount of or complete elimination
of the remaining NOLs available for future use. In addition, our ability to
utilize our NOLs could also be limited or eliminated in the event of certain
future mergers or acquisitions.

Capital Resources

Our sources of capital are extremely limited. Our sole sources of capital
are unrestricted cash reserves, cash flow from operations, and certain notes
receivable from the acquirers of certain assets of our former clinics. We do
not expect to have access to any outside sources of capital until the
bankruptcy is completed. Moreover, we have no assurance that any capital will
be available at terms acceptable to us at such time or at any time in the
future.

In October 2001, we entered into a one-year credit agreement with AmSouth
Bank (the AmSouth Facility) which provides for the issuance of letters of
credit up to an aggregate of $2.65 million to replace those outstanding at that
time under the Citicorp Credit Facility. To date in 2002, a letter of credit
for $400,000 expired and letters of credit totaling $500,000 have been drawn.
At May 13, 2002, letters of credit aggregating $1.75 million were outstanding
under the AmSouth Facility and were collateralized with $1.9 million cash.

Our common stock was delisted from the NASDAQ Stock Market as of August
25, 2000 because of our failure to satisfy certain of the minimum NASDAQ
listing criteria. Our common stock immediately began trading on the OTC
Bulletin Board. Under terms of the Plan, all outstanding common stock and
related securities will be cancelled and holders will receive no consideration
in cash or stock.

Summary

As described herein, the Debtors filed for Chapter 11 protection on the
Petition Date. On that date, the Debtors also filed the Plan to reorganize the
company. Our Plan is subject to a number of conditions, including approval by
certain of our creditors and confirmation by the Bankruptcy Court. Creditors
who do not vote in favor of the Plan may challenge its confirmation.
Resolution of any such challenges could result in delays and increased expense
as well as failure of the Plan. If our Plan is confirmed, the Debtors general
unsecured creditors, including the Bondholders and Warburg, Pincus, will
receive shares of the reorganized companys common stock or, in certain
instances, cash in an amount equal to 11.9% of their claims in full
satisfaction of their claims. Under the terms of the Plan, our outstanding and
authorized common stock, options, warrants and rights to purchase preferred
stock will be cancelled and holders of these securities will not receive any
consideration, either in cash or in newly issued stock. In the event the Plan
is not confirmed, we may not be able to continue as a going concern.

At March 31, 2002, we had cash and cash equivalents of approximately $52.8
million, including $30.5 million of restricted cash and cash equivalents. We
do not anticipate having access to any outside sources of capital
unless
we emerge from bankruptcy and there is no assurance that capital will be
available on agreeable terms at such time or at any time in the future. In the
event cash flow from operations, unrestricted cash reserves and collections on
certain notes receivable are not sufficient to fund our ongoing
operations, or if we otherwise fail to meet our financial projections
in any material respect, our
financial condition and our ability to emerge as a viable entity from
bankruptcy may be doubtful.

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FORWARD-LOOKING STATEMENTS

The disclosure and analysis in this report and other information that is
provided by us contain some forward-looking statements. Forward-looking statements give our
current expectations or forecasts of future events. These statements do not
relate solely to historical or current facts and can be identified by the use
of words such as may, believe, will, expect, project, estimate,
anticipate, plan, should or continue. From time to time, we also may
provide oral or written forward-looking statements in other materials we
release to the public.

Any of our forward-looking statements in this report and in any other
public statements we make may turn out to be incorrect. These statements can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in this report will be important in
determining future results, including the following:



| |  |  | uncertainties related to the
Bankruptcy Filings including, but not limited to, (i) our
ability to consummate the Plan on substantially the terms proposed,
(ii) actions which may be taken by creditors and the outcome of
various administrative matters in the Chapter 11 proceeding and
(iii) the possibility of delays in the effective date of the
proposed Plan;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our inability to access capital markets given our current
financial condition;                                                                                                                                                                                                                                                                                        
|
| |  |  | the amount of time and effort that our senior management must
devote to the Chapter 11 case and other matters relating to our
financial condition, thereby reducing time spent directly on the
operations of our businesses;                                                                                                                                          
|
| |  |  | the possibility that we may be unable to retain top
management and other key personnel;                                                                                                                                                                                                                                                                               
|
| |  |  | competition and general economic, demographic and business
conditions, both nationally and in the regions in which we operate;                                                                                                                                                                                                                                        
|
| |  |  | existing government regulations and changes in legislative
proposals for healthcare reform, including changes in Medicare and
Medicaid reimbursement levels;                                                                                                                                                                                                          
|
| |  |  | our ability to operate IPAs and other physician organizations
profitably;                                                                                                                                                                                                                                                                                             
|
| |  |  | the ability of the IPAs to negotiate acceptable contracts
with payors and the possibility of decreases in federal
reimbursement;                                                                                                                                                                                                                                      
|
| |  |  | changes in contractual relationships;                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | the nature of capitated fee arrangements and other methods of payment for medical services;                                                                                                                                                                                                                                                                           
|
| |  |  | the risk of professional liability claims; and                                                                                                                                                                                                                                                                                                                        
|
| |  |  | the outcome of pending litigation.                                                                                                                                                                                                                                                                                                                                    

Actual future results may vary materially from those reflected in the
forward-looking statements. For a more detailed discussion of the factors that
could affect our results of operations and financial condition, please see
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

We undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our future 10-Q, 8-K, and 10-K reports to the SEC.

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Item 3.   Quantitative and Qualitative Disclosure about Market Risk

During the three months ended March 31, 2002, there were no material
changes to our quantitative and qualitative disclosures about the
market risks associated with financial instruments as described in our Annual Report on Form 10-K for the year ended December 31, 2001.




PART II  OTHER INFORMATION




Item 1.   Legal Proceedings

On the Petition Date, the Debtors filed the Bankruptcy Filings with the
Bankruptcy Court (Case No. 02-40278 (PCB)). On that date, we also filed the
Plan, which sets forth the manner in which claims against, and
interests in, them
will be treated following their emergence from bankruptcy, as well as a
disclosure statement. The final disclosure statement has not yet been
submitted to the Bankruptcy Court for approval. Our IPA management operating
subsidiaries are not part of the Bankruptcy Filings and have continued paying,
in the ordinary and normal course of business, all wages, benefits and other
employee obligations as well as all outstanding and ongoing accounts payable to
their contractors and vendors. We elected to seek Chapter 11 protection to
attempt to realign our capital structure and to preserve the value of our
remaining businesses for our creditors. We had been in negotiations regarding
the reorganization with representatives of certain Bondholders and Warburg,
Pincus and filed the Plan with the support of certain of these creditors, which
collectively hold approximately two-thirds of our outstanding indebtedness. The
Plan is subject to a number of conditions, including approval by certain of our
creditors and confirmation by the Bankruptcy Court. Creditors who do not vote
in favor of the Plan may challenge its confirmation. Resolution of any such
challenges could result in delays and increased expense as well as failure of
the Plan.

If the Plan is
confirmed, the Debtors general unsecured creditors, including the
Bondholders and Warburg, Pincus, will receive shares of the reorganized
companys common stock or, in certain instances, cash in an amount equal to
approximately 11.9% of their claims in full satisfaction of their claims.
Under the terms of the Plan, our outstanding and authorized common stock,
options, warrants and rights to purchase preferred stock will be cancelled and
holders of these securities will not receive any consideration, either in cash
or in newly issued stock. Finally, under the terms of the Plan, we anticipate
that there will be fewer than 300 shareholders of record upon consummation. If
that is the case, the securities of the reorganized company will not be
publicly traded and the reorganized company will be a privately-held company
not subject to the reporting obligations of the SEC. In the event the
Plan is not confirmed, we may not be able to continue as a going
concern.

As a result of the Bankruptcy Filings, all current litigation against the
Debtors is stayed. Litigation is continuing, however, against our subsidiaries
that did not seek protection under Chapter 11. All judgments against the
Debtors will be treated as claims under the Plan.

Stayed Litigation

We and certain of our current and former officers and directors, Joseph C.
Hutts, Derril W. Reeves, Thompson S. Dent, Richard D. Wright and John K.
Crawford (only Mr. Dent and Mr. Hutts currently serve as our directors) have
been named defendants in 10 securities fraud class actions filed in state and
federal courts in Tennessee between September 8, 1998 and June 24, 1999. The
factual allegations of the complaints in all 10 actions are substantially
identical and assert that during various periods between April 22, 1997 and
September 22, 1998 (the Class Period), the defendants issued false and
misleading statements which materially misrepresented our earnings and
financial condition and our clinic operations and misrepresented and failed to
disclose various other matters concerning our operations in order to conceal
the alleged failure of our business model. Plaintiffs further assert that the
alleged misrepresentations caused our securities to trade at inflated levels
while the individual defendants sold shares of our stock at such levels. We
and the individual defendants have reached a proposed settlement with the
plaintiff class which will resolve all of the claims in the consolidated
actions. On March 12, 2002, the parties filed with the United
States District Court for the Middle District of Tennessee (the
District Court) a
Memorandum of Understanding which outlines the proposed settlement, the terms
of which include the payment of $3.4 million to be paid by insurance proceeds
in exchange for complete releases of all defendants and dismissal of the
consolidated cases with prejudice. In connection with the Bankruptcy Filings,
an Amended Stipulation and Order of the Bankruptcy Court lifting the automatic
stay for purposes of allowing the settlement process to proceed in
the District
Court was entered on April 12, 2002. Fully

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executed settlement documents were filed with the District Court on April
12, 2002 and any opt-outs or objections to the settlement must be filed with
the District Court on or before July 8, 2002. The final hearing on the
settlement is scheduled for July 20, 2002. The reorganized company will take
whatever steps are necessary to complete the settlement of the litigation.
Subject to approval by the District Court, KPMG LLP, our independent public
auditors, has also settled the claims against it in the litigation.

The same Class Period and the same factual allegations made in the federal
court consolidated class actions are alleged in a separate derivative action
filed in the Chancery Court for Davidson County, Tennessee, Parul Patel v.
Joseph C. Hutts, et. al.,Case No. 99-2353-I. By Order entered October 14,
1999, the derivative action was stayed pending the outcome of the federal
consolidated class actions. Although Mr. Patel has not agreed to settle his
claim as a part of the proposed federal court settlement, it is a condition of
the settlement agreement that under the terms of the Plan, which is subject to
creditor and court approval, Mr. Patels interest as a common stockholder be
cancelled and his litigation claim be discharged. In addition, we will not
pursue any alleged claims made in the Patelaction against our current and
former officers and directors. Finally, under the terms of the Plan, we are
releasing any claims we may have against our current and former officers and
directors.

On August 31, 1999, two relators brought an action in the United States
District Court for the District of Hawaii under the False Claims Act and for
employment related claims against Straub Clinic and Hospital, Inc. (Straub),
PhyCor of Hawaii, Inc., and us. This matter had been under seal until
September 2000. On September 20, 2000, the United States government declined
to intervene in the matter. We sold PhyCor of Hawaii, Inc. to Straub in
November 2000, and Straub is defending the claims against PhyCor of Hawaii,
Inc. We lost our motion to dismiss the claims against us and are defending
ourselves in the litigation. Trial was set for June 12, 2002; however, as a
result of the Bankruptcy Filings, the case is stayed.

As a result of our decision to exit our IPA market in Houston, Texas, a
number of providers in the market have brought actions naming several parties,
including one of our IPA-management subsidiaries and us, alleging breach of
contract, breach of fiduciary duty, and fraud, among other matters. Several
million dollars have been claimed in these cases. We believe the plaintiffs
have sued the wrong party and that the claims are generally excessive. In
addition, as a result of our financial condition, we have been unable to meet
certain contractual obligations including, but not limited to, certain ongoing
lease obligations and severance obligations to former employees. There can be
no assurance that we will meet existing or additional contractual obligations
in the future. Several parties have sent us letters alleging breach of
contract and threatening to bring claims, and several suits have been filed.
The litigation has been stayed and the claims will be handled through the
bankruptcy process.

In a case which was filed in the Circuit Court of the 11th Judicial
Circuit in and for Miami-Dade County, Florida, Busch Drive Ltd. and Lime Street
Ltd., the landlords of our formerly affiliated physician group, First Coast
Medical Group, P.A., claimed we guaranteed the lease obligations of the
physician group. The judge in that case has entered judgments in favor of the
landlords in the aggregate amount of approximately $2.5 million. This judgment
will be dealt with as a claim under the Plan.

Active Litigation

The following is a
summary of material litigation to which certain of our
operating subsidiaries who are not part of the Bankruptcy Filings are parties, and accordingly, this litigation is not
stayed by the Bankruptcy Filings.

As previously disclosed, in the case of United States of America ex rel.
William R. Benz v. PrimeCare International, Inc. and Prem Reddy, in the United
States District Court, Central District of California, the jury returned a
verdict in favor of the plaintiff in the amount of $4.6 million. The judgment
of $4.6 million was recorded as other operating expenses in the second quarter
of 2000. We entered into a settlement agreement with Mr. Benz which
subsequently received court approval. In exchange for PrimeCare paying Mr.
Benz $2.7 million (of which $700,000 was paid during the second quarter of 2001
and the remainder was paid during July 2001), all claims were dropped by Mr.
Benz against us and our affiliates. Mr. Benz has not settled with Dr. Reddy,
and Dr. Reddy continues to maintain that PrimeCare and several of its managed
IPAs has an indemnification obligation to him. In March 2002, we were granted
a demurrer with respect to Dr. Reddys claim for indemnity, and accordingly,
his claim will be dismissed with prejudice. Dr. Reddy has not appealed this
decision as of the date hereof.

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The IPAs we manage, the physicians employed by those IPAs, and in some
cases PMNI, are parties to several medical malpractice and/or managed care
liability cases which we believe will be adjudicated within applicable
insurance coverage limits. In addition, many of our California subsidiaries
and affiliated IPAs have been sued on business claims such as breach of
contract, misrepresentation, fraud, and deceit. The plaintiffs in these suits
are seeking millions of dollars in damages, and we are vigorously defending
these suits. One such case was recently tried in the Superior Court of the
State of California for the County of Riverside. On December 31, 2001, the jury
awarded the plaintiff damages jointly against PrimeCare and PMNI in the amount
of $3 million based upon its breach of contract claim, $208,189 against
PrimeCare on its constructive fraud claim and $5,000 in punitive damages
against PrimeCare. PrimeCare was awarded $296,190 on its cross-complaint. We do not agree with this decision and we have
appealed and the plaintiff has cross-appealed. PMNI obtained a $5 million appellate bond secured by a letter of
credit to enable us to pursue this appeal. There can be no assurance that we
will be successful with this appeal or in other pending litigation. Additional
damage awards at the levels the plaintiffs have demanded could have a material
adverse effect on our ongoing operations.

In addition, we and PrimeCare have been named in litigation involving
PrimeCare operations that were not transferred to us when we acquired
PrimeCare. In one such case in Oklahoma, the plaintiff is alleging that a
former PrimeCare subsidiary (which we did not acquire) is guilty of breach of
contract, conversion, and fraud, and is seeking damages in excess of $2 million
plus punitive damages. Since filing the litigation, the plaintiff has filed for
bankruptcy relief. In the other such case in Florida, the plaintiff is seeking
approximately $250,000 in damages. Although we did not own PrimeCare at the
time of the alleged incidents, we may have liability for the actions of these
entities and may not have indemnity rights against Dr. Reddy, the former owner
who is also a co-defendant. It is not possible to determine the amount of our
exposure or that of our subsidiaries in these cases, but a large judgment
against us could have a material adverse effect on our ongoing operations.

Certain litigation is pending against our formerly affiliated physician
groups and certain of our managed IPAs. We have not assumed any liability in
connection with such litigation. Claims against the physician groups and IPAs
could result in substantial damage awards to the claimants which may exceed
applicable insurance coverage limits. Although we may not be parties to such
litigation, a substantial financial obligation of the physician group or IPA
could threaten its viability or its ability to pay our fees. While there can
be no assurance that the physician groups and IPAs will be successful in any
such litigation, at this time, we do not believe any such litigation will have
a material adverse effect on our operations.




Item 3.   Defaults Upon Senior Securities

As a result of our failure to pay approximately $13.2 million in interest
payments on the Notes, we are in default under the Notes. The principal amount
outstanding under the Notes, which mature in 2003, is $196.5 million. The
obligations due under the terms of the Notes are subject to compromise and will
be discharged in the bankruptcy process as a result of the Bankruptcy Filings.

24



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##### Table of Contents






Item 6.   Exhibits and Reports on Form 8-K



| |              
| | -------------
| | (a) Exhibits:

|        |  |   |  |                                                                                                                                                                                                              
|------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                              
|Number  |  |   |  | Description of Exhibits                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                              
|2.1     |  |  |  | Amended Joint Reorganization Plan of PhyCor, Inc. and Debtor Subsidiaries (1)                                                                                                                                
|3.1     |  |  |  | Amended Bylaws of the Company (2)                                                                                                                                                                            
|3.2     |  |  |  | Restated Charter of the Company (2)                                                                                                                                                                          
|3.3     |  |  |  | Amendment to Restated Charter of the Company (3)                                                                                                                                                             
|3.4     |  |  |  | Amendment to Restated Charter of the Company (4)                                                                                                                                                             
|4.1     |  |  |  | Form of 4.5% Convertible Subordinated Debenture due 2003 (5)                                                                                                                                                 
|4.2     |  |  |  | Form of Indenture by and between the Company and First American National Bank, N.A. (5)                                                                                                                      
|10.1    |  |  |  | Credit and Security Agreement between the Company and AmSouth Bank (6)                                                                                                                                       
|10.2    |  |  |  | Companys Amended 1988 Incentive Stock Plan (7)                                                                                                                                                              
|10.3    |  |  |  | Companys Amended 1992 Non-Qualified Stock Option Plan for Non-Employee Directors (7)                                                                                                                        
|10.4    |  |  |  | Companys Savings and Profit Sharing Plan (8)                                                                                                                                                                
|10.5    |  |  |  | Companys 1999 Stock Incentive Plan (9)                                                                                                                                                                      
|10.6    |  |  |  | Form of IPA Commercial Risk Services Agreement between Pacificare of California and a
Company Subsidiary (6)                                                                                                 
|10.7    |  |  |  | Form of IPA Medicare Partial Risk Services Agreement between Pacificare of California
and a Company Subsidiary (6)                                                                                           
|10.8    |  |  |  | Reserved                                                                                                                                                                                                     
|10.9    |  |  |  | Risk Contract Management Agreement, dated as of May 1, 1995, by and between North
American Medical Management-Illinois, Inc. and Elmhurst Physician Hospital
Organization, LLC (10)                          
|10.10   |  |  |  | First Amendment to Risk Contract Management Agreement, dated as of November 1, 1996,
by and between Elmhurst Physician Hospital Organization, LLC and North American
Medical Management  Illinois, Inc. (10)
|10.11   |  |  |  | Amendment to Risk Contract management Agreement, dated as of May 1, 2000, by and
between Elmhurst Physician Hospital Organization, LLC and North American Medical
Management-Illinois, Inc. (10)             
|10.12   |  |  |  | Management Services Agreement, dated as of September 1, 1998, by and between North
American Medical Management  Illinois, Inc. and Health Options Illinois, Inc. (10)                                       
|10.13   |  |  |  | Management Agreement by and between North American Medical Management  Illinois, Inc.
and Ingalls Provider Group (10)                                                                                       
|10.14   |  |  |  | Amendment to Management Agreement, dated November 30, 1999, by and between Ingalls
Provider Group and North American Medical Management  Illinois, Inc. (10)                                                
|10.15   |  |  |  | Management Agreement, dated April 1, 2000, by and between North American Medical
Management -Illinois, Inc. and Northwest Community Capco, Inc. (10)                                                         
|10.16   |  |  |  | Management Agreement, dated October 1, 1999, by and between North American Medical
Management -Illinois, Inc. and Silver Cross Managed Care Organization (10)                                                
|10.17   |  |  |  | Management Agreement, dated August 1, 1996, by and between NAMM-Illinois, Inc. and
Swedish Covenant Managed Care Alliance, Inc. (10)                                                                         
|10.18   |  |  |  | Amendment to Management Agreement, dated December 31, 1999, by and between Swedish
Covenant Managed Care Alliance, Inc. and North American Medical Management-Illinois,
Inc. (10)                            
|10.19   |  |  |  | Management Services Agreement by and between Kansas City Physician Management, LLC and
New Century Health Quality Alliance, Inc. (10)                                                                        
|10.20   |  |  |  | Management Agreement, dated April 1, 1996, by and between IPA Management Associates,
Inc. and Quality Care Network of Texas, Ltd. (10)                                                                       
|10.21   |  |  |  | Full Service Management Agreement by and between Tri-Co, LLC and Tri-County Physicians
Association, Inc. (10)                                                                                                
|10.22   |  |  |  | Management Agreement, dated October 15, 1999, by and among PhyCor of Rockford, Inc.,
PhyCor, Inc., Rockford Health System and Rockford Memorial Health Services Corporation
(10)                             
|10.23   |  |  |  | Addendum to Management Agreement by and among PhyCor of Rockford, Inc., PhyCor, Inc.,
Rockford Health System, Inc. and Rockford Memorial Health Services Corporation (10)                                    
|10.24   |  |  |  | Service Agreement, dated November 30, 2000, by and between PhyCor of Western
Tidewater, Inc., and Lakeview Medical Center, Inc. (10)                                                                         

25



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##### Table of Contents



|        |  |   |  |                                                                                                                                             
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                             
|Number  |  |   |  | Description of Exhibits                                                                                                                     
|        |  |   |  |                                                                                                                                             
|10.25   |  |  |  | Service Agreement, dated September 30, 2000, by and between SynerPhy of Rome, Inc. and
Harbin Clinic, LLC (10)                              
|10.26   |  |  |  | Employment Agreement dated January 22, 2002 between Mr. Jones and the Company (1)                                                           
|10.27   |  |  |  | Separation Agreement and General Release dated January 22, 2002 between Mr. Dent and
the Company (1)                                        
|10.28   |  |  |  | Amended and Restated Employment Agreement dated January 1, 2002 between Mr. Moret and
North American Medical Management California, Inc. (1)



---

|(1)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 2001, Commission No.
0-19786.       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K for the year ended December 31, 1994, Commission No. 0-19786.                 
|    
|(3)  |  | Incorporated by referenced to exhibits filed with the Companys
Registration Statement on Form S-3, Commission No. 33-93018.                                  
|    
|(4)  |  | Incorporated by referenced to exhibits filed with the Companys
Registration Statement on Form S-3, Commission No. 33-98528.                                  
|    
|(5)  |  | Incorporated by reference to exhibits filed with the Companys
Registration Statement on Form S-3, Registration No. 333-328.                                  
|    
|(6)  |  | Incorporated by reference to exhibits filed with the Companys Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001, Commission
No. 0-19786.
|    
|(7)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1997, Commission No.
0-19786.       
|    
|(8)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1993, Commission No.
0-19786.       
|    
|(9)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1999, Commission No.
0-19786.       
|    
|(10) |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 2000, Commission No.
0-19786.       



| |                        
| | -----------------------
| | (b) Reports on Form 8-K

The Companys Current Report on Form 8-K as filed with the Commission on
January 31, 2002 announcing the Companys filing of voluntary petitions for
reorganization relief and a pre-negotiated reorganization plan under Chapter 11
of the United States Bankruptcy Code with the United States Bankruptcy Court
for the Southern District of New York.

26



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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.

|                   |  |                                                                                             
|------------------ |  | --------------------------------------------------------------------------------------------
|                   |  | PHYCOR, INC.                                                                                
|                  
|                   |  | By:    /s/ Tarpley B. Jones                                                                 
|                   |  |                                                                                             
|                   |  | Tarpley B. Jones                                                                            
|                   |  | Chief Executive Officer and President
(acting as principal accounting and
financial officer)
|                  
|Date: May 15, 2002 |  |                                                                                             

27



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##### Table of Contents






EXHIBIT INDEX

|        |  |   |  |                                                                                                                                                                                                              
|------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                                                                                              
|Number  |  |   |  | Description of Exhibits                                                                                                                                                                                      
|        |  |   |  |                                                                                                                                                                                                              
|2.1     |  |  |  | Amended Joint Reorganization Plan of PhyCor, Inc. and Debtor Subsidiaries (1)                                                                                                                                
|3.1     |  |  |  | Amended Bylaws of the Company (2)                                                                                                                                                                            
|3.2     |  |  |  | Restated Charter of the Company (2)                                                                                                                                                                          
|3.3     |  |  |  | Amendment to Restated Charter of the Company (3)                                                                                                                                                             
|3.4     |  |  |  | Amendment to Restated Charter of the Company (4)                                                                                                                                                             
|4.1     |  |  |  | Form of 4.5% Convertible Subordinated Debenture due 2003 (5)                                                                                                                                                 
|4.2     |  |  |  | Form of Indenture by and between the Company and First American National Bank, N.A. (5)                                                                                                                      
|10.1    |  |  |  | Credit and Security Agreement between the Company and AmSouth Bank (6)                                                                                                                                       
|10.2    |  |  |  | Companys Amended 1988 Incentive Stock Plan (7)                                                                                                                                                              
|10.3    |  |  |  | Companys Amended 1992 Non-Qualified Stock Option Plan for Non-Employee Directors (7)                                                                                                                        
|10.4    |  |  |  | Companys Savings and Profit Sharing Plan (8)                                                                                                                                                                
|10.5    |  |  |  | Companys 1999 Stock Incentive Plan (9)                                                                                                                                                                      
|10.6    |  |  |  | Form of IPA Commercial Risk Services Agreement between Pacificare of California and a
Company Subsidiary (6)                                                                                                 
|10.7    |  |  |  | Form of IPA Medicare Partial Risk Services Agreement between Pacificare of California
and a Company Subsidiary (6)                                                                                           
|10.8    |  |  |  | Reserved                                                                                                                                                                                                     
|10.9    |  |  |  | Risk Contract Management Agreement, dated as of May 1, 1995, by and between North
American Medical Management-Illinois, Inc. and Elmhurst Physician Hospital
Organization, LLC (10)                          
|10.10   |  |  |  | First Amendment to Risk Contract Management Agreement, dated as of November 1, 1996,
by and between Elmhurst Physician Hospital Organization, LLC and North American
Medical Management  Illinois, Inc. (10)
|10.11   |  |  |  | Amendment to Risk Contract management Agreement, dated as of May 1, 2000, by and
between Elmhurst Physician Hospital Organization, LLC and North American Medical
Management-Illinois, Inc. (10)             
|10.12   |  |  |  | Management Services Agreement, dated as of September 1, 1998, by and between North
American Medical Management  Illinois, Inc. and Health Options Illinois, Inc. (10)                                       
|10.13   |  |  |  | Management Agreement by and between North American Medical Management  Illinois, Inc.
and Ingalls Provider Group (10)                                                                                       
|10.14   |  |  |  | Amendment to Management Agreement, dated November 30, 1999, by and between Ingalls
Provider Group and North American Medical Management  Illinois, Inc. (10)                                                
|10.15   |  |  |  | Management Agreement, dated April 1, 2000, by and between North American Medical
Management -Illinois, Inc. and Northwest Community Capco, Inc. (10)                                                         
|10.16   |  |  |  | Management Agreement, dated October 1, 1999, by and between North American Medical
Management -Illinois, Inc. and Silver Cross Managed Care Organization (10)                                                
|10.17   |  |  |  | Management Agreement, dated August 1, 1996, by and between NAMM-Illinois, Inc. and
Swedish Covenant Managed Care Alliance, Inc. (10)                                                                         
|10.18   |  |  |  | Amendment to Management Agreement, dated December 31, 1999, by and between Swedish
Covenant Managed Care Alliance, Inc. and North American Medical Management-Illinois,
Inc. (10)                            
|10.19   |  |  |  | Management Services Agreement by and between Kansas City Physician Management, LLC and
New Century Health Quality Alliance, Inc. (10)                                                                        
|10.20   |  |  |  | Management Agreement, dated April 1, 1996, by and between IPA Management Associates,
Inc. and Quality Care Network of Texas, Ltd. (10)                                                                       
|10.21   |  |  |  | Full Service Management Agreement by and between Tri-Co, LLC and Tri-County Physicians
Association, Inc. (10)                                                                                                
|10.22   |  |  |  | Management Agreement, dated October 15, 1999, by and among PhyCor of Rockford, Inc.,
PhyCor, Inc., Rockford Health System and Rockford Memorial Health Services Corporation
(10)                             
|10.23   |  |  |  | Addendum to Management Agreement by and among PhyCor of Rockford, Inc., PhyCor, Inc.,
Rockford Health System, Inc. and Rockford Memorial Health Services Corporation (10)                                    
|10.24   |  |  |  | Service Agreement, dated November 30, 2000, by and between PhyCor of Western
Tidewater, Inc., and Lakeview Medical Center, Inc. (10)                                                                         





---



##### Table of Contents



|        |  |   |  |                                                                                                                                             
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |   |  |                                                                                                                                             
|Number  |  |   |  | Description of Exhibits                                                                                                                     
|        |  |   |  |                                                                                                                                             
|10.25   |  |  |  | Service Agreement, dated September 30, 2000, by and between SynerPhy of Rome, Inc. and
Harbin Clinic, LLC (10)                              
|10.26   |  |  |  | Employment Agreement dated January 22, 2002 between Mr. Jones and the Company (1)                                                           
|10.27   |  |  |  | Separation Agreement and General Release dated January 22, 2002 between Mr. Dent and
the Company (1)                                        
|10.28   |  |  |  | Amended and Restated Employment Agreement dated January 1, 2002 between Mr. Moret and
North American Medical Management California, Inc. (1)



---

|(1)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 2001, Commission No.
0-19786.       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K for the year ended December 31, 1994, Commission No. 0-19786.                 
|    
|(3)  |  | Incorporated by referenced to exhibits filed with the Companys
Registration Statement on Form S-3, Commission No. 33-93018.                                  
|    
|(4)  |  | Incorporated by referenced to exhibits filed with the Companys
Registration Statement on Form S-3, Commission No. 33-98528.                                  
|    
|(5)  |  | Incorporated by reference to exhibits filed with the Companys
Registration Statement on Form S-3, Registration No. 333-328.                                  
|    
|(6)  |  | Incorporated by reference to exhibits filed with the Companys Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001, Commission
No. 0-19786.
|    
|(7)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1997, Commission No.
0-19786.       
|    
|(8)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1993, Commission No.
0-19786.       
|    
|(9)  |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 1999, Commission No.
0-19786.       
|    
|(10) |  | Incorporated by reference to exhibits filed with the Companys Annual
Report on Form 10-K for the year ended December 31, 2000, Commission No.
0-19786.