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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K

(Mark One)
      [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934.

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.

      [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934.

            FOR THE TRANSITION PERIOD FROM           TO           .

                        COMMISSION FILE NUMBER 333-80337
                               TEAM HEALTH, INC.
            (Exact name of registrant as it appears in its charter)

<Table>
<S>                                            <C>
                  TENNESSEE                                      62-1562558
       (State or other jurisdiction of                    (IRS Employer ID Number)
        Incorporation or organization)
       1900 WINSTON ROAD, KNOXVILLE, TN                            37919
   (Address of principal executive offices)                      (Zip Code)
</Table>

                                 (865) 693-1000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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

                                (TITLE OF CLASS)

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

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.

     Common Stock, par value $.01 per share -- 10,000,000 shares as of March 1,
2002. Because the Company is privately held and there is no public trading
market for the Company's equity securities, the Company is unable to calculate
the aggregate market value of the voting and non-voting common equity held by
non-affiliates.
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                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     Terms used herein such as "we", "us" and "our" are references to Team
Health, Inc. and its affiliates ("Team Health"), as the context requires.

     In a transaction that closed on March 12, 1999, Pacific Physician Services,
Inc. ("Physician Services"), a wholly owned subsidiary of Caremark, Rx, Inc.,
formerly known as MedPartners, Inc. ("MedPartners"), sold 92.7% of its interest
of the common stock of Team Health to affiliates of Madison Dearborn Partners,
Inc., Cornerstone Equity Investors, LLC and Beecken Petty & Company, LLC, three
private equity firms (the "Equity Sponsors") and some members of our senior
management in a recapitalization transaction. As a result of the
recapitalization, Team Health Holdings, L.L.C. ("Team Health Holdings") acquired
92.7% of our common stock and 94.3% of our preferred stock. Team Health Holdings
is a holding company through which the Equity Sponsors and some members of our
senior management invested in Team Health.

     We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals in the United States
with 350 hospital contracts in 29 states. Overall, we presently provide
staffing, management and administrative services to over 400 hospitals, imaging
centers, surgery centers and clinics in 30 states. Our regional operating model
includes comprehensive programs for emergency medicine, radiology,
anesthesiology, inpatient care, pediatrics and other hospital departments. We
provide a full range of physician staffing and administrative services,
including the:

     - recruiting, scheduling and credentials coordination for clinical and
       non-clinical medical professionals;

     - provision of administrative support services, such as payroll, insurance
       coverage and continuing education services; and

     - coding, billing and collection of fees for services provided by medical
       professionals and hospitals.

     Since our inception, we have focused primarily on providing outsourced
services to emergency department and urgent care centers, which accounted for
approximately 79% of our net revenue less provision for uncollectibles in 2001.
We generally target larger hospitals with high volume hospital emergency
departments whose patient volumes are more than 15,000 patient visits per year.
In higher volume emergency departments, we believe we can generate attractive
margins, establish stable long-term relationships, obtain attractive payor mixes
and recruit and retain high quality physicians. The healthcare environment is
becoming increasingly complex due to changes in regulations, reimbursement
policies and the evolving nature of managed care. As a result, hospitals are
under significant pressure to improve the quality and reduce the cost of care.
In response, hospitals have increasingly outsourced the staffing and management
of multiple clinical areas to contract management companies with specialized
skills and standardized models to improve service, increase the quality of care
and reduce administrative costs. Specifically, hospitals have become
increasingly challenged to manage hospital clinical areas effectively due to:

     - increasing patient volume;

     - complex billing and collection procedures; and

     - the legal requirement that hospital emergency departments examine and
       treat all patients.

     We believe we are well positioned to continue to capitalize on the current
outsourcing trends as a result of our:

     - national presence;

     - sophisticated information systems and standardized procedures that enable
       us to efficiently manage staffing and administrative services as well as
       the complexities of the billing and collections process;

                                        1
<PAGE>

     - demonstrated ability to improve productivity, patient satisfaction and
       quality of care while reducing overall cost to the hospital; and

     - successful record of recruiting and retaining high quality physicians.

In addition, our regional operating model allows us to deliver locally focused
services while benefiting from the operating efficiencies, infrastructure and
capital resources of a large national provider.

     We believe we are well positioned to capitalize on the growth of the
overall healthcare industry as well as the growth of the hospital emergency
department and urgent care center sector. According to the Centers for Medicare
and Medicaid Services ("CMS", formerly the Health Care Financing
Administration), national healthcare spending in 2000 increased 6.9%. Hospital
services have historically represented the single largest component of these
costs, accounting for approximately 32% of total healthcare spending in 1999.
According to industry sources, approximately 4,500 U.S. community hospitals
operated hospital emergency departments and 80% of these hospitals outsourced
their physician staffing and administrative services. In 2000, emergency
department expenditures were approximately $20 billion, with emergency
departments physician services accounting for approximately $7 billion.
According to the American Hospital Association, emergency departments handle
approximately 103 million patient visits annually and up to 40% of all hospital
inpatient admissions originate in the emergency department. In addition, the
average number of patient visits per hospital emergency department increased at
a compounded annual growth rate of approximately 3.0% between 1988 and 1996.

COMPETITION

     The healthcare services industry is highly competitive and is subject to
continuing changes in how services are provided and how providers are selected
and paid. Competition for outsourced physician staffing and administrative
service contracts is based primarily on:

     - the ability to improve department productivity and patient satisfaction
       while reducing overall costs;

     - the breadth of staffing and management services offered;

     - the ability to recruit and retain qualified physicians;

     - billing and reimbursement expertise;

     - a reputation for compliance with state and federal regulations; and

     - financial stability, demonstrating an ability to pay providers in a
       timely manner and provide professional liability insurance.

     While we compete in the Emergency Medicine marketplace with such national
and regional groups as Emcare, Inc; PhyAmerica Physician Group, Inc.; The
Schumacher Group; and NES, the majority of our competition comes from small,
local groups as well as hospitals who employ their own physicians. There are two
national Hospitalist groups -- Cogent Healthcare, Inc; and IPC-The Hospitalist
Company. There are presently no direct national competitors in the Anesthesia or
Radiology markets. In these service lines, we again compete with smaller groups
and hospitals that employ their own physicians.

     We believe that evolution of the healthcare industry will tend to blur
traditional distinctions among industry segments. We expect that other companies
in other healthcare industry segments, such as managers of other hospital-based
specialties and large physician group practices, some of which have financial
and other resources greater than ours, may become competitors in the delivery of
physician staffing and administrative services.

                                        2
<PAGE>

COMPETITIVE STRENGTHS

     Although the healthcare services industry is highly competitive, we believe
we are able to compete effectively due to the following strengths:

     Leading Market Position.  We believe we are among the largest national
providers of outsourced emergency physician staffing and administrative services
in the United States. In addition, we provide outsourced radiology staffing and
administrative services and have a growing presence in other hospital
departments such as anesthesiology, pediatrics and inpatient services. We
believe our ability to spread the relatively fixed costs of our corporate
infrastructure over a broad national contract and revenue base generates
significant cost efficiencies that are generally not available to smaller
competitors. As a full-service provider with a comprehensive understanding of
changing healthcare regulations and policies and the management information
systems that provide support to manage these changes, we believe we are well
positioned to gain market share from other service providers. Furthermore, we
have a geographically diverse base of 350 hospital contracts, with average
contract tenure of approximately seven years. In 2001, the largest single
contract accounted for no more than 1.2% of our net revenue less provision for
uncollectibles, and as a result, the loss of any contract would not
significantly impact our financial performance.

     Regional Operating Model Supported by a National Infrastructure.  We
service our client hospitals from 14 regional operating units, which allows us
to deliver locally focused services with the resources and sophistication of a
national provider. Our local presence creates closer relationships with
hospitals, resulting in responsive service and high physician retention rates.
Our strong relationships in local markets enable us to effectively market our
services to local hospital administrators, who generally make decisions
regarding contract awards and renewals. Our regional operating units are
supported by our national infrastructure, which includes integrated information
systems and standardized procedures that enable us to efficiently manage the
operations and billing and collections processes. We also provide each of our
regional operating units with centralized staffing support, purchasing economies
of scale, payroll administration, coordinated marketing efforts and risk
management. We believe our regional operating model supported by our national
infrastructure improves productivity and quality of care while reducing the cost
of care.

     Significant Investment in Information Systems and Procedures.  Our
proprietary information systems link our billing, collection, recruiting,
scheduling, credentials coordination and payroll functions among our regional
operating units, allowing our best practices and procedures to be delivered and
implemented nationally while retaining the familiarity and flexibility of a
locally-based service provider. Over the last five years, we have spent over $10
million to develop and maintain integrated, advanced systems to facilitate the
exchange of information among our regional operating units and clients. These
systems include our Lawson financial reporting system, IDX Billing System, our
WaitLoss(TM) process improvement program and our TeamWorks(TM) physician
database and software package. As a result of these investments and the company-
wide application of best practices, we believe our average cost per patient
billed and average cost per physician recruited are among the lowest in the
industry. The strength of our information systems has enhanced our ability to
collect patient payments and reimbursements in an orderly and timely fashion and
has increased our billing and collections productivity.

     Ability to Recruit and Retain High Quality Physicians.  A key to our
success has been our ability to recruit and retain high quality physicians to
service our contracts. While our local presence gives us the knowledge to
properly match physicians and hospitals, our national presence and
infrastructure enable us to provide physicians with a variety of attractive
hospital locations, advanced information and reimbursement systems and
standardized procedures. Furthermore, we offer physicians substantial
flexibility in terms of geographic location, type of facility, scheduling of
work hours, benefits packages and opportunities for relocation and career
development. This flexibility, combined with fewer administrative burdens,
improves physician retention rates and stabilizes our contract base. We believe
we have among the highest physician retention rates in the industry.

     Experienced Management Team with Significant Equity Ownership.  Our senior
management team has extensive experience in the outsourced physician staffing
and administrative services industry. Our Chief Executive Officer, H. Lynn
Massingale, M.D., has been with Team Health and its predecessor entities since
                                        3
<PAGE>

1979. Our senior corporate and affiliate executives have an average of over 20
years experience in the outsourced physician staffing and medical services
industry. Members of our management team have, with the inclusion of
performance-based options, an indirect fully diluted ownership interest of
approximately 18.7%. As a result of its substantial equity interest, we believe
our management team has significant incentive to maintain its existing client
base through the continued provision of high quality services to them and to
continue to increase our revenue and profitability through new growth.

GROWTH STRATEGY

     The key elements of our growth strategy are as follows:

     Increase Revenue from Existing Customers.  We have a strong record of
increasing revenue from existing customers. In 2001, net revenue less provision
for uncollectibles from continuing contracts grew by approximately 4.7%. We plan
to continue to increase revenue from existing customers by

     - continuing to improve documentation of care delivered, thereby capturing
       full reimbursement for services provided;

     - implementing fee schedule increases, where appropriate;

     - capitalizing on increasing patient volumes;

     - increasing the scope of services offered within contracted departments;
       and

     - cross-selling services to multiple hospital departments.

     Capitalize on Industry Trends to Win New Contracts.  We seek to obtain new
contracts by

     - replacing contract management companies at hospitals that currently
       outsource their services and

     - obtaining new contracts from hospitals that do not currently outsource.

     We believe the number of high volume hospital clinical departments will
grow as patient visits increase and hospital consolidation continues.

     Furthermore, we believe that our ability to gain a greater market share of
larger volume hospital clinical departments is enhanced as a result of our

     - national presence;

     - sophisticated information systems and standardized procedures that enable
       us to efficiently manage our core staffing and administrative services as
       well as the complexities of the billing and collections process;

     - demonstrated ability to improve productivity, patient satisfaction and
       quality of care while reducing overall cost to the hospital; and

     - successful record of recruiting and retaining high quality physicians.

     Since 1997, we have won 178 new outsourced contracts.

     Grow through Acquisitions.  We intend to continue to pursue strategic
acquisitions of contracts currently held by local and regional physician groups.
Many of these physician groups are faced with increasing pressure to provide the
systems and services of a larger organization. In addition, some smaller
physician groups lacking in certain economies of scale have experienced recent
significant increases in the cost of medical malpractice insurance beyond that
experienced by us. This circumstance affords us a cost advantage in competing
for new business and acquisitions. The market for outsourced emergency
department physician staffing services for hospitals and other healthcare
providers is highly fragmented. Approximately 54% of the market is served
primarily by small, local and regional physician groups who generally lack the
resources and depth of services necessary to compete with national providers. We
have developed and implemented a disciplined acquisition methodology utilized by
our in-house mergers and acquisitions team. Since 1997, we have completed 18
acquisitions. We expect to continue to fund acquisitions using our existing cash
resources.
                                        4
<PAGE>

INDUSTRY

     According to CMS, national health spending in 2000 increased 6.9%, compared
to an increase of 5.7% in 1999, the greatest acceleration in spending since
1988. The 1.2% gain in the rate of spending growth primarily reflects an
increase in economy-wide inflation, with only a 0.3% gain in real spending.
Public spending increased its pace in 2000 with growth of 7.0%, up from 5.4% in
1999. Private spending growth also accelerated from 6.0% in 1999 to 6.9% in
2000, led by 8.4% growth in private health insurance premiums. Growth in
expenditures in 1999 and 2000 slightly outpaced growth in gross domestic product
(GDP). The healthcare share of GDP in 2000 was 13.2%, approximately the same
level since 1992. Recent reports of continuing health inflation suggest further
increases in the near future. Hospital services have historically represented
the single largest component of these costs, accounting for approximately 32.3%
of total healthcare spending in 1999.

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

     Emergency Medicine.  According to the American Hospital Association,
slightly over 4,500 of all community hospitals in the United States operate
emergency departments, and approximately 80% of these hospitals outsource their
physician staffing and management for this department. In 1997, emergency
department expenditures were approximately $20 billion, with emergency physician
services accounting for approximately $7 billion. In 2000, emergency departments
handled over 103 million patient visits, and up to 40% of all hospital inpatient
admissions originate in the emergency department. In addition, the average
number of patient visits per hospital emergency department increased at a
compounded annual growth rate of approximately 3.0% between 1988 and 1996.

     The market for outsourced emergency department medical and administrative
services is highly fragmented. Approximately 54% of the market is served by a
large number of small, local and regional physician groups. These local
providers generally lack the depth of services and administrative and systems
infrastructure necessary to compete with national providers in the increasingly
complex healthcare business and regulatory environment.

     Radiology.  According to the 1998-1999 Medical and Healthcare Marketplace
Guide, total spending on radiology services in the U.S. in 1998 was estimated at
$69 billion or approximately 5% of annual healthcare expenditures, with 70% of
this spending in hospital settings. According to the American College of
Radiology, there were approximately 3,200 radiology groups in the U.S. in 1996,
representing approximately 27,000 radiologists who performed approximately 350
million radiological procedures in 1995. The demand for radiologists has grown
by approximately 4.5% a year due to an increasing population and advancements in
radiological procedures, while the supply of radiologists is growing at a lower
rate of 2-3% per year.

     The national shortage of radiologists poses advantages to large groups like
Team Health who have the resources to effectively recruit in the tight
marketplace. As with the outsourced hospital emergency department clinical and
administrative services, the market for outsourced radiology services is highly
fragmented and served by a large number of small, local and regional radiology
groups. Competition for outsourced radiology services contracts is intense and
based on the ability of the radiology group to provide a high level of medical
and non-medical services. Smaller radiology groups are often at a competitive
disadvantage since they often lack the capital, range of medical equipment and
information systems required to meet the increasingly complex needs of
hospitals.

                                        5
<PAGE>

     Anesthesiology.  The American Society of Anesthesiologists estimates that
40 million anesthetics are administered each year in America and that 90%
involve an MD anesthesiologist ("MDA"). The net collected total revenue market
for anesthesiologist services is estimated to be $11.5 billion. This market is
served primarily by groups of physicians whose size ranges from 25 - 40 MDA's.
There are very few groups having in excess of 60 MDA's per group. The groups are
largely self-governed and many enjoy exclusive contracts with hospitals and
outpatient centers requiring anesthesia services. The majority of the groups
require various management services with most groups contracting out their
billing needs to third-party providers of such services. There is not a dominant
provider of management services to anesthesia groups. We believe that following
an acquisition completed in January 2001, we are one of the largest single
providers of management services to anesthesia groups.

     Inpatient Services (Hospitalist).  According to the National Association of
Inpatient Physicians (NAIP), a hospitalist is "a doctor whose primary
professional focus is the general medical care of hospitalized patients." A
recent study by the NAIP indicates that hospitals employed 50% more hospitalists
in 1999 than in 1997. There are presently approximately 5,000 practicing
hospitalists in the U.S., and a recent analysis projects an ultimate hospitalist
workforce of approximately 19,000, making it comparable in size to cardiology. A
recent article in the January 2002 issue of the Journal of the American Medical
Association reported that the implementation of hospitalist programs was
associated with significant reductions in resource use, usually measured as
hospital costs (average decrease of 13.4%) or average length of stay (average
decrease of 16.6%). Studies of patient satisfaction levels indicated no change
in using a hospitalist model, and several studies have indicated improved
clinical outcomes, such as inpatient mortality and readmission rates.

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

CONTRACTUAL ARRANGEMENTS

     Hospitals.  We provide outsourced physician staffing and administrative
services to hospitals and healthcare providers under fee-for-service contracts
and flat-rate contracts. Hospitals entering into fee-for-service contracts
agree, in exchange for granting our affiliated physicians medical staff
privileges and exclusivity for services, to authorize us to bill and collect the
professional component of the charges for such medical services. Under the
fee-for-service arrangements, we bill patients and third party payors for
services rendered. Depending on the magnitude of services provided to the
hospital and payor mix, we may also receive supplemental revenue from the
hospital. In a fee-for service arrangement, we accept responsibility for billing
and collection.

     Under flat-rate contracts, the hospital performs the billing and collection
services of the professional component and assumes the risk of collectibility.
In return for providing the physician staffing and administrative services, the
hospital pays a contractually negotiated fee.

     In 2001, approximately 77.8% of our net revenue less provision for
uncollectibles was generated under fee-for-service arrangements. Our contracts
with hospitals do not require any significant financial outlay, investment
obligation or equipment purchase by us other than the professional expenses
associated with staffing the contracts.

     Contracts with hospitals generally have terms of three years and are
generally automatically renewable under the same terms and conditions unless
either party gives notice of an intent not to renew. While most contracts are
terminable by either of the parties upon notice of as little as 30 days, the
average tenure of our contracts is approximately seven years.

     Physicians.  We contract with physicians as independent contractors or
employees to provide services to fulfill our contractual obligations to our
hospital clients. We typically pay the physicians a flat hourly rate for each
hour of coverage provided at rates comparable to the market in which they work.
The hourly rate varies depending on whether the physician is independently
contracted or an employee. Independently contracted

                                        6
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physicians are required to pay a self-employment tax, social security, and
workers' compensation insurance premiums. In contrast, we pay these taxes and
expenses for employed physicians.

     Our contracts with physicians are generally perpetual and can be terminated
at any time under certain circumstances by either party without cause, typically
upon 180 days notice. In addition, we generally require the physician to sign a
non-compete and non-solicitation agreement. Although the terms of our
non-compete agreements vary from physician to physician, the non-compete
agreements generally have terms of two years after the termination of the
agreement. We also generally require our employed physicians to sign similar
non-compete agreements. Under these agreements, the physician is restricted from
divulging confidential information, soliciting or hiring our employees and
physicians, inducing termination of our agreements and competing for and/or
soliciting our clients. As of December 31, 2001, we had working relationships
with approximately 2,900 physicians, of which approximately 2,200 were
independently contracted, and approximately 500 other healthcare professionals.

SERVICE LINES

     We provide a full range of outsourced physician staffing and administrative
services in emergency medicine, radiology, anesthesiology, inpatient services,
pediatrics, and other departments of the hospital. As hospitals and other
healthcare providers experience growing pressure from managed care companies and
other payors to reduce costs while maintaining or improving the quality of
service, we believe hospitals and providers will increasingly turn to a
single-source with an established track record of success for outsourced
physician staffing and administrative services. As the outsourcing trend grows,
we believe our delivery platform of regional operating units supported by a
national infrastructure will result in higher customer satisfaction and a more
stable contract base than many of our competitors.

     Emergency Department.  We believe we are one of the largest providers of
outsourced physician staffing and administrative services for hospital emergency
departments in the United States. Approximately 79% of our net revenue less
provision for uncollectibles in 2001 came from hospital emergency department
contracts. As of December 31, 2001, we independently contracted with or employed
approximately 2,500 hospital emergency department physicians. We contract with
the hospital to provide qualified emergency physicians and other healthcare
providers for the hospital emergency department. In addition to the core
services of contract management, recruiting, credentials coordination, staffing
and scheduling, we provide our client hospitals with enhanced services designed
to improve the efficiency and effectiveness of the emergency department.
Specific programs like WaitLoss(TM) apply proven process improvement
methodologies to departmental operations. Publications such as the Emergency
Physician Legal Bulletin(TM) and Case Studies of Customer Service in the
Emergency Department(TM) are delivered to all client hospitals and physicians on
a quarterly basis. Physician documentation templates promote compliance with
federal documentation guidelines and allow for more accurate patient billing. By
providing these enhanced services, we believe we increase the value of services
we provide to our clients and improve client relations. Additionally, we believe
these enhanced services also differentiate us in sales situations and improve
the chances of being selected in a contract bidding process.

     Since 1997, Team Health has merged with or acquired the contracts of 13
hospital emergency department and physician groups. The acquired hospital
emergency department contracts were generally with hospitals in large markets
with an average patient volume exceeding 15,000 per year. Since 1997, we have
also successfully negotiated 115 new outsourced hospital emergency department
contracts. These contracts have been obtained either through direct selling or
through a competitive bidding process initiated by hospitals.

     Partially offsetting the growth in the number of hospital emergency
department contracts attributed to acquisitions and direct sales are contract
terminations. Since 1997, 152 hospital emergency department contracts in total
were terminated. Our cancellations can be attributed primarily to the
elimination of low margin contracts obtained in connection with acquisitions.
Hospital cancellations can be attributed to consolidation among hospitals,
medical staff politics and pricing. In 2001, we had a net gain of six emergency
department contracts.

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     Radiology.  We provide outsourced radiology physician staffing and
administrative services in the United States. We contract directly or through
the regional operating units with selected radiologists to provide radiology
physician staffing and administrative services. A typical radiology management
team consists of clinical professionals, board certified radiologists that are
trained in all modalities, and non-clinical professionals and support staff that
are responsible for the scheduling, purchasing, billing and collections
functions. As of December 31, 2001, we independently contracted with or employed
approximately 75 radiologists. We have traditionally focused on the
hospital-based radiology market, although we also maintain contracts with
outpatient diagnostic imaging centers. We believe the advantages of contracting
with us include our ability to provide 24-hour radiology coverage through a
combination of on-site services and/or teleradiology coverage, a means of
electronically transmitting patient images and consultative text from one
location to another.

     Inpatient Services.  We are one of the largest providers of outsourced
physician staffing and administrative services for inpatient services, which
include hospitalist services and house coverage services. Our inpatient services
contracts with hospitals are generally on a cost plus or flat rate basis. As of
December 31, 2001, we independently contracted with or employed approximately
150 inpatient physicians. Since 1997, we experienced net revenue and contract
growth in our inpatient services business primarily due to new contract sales,
acquisitions, and to a lesser extent, rate increases on existing contracts.

     Anesthesiology.  We began providing a wide range of management services to
anesthesiology practices on a fee basis in 2001 following our acquisition of
Integrated Management Services, Inc. ("ISMS"). Services provided by ISMS include
strategic management, management information systems, third-party payor
contracting, financial and accounting support, benefits administration and risk
management, scheduling support, operations management and quality improvement
services using proprietary anesthesia management practice software. ISMS
currently provides such services to five integrated anesthesia practices with
approximately 358 providers under management. On January 1, 2002, we acquired
the operations of L&S Medical Management, Inc. ("L&S"), a provider of billing as
well as other management services to anesthesia practices. L&S provides services
on a fee basis to eight anesthesia groups encompassing approximately 65
anesthesiologists. Overall, we are able to offer essential services to
anesthesiologist groups that enable them to focus on the clinical practice of
medicine while leaving the day-to-day management and governance issues related
to their groups to us.

     Pediatrics.  We also provide outsourced pediatrics physician staffing and
administrative services for general and pediatrics hospitals. We provide these
services on a cost plus or flat rate basis. These services include pediatrics
emergency medicine and radiology, neonatal intensive care, pediatric intensive
care, urgent care centers, primary care centers, observation units and inpatient
services. As of December 31, 2001, we independently contracted with or employed
approximately 25 pediatrics physicians. Since 1997, we have experienced net
revenue and contract growth in our outsourced pediatrics physician staffing and
administrative services business due primarily to new contract sales and
acquisitions, and to a lesser extent, rate increases on existing contracts.

     Primary Care Clinics and Occupational Medicine.  We provide primary care
staffing and administrative services in stand-alone primary clinics and in
clinics located within the work-site of industrial clients. While such clinics
are not a major focus of our business, they are complementary to our hospital
client's interests. We generally contract with hospitals or industrial employers
to provide cost-effective, high quality primary care physician staffing and
administrative services.

SERVICES

     We provide a full range of outsourced physician staffing and administrative
services for emergency medicine, radiology, anesthesiology, inpatient services,
pediatrics, and other areas of the hospital.

     Our outsourced physician staffing and administrative services include:

     - Contract Management

     - Staffing
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     - Recruiting

     - Credentials Coordination

     - Scheduling

     - Payroll Administration and Benefits

     - Information Systems

     - Consulting Services

     - Billing and Collection

     - Risk Management

     - Continuing Education Services

     Contract Management.  Our delivery of services for a clinical area of the
hospital is led by an experienced contract management team of clinical and other
healthcare professionals. The team includes a Regional Medical Director, an
on-site Medical Director and a Client Services Manager. The Medical Director is
a physician with the primary responsibility of managing the physician component
of a clinical area of the hospital. The Medical Director works with the team, in
conjunction with the nursing staff and private medical staff, to improve
clinical quality and operational effectiveness. Additionally, the Medical
Director works closely with the regional operating unit operations staff to meet
the clinical area's ongoing recruiting and staffing needs.

     Staffing.  We provide a full range of staffing services to meet the unique
needs of each hospital and clinic. Our dedicated clinical teams include
qualified, career-oriented physicians and other healthcare professionals
responsible for the delivery of high quality, cost-effective care. These teams
also rely on managerial personnel, many of whom have clinical experience, who
oversee the administration and operations of the clinical area. As a result of
our staffing services, hospitals can focus their efforts on improving their core
business of providing healthcare services for their communities as opposed to
recruiting and managing physicians. We also provide temporary staffing services
of physicians and other healthcare professionals to hospitals and clinics on a
national basis.

     Recruiting.  Many hospitals lack the resources necessary to identify and
attract specialized, career-oriented physicians. We have a staff of
approximately 50 professionals dedicated to the recruitment of qualified
physicians. These professionals are regionally located and are focused on
matching qualified, career-oriented physicians with hospitals. Common recruiting
methods include the use of our proprietary national physician database,
attending trade shows, placing website and professional journal advertisements
and telemarketing.

     We have committed significant resources to the development of a proprietary
national physician database to be shared among our regional operating units.
This database is in operation at all operating units. The database uses the
American Medical Association Master file of over 1,000,000 physicians as the
initial data source on potential candidates. Recruiters contact prospects
through telemarketing, direct mail, conventions, journal advertising and our
Internet site to confirm and update the information. Prospects expressing
interest in one of our practice opportunities provide more extensive information
on their training, experience, and references, all of which is added to our
database. Our goal is to ensure that the practitioner is a good match with both
the facility and the community before proceeding with an interview.

     Credentials Coordination.  We gather primary source information regarding
physicians to facilitate the review and evaluation of physicians' credentials by
hospitals.

     Scheduling.  Our scheduling department assists the Medical Directors in
scheduling physicians and other healthcare professionals within the clinical
area on a monthly basis.

     Payroll Administration and Benefits.  We provide payroll administration
services for the physicians and other healthcare professionals with whom we
contract to provide physician staffing and administrative services.

                                        9
<PAGE>

Our clinical employees benefit significantly by our ability to aggregate
physicians and other healthcare professionals to negotiate more favorable
employee benefit packages and professional liability coverage than many
hospitals or physicians could negotiate on a stand-alone basis. Additionally,
hospitals benefit from the elimination of the overhead costs associated with the
administration of the payroll and, where applicable, employee benefits.

     Information Systems.  We have invested in advanced information systems and
proprietary software packages designed to assist hospitals in lowering
administrative costs while improving the efficiency and productivity of a
clinical area. These systems include TeamWorks(TM), a national physician
database and software package that facilitates the recruitment and retention of
physicians and supports our contract requisition, credentials coordination,
automated application generation, scheduling, and payroll operations.

     Consulting Services.  We have a long history of providing outsourced
physician staffing and administrative services to hospitals and, as a result,
have developed extensive knowledge in the operations of some areas of the
hospital. As such, we provide consulting services to hospitals to improve the
productivity, quality and cost of care delivered by the hospital.

     Process Improvement.  We have developed a number of utilization review
programs designed to track patient flow and identify operating inefficiencies.
To rectify such inefficiencies, we have developed a Fast Track system to
expedite patient care in the hospital emergency department and urgent care
center by separating patients who can be treated in a short period of time from
patients who have more serious or time-consuming problems. Fast Track patients,
once identified through appropriate triage categorization, are examined and
treated in a separate area of the hospital emergency department and urgent care
center, controlled by its own staff and operational system. We have substantial
experience in all phases of development and management of Fast Track programs,
including planning, equipping, policy and procedure development, and staffing.
In addition, we employ WaitLoss(TM), a proprietary process improvement system
designed to assist the hospital in improving the efficiency and productivity of
a department.

     Quality Improvement.  We provide a quality improvement program designed to
assist the hospital in maintaining a consistent level of high quality care. It
periodically measures the performance of the hospital, based on a variety of
benchmarks, including patient volume, quality indicators and patient
satisfaction. This program is typically integrated into our process improvement
program to ensure seamless delivery of high quality, cost-effective care.

     Managed Care Contracting.  We have developed extensive knowledge of the
treatment protocols and related documentation requirements of a variety of
managed care payors. As a result, we often participate in the negotiation of
managed care contracts to make those managed care relationships effective for
patients, payors, physicians and hospitals. We provide managed care consulting
services in the areas of contracting, negotiating, reimbursement
analysis/projections, payor/hospital relations, communications and marketing. We
have existing managed care agreements with health maintenance organizations,
preferred provider organizations and integrated delivery systems for commercial,
Medicaid and Medicare products. While the majority of our agreements with payors
continue to be traditional fee-for-service contracts, we are experienced in
providing managed, prepaid healthcare to enrollees of managed care plans.

     Nursing Services.  We maintain highly regarded, experienced nurse
consultants on our client support staff. These nurse consultants provide
assistance to nurse managers and Medical Directors of the client hospital on
issues regarding risk management and total quality management. In addition, the
nurse consultants are available to make site visits to client hospitals on
request to assess overall operations, utilization of personnel and patient flow.

     Billing and Collection.  Our billing and collection services are a critical
component of our business. Our billing and collections operations are
concentrated in six core-billing facilities and operate on a uniform billing
system -- the IDX software system. The IDX system has proven to be a powerful
billing and accounts receivable software package with strong reporting
capabilities. We have interfaced a number of other software systems with the IDX
system to further improve productivity and efficiency. Foremost among these is
the electronic registration interface that gathers registration information
directly from the hospitals' management

                                        10
<PAGE>

information systems. Additionally, we have invested in electronic submission of
claims, as well as electronic remittance posting. These programs have markedly
diminished labor and postage expenses. At the present time, substantially all
six million billed annual patient encounters are being processed by one of the
six billing facilities.

     We also operate an internal collection agency called IMBS. This agency
utilizes an advanced collection agency software package linked to a predictive
dialer. Substantially all collection placements generated from our billing
facilities are sent to the IMBS agency. Comparative analysis has shown that the
internal collection agency has markedly decreased expenses previously paid to
outside agencies and improved the collectibility of existing placements. Our
advanced comprehensive billing and collection systems allow us to have full
control of accounts receivable at each step of the process.

     Risk Management.  Our risk management function is designed to prevent or
minimize medical professional liability claims and includes:

     - incident reporting systems,

     - tracking/trending the cause of accidents and claims,

     - physician education and service programs, including peer review and
       pre-deposition review,

     - loss prevention information such as audio tapes and risk alert bulletins,
       and

     - early intervention of malpractice claims.

     Through our risk management staff, quality assurance staff and the Medical
Director, we conduct an aggressive risk management program for loss prevention
and early intervention. We have a proactive role in promoting early reporting,
evaluation and resolution of serious incidents that may evolve into claims or
suits.

     Continuing Education Services.  Our internal continuing education services
are fully accredited by the Accreditation Council for Continuing Medical
Education. This allows us to grant our physicians and nurses continuing
education credits for internally developed educational programs at a lower cost
than if such credits were earned through external programs. We have designed a
series of customer relations seminars entitled Successful Customer Relations for
physicians, nurses and other personnel to learn specific techniques for becoming
effective communicators and delivering top-quality customer service. These
seminars help the clinical team sharpen its customer service skills, further
develop communication skills and provide techniques to help deal with people in
many critical situations.

SALES AND MARKETING

     Contracts with hospitals for outsourced physician staffing and
administrative services are generally obtained either through direct selling
efforts or requests for proposals. We have a team of eight sales professionals
located throughout the country. Each sales professional is responsible for
developing sales and acquisition opportunities for the operating unit in their
territory. In addition to direct selling, the sales professionals are
responsible for working in concert with the regional operating unit president
and corporate development personnel to respond to a request for proposal.

     Although practices vary from hospital to hospital, hospitals generally
issue a request for proposal with demographic information of the hospital
department, a list of services to be performed, the length of the contract, the
minimum qualifications of bidders, the selection criteria and the format to be
followed in the bid. Supporting the sales professionals is a fully integrated
marketing campaign comprised of a telemarketing program, Internet website,
journal advertising, and a direct mail and lead referral program.

OPERATIONS

     We currently operate through 14 regional operating units, which are listed
in the table below. The emergency department and radiology operating units are
managed semi-autonomously by senior physician leaders and are operated as profit
centers with the responsibility for pricing new contracts, recruiting and
scheduling physicians and other healthcare professionals, marketing locally and
conducting day-to-day
                                        11
<PAGE>

operations. The management of corporate functions such as accounting, payroll,
billing and collection, capital spending, information systems and legal are
centralized.

<Table>
<Caption>
NAME                                                  LOCATION          PRINCIPAL SERVICES
----                                                  --------          ------------------
<S>                                            <C>                      <C>
Daniel and Yeager............................      Huntsville, AL        Locum Tenens
Emergency Coverage Corporation...............      Knoxville, TN              ED
Emergency Physician Associates...............       Woodbury, NJ              ED
Emergency Professional Services..............  Middleburg Heights, OH         ED
InPhyNet Medical Management..................    Ft. Lauderdale, FL           ED
Integrated Specialists Management Services,        San Diego, CA        Anesthesiology
  Inc........................................
Northwest Emergency Physicians...............       Seattle, WA               ED
Sheer, Ahearn & Associates...................        Tampa, FL             Radiology
Southeastern Emergency Physicians............      Knoxville, TN              ED
Team Anesthesia..............................      Knoxville, TN        Anesthesiology
Team Health Southwest........................       Houston, TX               ED
Team Health West.............................      Pleasanton, CA             ED
Team Radiology...............................      Knoxville, TN           Radiology
The Emergency Associates for Medicine........        Tampa, FL                ED
</Table>

INSURANCE

     We require the physicians with whom we contract to obtain professional
liability insurance coverage. For both our independently contracted and employed
physicians, we typically arrange the provision of claims-made coverage of
$1,000,000 per incident and $3,000,000 annual aggregate per physician and
$1,000,000 per incident and $25,000,000 annual aggregate for all corporate
entities. These limits are deemed appropriate by management based upon
historical claims, the nature and risks of the business and standard industry
practice.

     We are usually obligated to arrange for the provision of "tail" coverage
for claims against our physicians for incidents that are incurred but not
reported during periods for which the related risk was covered by claims-made
insurance. With respect to those physicians for whom we are obligated to provide
tail coverage, we accrue professional insurance expenses based on estimates of
the cost of procuring tail coverage.

     We also maintain general liability, vicarious liability, automobile
liability, property and other customary coverages in amounts deemed appropriate
by management based upon historical claims and the nature and risks of the
business.

EMPLOYEES

     As of December 31, 2001, we had approximately 3,500 employees, of which
approximately 1,200 were physicians and other healthcare professionals with
remaining employees working in billing and collections, operations and
administrative support functions. Our employees are not covered by any labor
agreements nor affiliated with any unions.

REGULATORY MATTERS

     General.  As a participant in the healthcare industry, our operations and
relationships with healthcare providers such as hospitals are subject to
extensive and increasing regulations by numerous federal and state governmental
entities as well as local governmental entities. The management services
provided by us under contracts with hospitals and other clients include
(collectively, "Management Services"):

     - the identification and recruitment of physicians and other healthcare
       professionals for the performance of emergency, medicine, radiology and
       other services at hospitals, out-patient imaging facilities and other
       facilities;

                                        12
<PAGE>

     - utilization and review of services and administrative overhead;

     - scheduling of staff physicians and other healthcare professionals who
       provide clinical coverage in designated areas of hospitals; and

     - administrative services such as billing and collection of fees for
       professional services.

     All of the above services are subject to scrutiny and review by federal,
state and local governmental entities and are subject to the rules and
regulations promulgated by these governmental entities. Specifically, but
without limitation, the following laws and regulations related to these laws may
affect the operations and contractual relationships of Team Health:

     State Laws Regarding Prohibition of Corporate Practice of Medicine and Fee
Splitting Arrangements. We currently provide outsourced physician staffing and
administrative services to hospitals and clinics in 30 states. The laws and
regulations relating to our operations vary from state to state. The laws of
many states, including California, prohibit general business corporations, such
as us, from practicing medicine, controlling physicians' medical decisions or
engaging in some practices such as splitting fees with physicians. In 2001, we
derived approximately 9.5% of our net revenue less provision for uncollectibles
from California. The laws of some states, including Florida, do not prohibit
non-physician entities from practicing medicine but generally retain a ban on
some types of fee splitting arrangements. In 2001, we derived approximately
25.4% of our net revenues less provision for uncollectibles from Florida.

     While we seek to comply substantially with existing applicable laws
relating to the corporate practice of medicine and fee splitting, we cannot
assure you that our existing contractual arrangements, including noncompetition
agreements with physicians, professional corporations and hospitals will not be
successfully challenged in certain states as unenforceable or as constituting
the unlicensed practice of medicine or prohibited fee-splitting.

     Debt Collection Regulation.  Some of our operations are subject to
compliance with the Fair Debt Collection Practices Act and comparable statutes
in many states. Under the Fair Debt Collection Practices Act, a third-party
collection company is restricted in the methods it uses in contacting consumer
debtors and eliciting payments with respect to placed accounts. Requirements
under state collection agency statutes vary, with most requiring compliance
similar to that required under the Fair Debt Collection Practices Act. We
believe that we are in substantial compliance with the Fair Debt Collection
Practices Act and comparable state statutes.

     Anti-Kickback Statutes.  We are subject to the federal healthcare fraud and
abuse laws including the federal anti-kickback statute. The federal
anti-kickback statute prohibits the knowing and willful offering, payment,
solicitation or receipt of any bribe, kickback, rebate or other remuneration in
return for the referral or recommendation of patients for items and services
covered, in whole or in part, by federal healthcare programs. These fraud and
abuse laws define federal healthcare programs to include plans and programs that
provide health benefits funded by the United States government including
Medicare, Medicaid, and the Civilian Health and Medical Program of the Uniformed
Services, among others. Violations of the anti-kickback statute may result in
civil and criminal penalties and exclusion from participation in federal and
state healthcare programs.

     In addition, an increasing number of states in which we operate have laws
that prohibit some direct or indirect payments, similar to the anti-kickback
statute, if those payments are designed to induce or encourage the referral of
patients to a particular provider. Possible sanctions for violation of these
restrictions include exclusion from state funded healthcare programs, loss of
licensure and civil and criminal penalties. Statutes vary from state to state,
are often vague and have seldom been interpreted by the courts or regulatory
agencies.

     The Health Insurance Portability and Accountability Act of 1996 created a
mechanism for a provider to obtain written interpretative advisory opinions
under the federal anti-kickback statute from the Department of Health and Human
Services regarding existing or contemplated transactions. Advisory opinions are
binding as to the Department of Health and Human Services but only with respect
to the requesting party or parties. The advisory opinions are not binding as to
other governmental agencies, e.g. the Department of Justice.

                                        13
<PAGE>

     In 1998, the Department of Health and Human Services issued an advisory
opinion in which it concluded that a proposed management services contract
between a medical practice management company and a physician practice, which
provided that the management company would be reimbursed for the fair market
value of its operating services and its costs and paid a percentage of net
practice revenues, might constitute illegal remuneration under the federal
anti-kickback statute. The Department of Health and Human Services' analysis was
apparently based on a determination that the proposed management services
arrangement included financial incentives to increase patient referrals,
contained no safeguards against over utilization, and included financial
incentives that increased the risk of abusive billing practices. We believe that
our contractual relationships with hospitals and physicians are distinguishable
from the arrangement described in this advisory opinion with regard to both the
types of services provided and the risk factors identified by the Department of
Health and Human Services. Nevertheless, we cannot assure you that the
Department of Health and Human Services will not be able to successfully
challenge our arrangements under the federal anti-kickback statute in the
future.

     In addition to the federal statutes discussed above, we are also subject to
state statutes and regulations that prohibit, among other things, payments for
referral of patients and referrals by physicians to healthcare providers with
whom the physicians have a financial relationship. Violations of these state
laws may result in prohibition of payment for services rendered, loss of
licenses and fines and criminal penalties. State statutes and regulations
typically require physicians or other healthcare professionals to disclose to
patients any financial relationship the physicians or healthcare professionals
have with a healthcare provider that is recommended to the patients. These laws
and regulations vary significantly from state to state, are often vague, and, in
many cases, have not been interpreted by courts or regulatory agencies.
Exclusions and penalties, if applied to us, could result in significant loss of
reimbursement to us, thereby significantly affecting our financial condition.

     Physician Self-Referral Laws.  Our contractual arrangements with physicians
and hospitals likely implicate the federal physician self-referral statute
commonly known as Stark II. In addition, a number of the states in which we
operate have similar prohibitions on physician self-referrals. In general, these
state prohibitions closely track Stark II's prohibitions and exceptions. Stark
II prohibits the referral of Medicare and Medicaid patients by a physician to an
entity for the provision of particular "designated health services" if the
physician or a member of such physician's immediate family has a "financial
relationship" with the entity.

     Stark II provides that the entity which renders the "designated health
services" may not present or cause to be presented a claim to the Medicare or
Medicaid program for "designated health services" furnished pursuant to a
prohibited referral. A person who engages in a scheme to circumvent Stark II's
prohibitions may be fined up to $100,000 for each applicable arrangement or
scheme. In addition, anyone who presents or causes to be presented a claim to
the Medicare or Medicaid program in violation of Stark II is subject to monetary
penalties of up to $15,000 per service, an assessment of up to twice the amount
claimed, and possibly exclusion from participation in federal healthcare
programs. Generally, these penalties are assessed against the entity that
submitted the prohibited bill to Medicare or Medicaid; the government has,
however, indicated that penalties would also apply to the referring physician
because the physician "causes" the claim to be submitted by making the referral.

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

                                        14
<PAGE>

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

     Other Fraud and Abuse Laws.  The federal government has made a policy
decision to significantly increase the financial resources allocated to
enforcing the general fraud and abuse laws. In addition, private insurers and
various state enforcement agencies have increased their level of scrutiny of
healthcare claims in an effort to identify and prosecute fraudulent and abusive
practices in the healthcare area. The Company is subject to these increased
enforcement activities and may be subject to specific subpoenas and requests for
information.

     The federal Civil False Claims Act imposes civil liability on individuals
and entities that submit false or fraudulent claims for payment to the
government. Violations of the False Claims Act may include treble damages and
penalties of up to $11,000 per false or fraudulent claim.

     In addition to actions being brought under the Civil False Claims Act by
government officials, the False Claims Act also allows a private individual with
direct knowledge of fraud to bring a "whistleblower" or qui tam suit on behalf
of the government against a healthcare provider for violations of the False
Claims Act. In that event, the "whistleblower" is responsible for initiating a
lawsuit that sets in motion a chain of events that may eventually lead to the
government recovering money. After the "whistleblower" has initiated the
lawsuit, the government must decide whether to intervene in the lawsuit and to
become the primary prosecutor. In the event the government declines to join the
lawsuit, the "whistleblower" plaintiff may choose to pursue the case alone, in
which case the "whistleblower's" counsel will have primary control over the
prosecution, although the government must be kept apprised of the progress of
the lawsuit and will still receive at least 70% of any recovered amounts. In
return for bringing a "whistleblower" suit on the government's behalf, the
"whistleblower" plaintiff receives a statutory amount of up to 30% of the
recovered amount from the government's litigation proceeds if the litigation is
successful. Recently, the number of "whistleblower" suits brought against
healthcare providers has increased dramatically.

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

     In addition to the False Claims Act, the Health Insurance Portability and
Accountability Act of 1996 created two new federal crimes: "Health Care Fraud"
and "False Statements Relating to Health Care Matters." The Health Care Fraud
statute prohibits knowingly and willfully executing a scheme or artifice to
defraud any healthcare benefit program, including private payors. A violation of
this statute is a felony and may result in fines, imprisonment and/or exclusion
from government-sponsored programs. The False Statements statute prohibits
knowingly and willfully falsifying, concealing or covering up a material fact by
any trick, scheme or device or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment for
healthcare benefits, items or services. A violation of this statute is a felony
and may result in fines and/or imprisonment.

     The Health Insurance Portability and Accountability Act of 1996
"HIPAA".  HIPAA mandates the adoption of standards for the exchange of
electronic health information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of the health care
industry. Ensuring privacy and security of patient information is one of the key
factors driving the legislation.

     In August 2000, the Health and Human Services agency ("HHS") issued final
regulations establishing electronic data transmission standards that health care
providers must use when submitting or receiving

                                        15
<PAGE>

certain health care data electronically. All affected entities, including our
Company, are required to comply with these regulations by October 16, 2002.

     In December 2000, HHS issued final regulations concerning the privacy of
health care information. These regulations regulate the use and disclosure of
individuals' health care information, whether communicated electronically, on
paper or verbally. All affected entities, including our Company, are required to
comply with these regulations by April 2003. The regulations also provide
patients with significant new rights related to understanding and controlling
how their health information is used or disclosed.

     Although the enforcement provisions of HIPAA have not yet been finalized,
sanctions are expected to include criminal penalties and civil sanctions. We
have established a plan and engaged the resources necessary to comply with
HIPAA. At this time, we anticipate that we will be able to fully comply with
those HIPAA regulations that have been issued and with the proposed regulations.
Based on the existing and proposed HIPAA regulations, we believe that the cost
of its compliance with HIPAA will not have a material adverse effect on its
business, financial condition or results of operations.

     Related Laws and Guidelines.  Because we perform services at hospitals,
outpatient facilities and other types of healthcare facilities, we and our
affiliated physicians may be subject to laws, which are applicable to those
entities. For example, we are subject to the Emergency Medical Treatment and
Active Labor Act of 1986 which prohibits "patient dumping" by requiring
hospitals and hospital emergency department or urgent care center physicians to
provide care to any patient presenting to the hospital's emergency department or
urgent care center in an emergent condition regardless of the patient's ability
to pay. Many states, in which we operate, including California, have similar
state law provisions concerning patient dumping.

     In addition to the Emergency Medical Treatment and Active Labor Act of 1986
and its state law equivalents, significant aspects of our operations are subject
to state and federal statutes and regulations governing workplace health and
safety, dispensing of controlled substances and the disposal of medical waste.
Changes in ethical guidelines and operating standards of professional and trade
associations and private accreditation commissions such as the American Medical
Association and the Joint Commission on Accreditation of Health Care
Organizations may also affect our operations. We believe our operations as
currently conducted are in substantial compliance with these laws and
guidelines.

BUSINESS RISKS

     Our Substantial Indebtedness Could Make it More Difficult to Pay Our Debts,
Divert Our Cash Flow from Operations for Debt Payments, Limit Our Ability to
Borrow Funds and Increase Our Vulnerability To General Adverse Economic and
Industry Conditions.  We have a significant amount of indebtedness. As of
December 31, 2001 we had total indebtedness of $217.3 million. Our substantial
indebtedness could have important consequences to our business. For example, it
could:

     - make it more difficult to pay our debts as they become due during general
       negative economic and market industry conditions because if our revenues
       decrease due to general economic or industry conditions, we may not have
       sufficient cash flow from operations to make our scheduled debt payments;

     - limit our flexibility in planning for, or reacting to, changes in our
       business and the industry in which we operate and, consequently, place us
       at a competitive disadvantage to our competitors with less debt;

     - require a substantial portion of our cash flow from operations for debt
       payments, thereby reducing the availability of our cash flow to fund
       working capital, capital expenditures, acquisitions and other general
       corporate purposes; and

     - limit our ability to borrow additional funds.

     Failure to Comply with Any of the Restrictions Contained in Our Senior Bank
Facilities or the Indenture for the 12% Senior Subordinated Notes Could Result
in Acceleration of Our Debt and We May Not Have Sufficient Cash to Repay Our
Accelerated Indebtedness.  Our senior bank facilities and the indenture
governing our outstanding 12% senior subordinated notes due 2009 restrict our
ability, and the ability of some
                                        16
<PAGE>

of our subsidiaries, to take various actions and enter into various types of
transactions commonly undertaken by business entities including our ability to:

     - borrow money or retire debt that ranks behind the exchange notes,

     - pay dividends on stock or repurchase stock,

     - make investments,

     - enter into transactions with affiliates,

     - use assets as security in other transactions,

     - create liens,

     - sell substantially all of our assets or merge with or into other
       companies,

     - enter into sale and leaseback transactions, and

     - change the nature of our business.

     In addition, we must maintain minimum debt service and maximum leverage
ratios under the senior bank facilities. Our failure to comply with the
restrictions contained in the senior bank facilities and indenture could lead to
an event of default, which could result in an acceleration of that indebtedness,
and we may not have enough available cash to immediately repay such
indebtedness. An acceleration under our senior credit facilities would also
constitute an event of default under the indenture relating to the 12% senior
subordinated notes due 2009.

     We Could Be Subject to Medical Malpractice Lawsuits, Some of Which We May
not Be Fully Insured Against.  In recent years, physicians, hospitals and other
participants in the healthcare industry have become subject to an increasing
number of lawsuits alleging medical malpractice and related legal theories such
as negligent hiring, supervision and credentialing, and vicarious liability for
acts of their employees or independent contractors. Many of these lawsuits
involve large claims and substantial defense costs. Although we do not
principally engage in the practice of medicine or provide medical services nor
control the practice of medicine by our affiliated physicians or the compliance
with regulatory requirements applicable to the physicians and physician groups
with which we contract, we cannot assure you that we will not become involved in
this type of litigation in the future. In addition, through our management of
hospital departments and provision of non-physician healthcare personnel,
patients who receive care from physicians or other healthcare providers
affiliated with medical organizations and physician groups with whom we have a
contractual relationship could sue us. We typically provide claims-made coverage
to affiliated physicians and other healthcare practitioners with limits of
$1,000,000 per incident and a total annual limit of $3,000,000 per physician for
all incidents. In addition, we obtain claims-made coverage for Team Health and
other corporate entities with limits of $1,000,000 per incident and a total
annual aggregate of $25,000,000. We believe these limits are appropriate based
on our historical claims, the nature and risks of our business and standard
industry practice. Nevertheless, we cannot assure you that the limits of
coverage will be adequate to cover losses in all instances. We could be liable
for claims against our affiliated physicians for incidents incurred but not
reported during periods for which claims-made insurance covered the related
risk. Under generally accepted accounting principles, the cost of medical
malpractice claims, which includes costs associated with litigating or settling
claims, is accrued when the incidents that give rise to the claims occur. The
accrual includes an estimate of the losses that will result from incidents,
which occurred during the claims-made period, but were not reported during that
period. These claims are referred to as incurred-but-not-reported claims. We
provide insurance to cover such incurred-but-not-reported claims. This type of
insurance is generally referred to as "tail coverage." With respect to those
physicians for whom we provide tail coverage, we accrue professional insurance
expenses based on estimates of the cost of procuring tail coverage. We cannot
assure you that a future claim will not exceed the limits of available insurance
coverage or that such accrual will be sufficient to cover any risks assumed by
Team Health.

     We May Incur Substantial Costs Defending Our Interpretations of Government
Regulations and if We Lose the Government Could Force Us to Restructure and
Subject Us to Fines, Monetary Penalties and
                                        17
<PAGE>

Exclusion from Participation in Government Sponsored Programs such as Medicare
and Medicaid.  Our operations and arrangements with healthcare providers are
subject to extensive government regulation, including numerous laws directed at
preventing fraud and abuse, laws prohibiting general business corporations, such
as us, from practicing medicine, controlling physicians' medical decisions or
engaging in some practices such as splitting fees with physicians, and laws
regulating billing and collection of reimbursement from governmental programs,
such as the Medicare and Medicaid programs. Of particular importance are:

          (1) provisions of the Omnibus Budget Reconciliation Act of 1993,
     commonly referred to as Stark II, that, subject to limited exceptions,
     prohibit physicians from referring Medicare patients to an entity for the
     provision of certain "designated health services" if the physician or a
     member of such physician's immediate family has a direct or indirect
     financial relationship (including a compensation arrangement) with the
     entity;

          (2) provisions of the Social Security Act, commonly referred to as the
     "anti-kickback statute," that prohibit the knowing and willful offering,
     payment, solicitation or receipt of any bribe, kickback, rebate or other
     remuneration in return for the referral or recommendation of patients for
     items and services covered, in whole or in part, by federal health care
     programs, such as Medicare and Medicaid;

          (3) provisions of the Health Insurance Portability and Accountability
     Act of 1996 that prohibit knowingly and willfully executing a scheme or
     artifice to defraud any healthcare benefit program or falsifying,
     concealing or covering up a material fact or making any material false,
     fictitious or fraudulent statement in connection with the delivery of or
     payment for healthcare benefits, items, or services;

          (4) the federal False Claims Act that imposes civil and criminal
     liability on individuals or entities that submit false or fraudulent claims
     for payment to the government;

          (5) reassignment of payment rules that prohibit certain types of
     billing and collection practices in connection with claims payable by the
     Medicare programs;

          (6) similar state law provisions pertaining to anti-kickback,
     self-referral and false claims issues;

          (7) state laws that prohibit general business corporations, such as
     us, from practicing medicine, controlling physicians' medical decisions or
     engaging in some practices such as splitting fees with physicians;

          (8) laws that regulate debt collection practices as applied to our
     internal collection agency and debt collection practices;

          (9) federal laws such as the Emergency Medical Treatment and Active
     Labor Act of 1986 that require the hospital and emergency department or
     urgent care center physicians to provide care to any patient presenting to
     the emergency department or urgent care center in an emergent condition
     regardless of the patient's ability to pay, and similar state laws; and

          (10) state and federal statutes and regulations that govern workplace
     health and safety.

     Each of the above may have related rules and regulations which are subject
to interpretation and may not provide definitive guidance as to the application
of those laws, rules or regulations to our operations, including our
arrangements with hospitals, physicians and professional corporations.

     We have structured our operations and arrangements with third parties in an
attempt to comply with these laws, rules and regulations based upon what we
believe are reasonable and defensible interpretations of these laws, rules and
regulations. However, we cannot assure you that the government will not
successfully challenge our interpretation as to the applicability of these laws,
rules and regulations as they relate to our operations and arrangements with
third parties.

     In the ordinary course of business and like others in the health care
industry, we receive requests for information from government agencies in
connection with their regulatory or investigational authority. We review such
requests and notices and take appropriate action. We have been subject to
certain requests for information in the past and could be subject to such
requests for information in the future, which could result

                                        18
<PAGE>

in significant penalties, as well as adverse publicity. The results of any
current or future investigation or action could have a material adverse effect.

     With respect to state laws that relate to the practice of medicine by
general business corporations and to fee splitting, while we seek to comply
substantially with existing applicable laws, we cannot assure you that state
officials who administer these laws will not successfully challenge our existing
organization and our contractual arrangements, including noncompetition
agreements with physicians, professional corporations and hospitals as
unenforceable or as constituting the unlicensed practice of medicine or
prohibited fee-splitting.

     If federal or state government officials challenge our operations or
arrangements with third parties which we have structured based upon our
interpretation of these laws, rules and regulations, the challenge could
potentially disrupt our business operations and we may incur substantial defense
costs, even if we successfully defend our interpretation of these laws, rules
and regulations.

     In the event regulatory action limited or prohibited us from carrying on
our business as we presently conduct it or from expanding our operations to
certain jurisdictions, we may need to make structural and organizational
modifications of our company and/or our contractual arrangements with
physicians, professional corporations and hospitals. Our operating costs could
increase significantly as a result. We could also lose contracts or our revenues
could decrease under existing contracts as a result of a restructuring.
Moreover, our financing agreements, including the indenture relating to our
outstanding 12% senior subordinated notes due 2009 or the senior bank facilities
may also prohibit modifications to our current structure and consequently
require us to obtain the consent of the holders of this indebtedness or require
the refinancing of this indebtedness. Any restructuring would also negatively
impact our operations because our management's time and attention would be
diverted from running our business in the ordinary course.

     We have not obtained an opinion of counsel with regard to our compliance
with applicable state laws and regulations, and you should not construe the
information contained herein regarding our compliance with applicable state laws
and regulations as being based on an opinion of counsel. For a more detailed
discussion of the regulatory frameworks affecting our business, see Regulatory
Matters.

     If Governmental Authorities Determine That We Violate Medicare
Reimbursement Regulations, Our Revenues Might Decrease and We Might Have To
Restructure Our Method of Billing and Collecting Medicare Payments.  The
Medicare program prohibits the reassignment of Medicare payments due to a
physician or other healthcare provider to any other person or entity unless the
billing arrangement between that physician or other healthcare provider and the
other person or entity falls within an enumerated exception to the Medicare
reassignment prohibition. There is no exception that allows us to receive
directly Medicare payments related to the services of independent contractor
physicians.

     We use a "lockbox" model which we believe complies with the Medicare
reassignment rules and we have notified Medicare carriers of the details of our
lockbox billing arrangement. With respect to Medicare services that our
independently contracted physicians render, Medicare carriers send payments for
the physician services to a "lockbox" bank account under the control of the
physician. The physician, fulfilling his contractual obligations to us, then
directs the bank to transfer the funds in that bank account into a company bank
account. In return, we pay the physician an agreed amount for professional
services provided and provide management and administrative services to or on
behalf of the physician or physician group. However, we cannot assure you that
government authorities will not challenge our lockbox model as a result of
changes in the applicable statutes and regulations or new interpretations of
existing statutes and regulations.

     With respect to Medicare services that physicians employed by
physician-controlled professional corporations render, Medicare carriers send
payments for physician services to a group account under our control. While we
seek to comply substantially with applicable Medicare reimbursement regulations,
we cannot assure you that government authorities would find that we comply in
all respects with these regulations.

     If Future Regulation Forces Us to Restructure Our Operations, Including Our
Arrangements with Physicians, Professional Corporations, Hospitals and Other
facilities, We May Incur Additional Costs, Lose Contracts and Suffer a Reduction
in Revenue under Existing Contracts and We May Need to Refinance Our
                                        19
<PAGE>

Debt Or Obtain Debt Holder Consent.  Legislators have introduced and may
introduce in the future numerous proposals into the United States Congress and
state legislatures relating to healthcare reform in response to various
healthcare issues. We cannot assure you as to the ultimate content, timing or
effect of any healthcare reform legislation, nor is it possible at this time to
estimate the impact of potential legislation. Further, although we exercise care
in structuring our arrangements with physicians, professional corporations,
hospitals and other facilities to comply in all significant respects with
applicable law, we cannot assure you that: (1) government officials charged with
responsibility for enforcing those laws will not assert that we, or transactions
into which we have entered, violate those laws or (2) governmental entities or
courts will ultimately interpret those laws in a manner consistent with our
interpretation.

     The continual flux of healthcare rules and regulations at the federal,
state and local level could revise the future of our relationships with the
hospitals and physicians with whom we contract. In addition to the regulations
referred to above, aspects of our operations are also subject to state and
federal statutes and regulations governing workplace health and safety and, to a
small extent, the disposal of medical waste. Changes in ethical guidelines and
operating standards of professional and trade associations and private
accreditation commissions such as the American Medical Association and the Joint
Commission on Accreditation of Healthcare Organizations may also effect our
operations.

     Accordingly, changes in existing laws and regulations, adverse judicial or
administrative interpretations of these laws and regulations or enactment of new
legislation could force us to restructure our relationships with physicians,
professional corporations, hospitals and other facilities. This could cause our
operating costs to increase significantly. A restructuring could also result in
a loss of contracts or a reduction in revenues under existing contracts.
Moreover, if these laws require us to modify our structure and organization to
comply with these laws, our financing agreements, including the indenture
relating to our outstanding 12% senior subordinated notes due 2009 and the
senior credit facilities may prohibit such modifications and require us to
obtain the consent of the holders of such indebtedness or require the
refinancing of such indebtedness.

     Laws and Regulations That Regulate Payments for Medical Services By
Government Sponsored Healthcare Programs Could Cause Our Revenues To
Decrease.  Our affiliated physician groups derive a significant portion of their
net revenue less provision for uncollectibles from payments made by government
sponsored healthcare programs such as Medicare and state reimbursed programs.
There are increasing public and private sector pressures to restrain healthcare
costs and to restrict reimbursement rates for medical services. Any change in
reimbursement policies, practices, interpretations, regulations or legislation
that places limitations on reimbursement amounts or practices could
significantly affect hospitals, and consequently affect our operations unless we
are able to renegotiate satisfactory contractual arrangements with our hospital
clients and contracted physicians.

     We believe that regulatory trends in cost containment will continue to
result in a reduction from historical levels in per-patient revenue for
physician services. We cannot assure you that we will be able to offset reduced
operating margins through cost reductions, increased volume, the introduction of
additional procedures or otherwise. In addition, we cannot assure you that the
federal government will not impose further reductions in the Medicare physician
fee schedule in the future. These reductions could reduce our revenues.

     The Medicare program has announced its physician reimbursement rates for
2002 and certain of those physician reimbursement rates have decreased from
their corresponding levels in 2001. The Company has estimated that such
decreased rates announced for 2002 will result in lower revenues in 2002 based
on 2001 Medicare patient volumes by approximately $9.5 million.

     We Could Experience a Loss of Contracts with Our Physicians or Be Required
to Sever Relationships with Our Affiliated Professional Corporations in Order To
Comply with Antitrust Laws.  Our contracts with physicians include contracts
with physicians organized as separate legal professional entities (e.g.
professional medical corporations) and as individuals. As such, the antitrust
laws deem each such physician/practice to be separate, both from Team Health and
from each other and, accordingly, each such physician/practice is subject to a
wide range of laws that prohibit anti-competitive conduct among separate legal
entities or individuals. A review or action by regulatory authorities or the
courts, which is negative in nature as to the relationship between our company
and the physicians/practices we contract with, could force us to terminate
                                        20
<PAGE>

our contractual relationships with physicians and affiliated professional
corporations. Since we derive a significant portion of our revenues from these
relationships, our revenues could substantially decrease. Moreover, if any
review or action by regulatory authorities required us to modify our structure
and organization to comply with such action or review, the indenture relating to
our outstanding 12% senior subordinated notes due 2009 and/or the senior bank
facilities may not permit such modifications, thereby requiring us to obtain the
consent of the holders of such indebtedness or requiring the refinancing of such
indebtedness.

     A Reclassification of Our Independent Contractor Physicians by Tax
Authorities Could Require Us to Pay Retroactive Taxes and Penalties.  As of
December 31, 2001, we contracted with approximately 2,200 affiliated physicians
as independent contractors to fulfill our contractual obligations to clients.
Because we consider many of the physicians with whom we contract to be
independent contractors, as opposed to employees, we do not withhold federal or
state income or other employment related taxes, make federal or state
unemployment tax or Federal Insurance Contributions Act payments, except as
described below, or provide workers' compensation insurance with respect to such
affiliated physicians. Our contracts with our independent contractor physicians
obligate these physicians to pay these taxes. The classification of physicians
as independent contractors depends upon the facts and circumstances of the
relationship. In the event of a determination by federal or state taxing
authorities that the physicians engaged as independent contractors are
employees, we may be adversely affected and subject to retroactive taxes and
penalties. Under current federal tax law, a "safe harbor" from reclassification,
and consequently retroactive taxes and penalties, is available if our current
treatment is consistent with a long-standing practice of a significant segment
of our industry and if we meet certain other requirements. If challenged, we may
not prevail in demonstrating the applicability of the safe harbor to our
operations. Further, interested persons have proposed in the recent past to
eliminate the safe harbor and may do so again in the future.

     We Are Subject to the Financial Risks Associated with Our Fee-for-Service
Contracts Which Could Decrease Our Revenue, Including Changes in Patient Volume,
Mix of Insured and Uninsured Patients and Patients Covered by Government
Sponsored Healthcare Programs and Third Party Reimbursement Rates. We derive our
revenue through two primary types of arrangements. If we have a flat fee
contract with a hospital, the hospital bills and collects fees for physician
services and remits a negotiated amount to us monthly. If we have a
fee-for-service contract with a hospital, either we or our affiliated physicians
collect the fees for physician services. Consequently, under fee-for-service
contracts, we assume the financial risks related to changes in mix of insured
and uninsured patients and patients covered by government sponsored healthcare
programs, third party reimbursement rates and changes in patient volume. We are
subject to these risks because under our fee-for-service contracts, our fees
decrease if a smaller number of patients receive physician services or if the
patients who do receive services do not pay their bills for services rendered or
we are not fully reimbursed for services rendered. Our fee-for-service
contractual arrangements also involve a credit risk related to services provided
to uninsured individuals. This risk is exacerbated in the hospital emergency
department physician-staffing context because federal law requires hospital
emergency departments to treat all patients regardless of the severity of
illness or injury. We believe that uninsured patients are more likely to seek
care at hospital emergency departments because they frequently do not have a
primary care physician with whom to consult. We also collect a relatively
smaller portion of our fees for services rendered to uninsured patients than for
services rendered to insured patients. In addition, fee-for-service contracts
also have less favorable cash flow characteristics in the start-up phase than
traditional flat-rate contracts due to longer collection periods.

     Our Revenue Could Be Adversely Affected by a Net Loss of Contracts.  The
average tenure of our existing contracts with clients is approximately seven
years. Typically, either party may automatically renew these contracts on the
same terms unless the other party has given notice of an intent not to renew.
Likewise, generally, either party may terminate these contracts upon notice of
as little as 30 days. These contracts may not be renewed or, if renewed, may
contain terms that are not as favorable to us as our current contracts. We
cannot assure you that we will not experience a net loss of contracts in the
future and that any such net loss would not have a material adverse effect on
our operating results and financial condition.

                                        21
<PAGE>

     We May Not Be Able to Find Suitable Acquisition Candidates or Successfully
Integrate Completed Acquisitions into Our Current Operations in Order To
Profitably Operate Our Consolidated Company.  When we obtain new contracts with
hospitals and managed care companies, which increasingly involves a competitive
bidding process, we must accurately assess the costs we will incur in providing
services in order to realize adequate profit margins or otherwise meet our
objectives. Increasing pressures from healthcare payors to restrict or reduce
reimbursement rates at a time when the costs of providing medical services
continue to increase make the integration of new contracts, as well as
maintenance of existing contracts, more difficult. A significant portion of our
growth in net revenue has resulted from, and is expected to continue to result
from, the acquisition of healthcare businesses. We engage in evaluations of
potential acquisitions and are in various stages of discussion regarding
possible acquisitions, certain of which, if consummated, could be significant to
us. Our strategy of growing through acquisitions has presented some challenges
in the past. Some of the difficulties we have encountered include, problems
identifying all service and contractual commitments of the acquired entity,
evaluating the stability of the acquired entity's hospital contracts,
integrating financial and operational software, and accurately projecting
physician and employee costs. Moreover, because we have grown by acquisitions,
we have had some difficulty achieving consistent implementation of a compliance
plan in the area of physician documentation, procedure coding, and billing
practices. Our strategy of growing through acquisitions is also subject to the
risk that we may not be able to identify suitable acquisition candidates in the
future, we may not be able to obtain acceptable financing or we may not be able
to consummate any future acquisitions, any of which could inhibit our growth. In
addition, in connection with acquisitions, we may need to obtain the consent of
third parties who have contracts with the entity to be acquired, such as managed
care companies or hospitals contracting with the entity. We may be unable to
obtain these consents. If we fail to integrate acquired operations, fail to
manage the cost of providing our services or fail to price our services
appropriately, our operating results may decline. Finally, as a result of our
acquisitions of other healthcare businesses, we may be subject to the risk of
unanticipated business uncertainties or legal liabilities relating to such
acquired businesses for which we may not be indemnified by the sellers of the
acquired businesses.

     We May Not Be Able to Successfully Recruit and Retain Qualified Physicians
to Serve as Our Independent Contractors or Employees.  Our ability to recruit
and retain affiliated physicians and qualified personnel significantly affects
our performance at hospitals and urgent care clinics. In the recent past, our
client hospitals have increasingly demanded a greater degree of specialized
skills in the physicians who staff their contracts. This decreases the number of
physicians who are qualified to staff our contracts. Moreover, because of the
scope of the geographic and demographic diversity of the hospitals and other
facilities we contract with, we must recruit physicians to staff a broad
spectrum of contracts. We have had difficulty in the past recruiting physicians
to staff contracts in some regions of the country and at some less economically
advantaged hospitals. Moreover, we compete with other entities to recruit and
retain qualified physicians and other healthcare professionals to deliver
clinical services. Our future success depends on our ability to recruit and
retain competent physicians to serve as our employees or independent
contractors. We may not be able to attract and retain a sufficient number of
competent physicians and other healthcare professionals to continue to expand
our operations. We believe that we have experienced a loss of contracts in the
past because of our inability to staff those contracts with qualified
physicians. In addition, there can be no assurance that our non-competition
contractual arrangements with affiliated physicians and professional
corporations will not be successfully challenged in certain states as
unenforceable. We have contracts with physicians in many states. State law
governing noncompete agreements varies from state to state. Some states are
reluctant to strictly enforce noncompete agreements with physicians. In such
event, we would be unable to prevent former affiliated physicians and
professional corporations from competing with us -- potentially resulting in the
loss of some of our hospital contracts and other business.

     The High Level of Competition in Our Industry Could Adversely Affect Our
Contract and Revenue Base. The provision of outsourced physician staffing and
administrative services to hospitals and clinics is characterized by a high
degree of competition. Such competition could adversely affect our ability to
obtain new contracts, retain existing contracts and increase our profit margins.
We compete with both national and regional enterprises, some of which have
substantially greater financial and other resources available to them. In
addition, some of these firms may have greater access than us to physicians and
potential clients. We also
                                        22
<PAGE>

compete against local physician groups and self-operated hospital emergency
departments for satisfying staffing and scheduling needs.

     Failure to Timely or Accurately Bill for Our Services Could Have a Negative
Impact On Our Net Revenues, Bad Debt Expense and Cash Flow.  Billing for
emergency department visits in a hospital setting and other physician-related
services is complex. The practice of providing medical services in advance of
payment or, in many cases, prior to assessment of ability to pay for such
services, may have significant negative impact on our net revenues, bad debt
expense, and cash flow. We bill numerous and varied payors, such as self-pay
patients, various forms of commercial insurance companies and the Medicare and
Medicaid Programs. These different payors typically have differing forms of
billing requirements that must be met prior to receiving payment for services
rendered. Reimbursement to us is typically conditioned on our providing the
proper medical necessity and diagnosis codes. Incorrect or incomplete
documentation and billing information could result in non payment for services
rendered.

     Additional factors that could complicate our billing include:

     - disputes between payors as to which party is responsible for payment;

     - variation in coverage for similar services among various payors; and

     - the difficulty of adherence to specific compliance requirements,
       diagnosis coding and various other procedures mandated by responsible
       parties.

     To the extent that the complexity associated with billing for our services
causes delays in our cash collections, we assume the financial risk of increased
carrying costs associated with the aging of our accounts receivable as well as
increased potential for bad debts.

     We Are Subject to the Risk That MedPartners Will Be Unable to Fulfill Its
Obligations to Us Under the Recapitalization Agreement.  Under the
recapitalization agreement, each of MedPartners and Physician Services have
indemnified, jointly and severally, subject to some limitations, Team Health
Holdings and us against losses resulting from: (1) any misrepresentation or
breach of any warranty or covenant of MedPartners or Physician Services
contained in the recapitalization agreement, a claim for which is made in most
cases within the 18 months following the closing of the recapitalization; (2)
some claims or audits by governmental authorities; and (3) litigation matters
specified in the recapitalization agreement, including some medical malpractice
claims to the extent not covered by third-party insurance. With respect to some
matters, we are only indemnified if our losses from certain indemnification
claims exceed $3.7 million and do not exceed a total of $50 million. There is no
basket or limit on the total payments with respect to other specified
misrepresentations or breaches of warranties and some litigation matters. A
significant negative change in the financial condition of MedPartners could
prevent MedPartners from fulfilling its indemnification obligations. As such,
with respect to the indemnification rights granted to us in connection with the
recapitalization, we are subject to MedPartners' credit risk.

     This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
analyses and other information, which are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
our future prospects, developments and business strategies.

     These forward looking statements are identified by the use of terms and
phrases such as "anticipate", "that is", "could", "estimate", "intend", "may",
"plan", "predict", "project", "will" and similar terms and phrases, including
references to assumptions. However, these words are not the exclusive means of
identifying such statements. These statements are contained in many sections of
this report on Form 10-K, including those entitled "Business", "Legal
Proceedings", and "Management's Discussion and Analysis of Financial Condition
and Results of Operations". Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that we will achieve the plans, intentions or
expectations. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this report on Form
10-K set forth elsewhere in

                                        23
<PAGE>

this report. All forward-looking statements attributable to Team Health or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained in this "Business Risks" section.

ITEM 2. PROPERTIES

     We lease approximately 38,000 square feet at 1900 Winston Road, Knoxville,
Tennessee for our corporate headquarters. We also lease or sublease facilities
for the operations of the clinics, billing centers, and certain regional
operations. We believe our present facilities are adequate to meet our current
and projected needs. The leases and subleases have various terms primarily
ranging from one to seven years and monthly rents ranging from approximately
$1,300 to $50,000. Our aggregate monthly lease payments total approximately
$450,000. We expect to be able to renew each of our leases or to lease
comparable facilities on terms commercially acceptable to us.

ITEM 3. LEGAL PROCEEDINGS

     We are party to various pending legal actions arising in the ordinary
operation of our business such as contractual disputes, employment disputes and
general business actions as well as malpractice actions. We believe that any
payment of damages resulting from these types of lawsuits would be covered by
insurance, exclusive of deductibles, would not be in excess of the reserves and
such liabilities, if incurred, should not have a significant negative effect on
the operating results and financial condition of our company. Moreover, in
connection with the recapitalization, subject to certain limitations,
MedPartners and Physician Services have jointly and severally agreed to
indemnify us against some losses relating to litigation arising out of incidents
occurring prior to the recapitalization to the extent those losses are not
covered by third party insurance. With respect to some litigation matters, we
are only indemnified if our losses from all indemnification claims exceed a
total of $3.7 million and do not exceed a total of $50 million. With respect to
other litigation matters, we are indemnified for all losses. Finally, also in
connection with the recapitalization, MedPartners agreed to purchase, at its
sole cost and expense, for the benefit of Team Health Holdings, insurance
policies covering all liabilities and obligations for any claim for medical
malpractice arising at any time in connection with the operation of Team Health
and its subsidiaries prior to the closing date of the recapitalization
transactions for which Team Health or any of its subsidiaries or physicians
becomes liable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

     There were no matters submitted to a vote of securityholders during the
year ended December 31, 2001.

                                    PART II

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

     There is no public market for the equity securities of the Company. There
were two holders of record of the Company's equity securities as of December 31,
2001. The Company has not declared any dividends on its shares of its common
stock during fiscal years 2001 and 2000.

ITEM 6. SELECTED HISTORICAL FINANCIAL AND OTHER DATA

     The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
included elsewhere in this report. The selected statement of operations data
presented below for the three-year period ended December 31, 2001 and the
balance sheet data at December 31, 2001 and 2000 are derived from our audited
consolidated financial statements that are included elsewhere in this report.
The selected statement of operations data presented below for the two-year
period ended December 31, 1998 and the balance sheet data at December 31, 1999,
1998 and 1997 are derived from audited consolidated financial statements that
are not included in this report.

                                        24
<PAGE>

     Team Health acquired the operating assets of several medical staffing and
related companies in the periods presented below. The results of the selected
historical financial data reflect these acquisitions since their respective
dates of acquisition.

     See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical consolidated financial statements and
the related notes thereto included elsewhere in this report.

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            2001       2000       1999       1998       1997
                                          --------   --------   --------   --------   --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.............................  $965,285   $918,974   $852,153   $805,403   $737,018
Provision for uncollectibles............   336,218    329,291    309,713    257,618    227,362
                                          --------   --------   --------   --------   --------
Net revenue less provision for
  uncollectibles........................   629,067    589,683    542,440    547,785    509,656
Professional expenses...................   523,154    468,596    441,506    441,625    409,623
                                          --------   --------   --------   --------   --------
Gross profit............................   105,913    121,087    100,934    106,160    100,033
General and administrative expenses.....    63,998     57,794     51,491     47,099     54,142
Terminated transaction expense..........        --      2,000         --         --         --
Management fee and other expenses.......       649        591        506      3,812      2,428
Impairment of intangibles...............     4,137         --         --      2,992         --
Depreciation and amortization...........    14,978     12,638      9,943      9,464      6,455
Recapitalization expense................        --         --     16,013         --         --
Write down of assets....................        --         --         --         --      2,117
Interest expense, net...................    22,739     25,467     20,909      5,301        886
Novation program expense allocation.....        --         --         --         --     11,000
Merger expense..........................        --         --         --         --     13,563
                                          --------   --------   --------   --------   --------
Earnings (loss) before income taxes.....      (588)    22,597      2,072     37,492      9,442
Income tax expense......................       871      9,317      1,250     15,883      5,761
                                          --------   --------   --------   --------   --------
Net earnings (loss) before cumulative
  effect of change in accounting
  principle.............................    (1,459)    13,280        822     21,609      3,681
Cumulative effect of change in
  accounting principle..................        --         --         --        912         --
Dividends on preferred stock............    11,889     10,783      8,107         --         --
                                          --------   --------   --------   --------   --------
Net earnings (loss) available to common
  stockholders..........................  $(13,348)  $  2,497   $ (7,285)  $ 20,697   $  3,681
                                          ========   ========   ========   ========   ========
OTHER DATA:
EBITDA(1)...............................  $ 66,422   $ 61,293   $ 58,443   $ 59,061   $ 32,328
NET CASH PROVIDED BY (USED FOR):
Operating Activities....................  $ 49,737   $ 52,130   $ 37,963   $ 42,817   $ 42,475
Investing Activities....................   (22,826)   (12,900)   (14,984)   (22,838)   (34,339)
Financing Activities....................   (12,132)   (13,646)     3,369    (21,975)    (8,255)
Capital Expenditures....................    (5,955)    (7,359)   (10,615)    (5,015)    (7,474)
</Table>

                                        25
<PAGE>

<Table>
<Caption>
                                                        YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            2001       2000       1999       1998       1997
                                          --------   --------   --------   --------   --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents...............  $ 70,183   $ 55,404   $ 29,820   $  3,472   $  5,468
Working capital.........................   104,039    124,105    107,550     98,780     90,487
Total assets............................   361,443    372,727    350,450    210,457    197,684
Total debt..............................   217,300    229,201    241,676      2,544      7,820
Mandatory redeemable preferred stock....   130,779    118,890    108,107         --         --
Total shareholders' equity (deficit)....   (99,690)   (86,123)   (88,620)    98,729     96,393
</Table>

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

(1) EBITDA represents earnings before income taxes plus depreciation and
    amortization, net interest expense, the change of estimate charge of $24.5
    million in 2001 and what we consider non-operational and non-cash charges
    such as write down of assets, management fees and other expenses, Novation
    Program expense, and recapitalization expense. This definition is consistent
    with that of our credit agreement. We have included information concerning
    EBITDA because we believe that EBITDA is commonly used as providing useful
    information regarding a company's ability to service and/or incur debt.
    EBITDA is not intended to represent cash flows for the period, nor has it
    been presented as an alternative to operating earnings as an indicator of
    operating performance and should not be considered in isolation or as a
    substitute for measures of performance prepared in accordance with generally
    accepted accounting principles ("GAAP") in the United States and is not
    indicative of operating earnings or cash flow from operations as determined
    under GAAP. We understand that while EBITDA is frequently used by securities
    analysts in the evaluation of companies, EBITDA, as used herein, is not
    necessarily comparable to other similarly titled captions of other companies
    due to potential inconsistencies in the method of calculation.

                                        26
<PAGE>

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

     Certain matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this annual
report are "forward-looking statements" intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the Company
"believes," "anticipates," "expects" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which may cause actual results to differ materially from those
currently anticipated. The forward-looking statements made herein are made only
as of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.

INTRODUCTION

     We believe we are among the largest national providers of outsourced
physician staffing and administrative services to hospitals and other healthcare
providers in the United States, with 350 hospital contracts in 29 states. Since
our inception, we have focused primarily on providing outsourced services to
hospital emergency departments and urgent care centers, which accounted for
approximately 79% of our net revenue less provision for uncollectibles in 2001.
Our regional operating model includes comprehensive programs for emergency
medicine, radiology, anesthesiology, inpatient care, pediatrics and other
hospital departments. We provide a full range of physician staffing and
administrative services.

     Acquisitions.  During the past five years, we have successfully acquired
and integrated the contracts of 13 hospital-based physician groups and related
companies. Those contracts acquired from emergency department and urgent care
center physician groups were generally with hospitals in large markets with an
average patient volume exceeding 15,000 per year. In addition, during the past
five years we have also acquired five businesses engaged in providing such
services as billing and collection, physician management services and
non-hospital-based physician services.

     Since June 1997, acquisitions have been financed through a combination of
cash and future contingent payments. All of our acquisitions since June 1997
were accounted for using the purchase method of accounting. As such, operating
results of those acquired businesses are included in our consolidated financial
statements since their respective dates of acquisition. In June 1997, the
Company combined with another company with the merger accounted for using the
pooling of interests method of accounting whereby the historical results of the
merged company are included in our consolidated financial statements. Following
each acquisition, the acquired groups' financial accounting systems have been
converted to our infrastructure systems.

     Strategic acquisitions continue to be a core component of our growth
strategy. The market for outsourced medical services is highly fragmented and
served primarily by small local and regional physician groups, which represent
over 54% of the market and generally lack the resources and depth of services
necessary to compete with national providers. Our acquisition strategy is to
target those companies with strong clinical reputations and quality contracts
with larger hospitals.

     Contracts.  Our growth has historically resulted from increases in the
number of patient visits and fees for services provided under existing contracts
and the addition and acquisition of new contracts. Our 350 contracts with
hospitals typically have terms of three years and are generally automatically
renewable under the same terms and conditions unless either party to the
contract gives notice of their intent not to renew the contract. Our average
contract tenure is approximately seven years.

     Approximately 77.8% of our net revenue less provision for uncollectibles is
generated under fee-for-service arrangements through which we bill and collect
the professional fees for the services provided. Conversely, under our flat-rate
contracts, hospitals pay us a fee based on the hours of physician coverage
provided, but the hospital is responsible for its own billing and collection.
Because of our billing and collection

                                        27
<PAGE>

expertise, our fee-for-service contracts typically result in higher margins. In
states where physician employees service our contracts directly because there is
no prohibition against such arrangements, Medicare payments for such services
are made directly to us. In states where the physicians providing services are
our independent contractors, Medicare payments for those services are paid into
a lockbox account in the name of the independent contractor physician and
subsequently directed into a Company account.

     Critical Accounting Policies and Estimates.  The consolidated financial
statements of the Company are prepared in accordance with United States
generally accepted accounting principles, which requires us to make estimates
and assumptions (see Note 1 to the consolidated financial statements).
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements.

  Revenue Recognition

     Net Revenue.  A significant portion (81.8%) of the Company's revenue in
2001 resulted from fee-for-service patient visits. The recognition of net
revenue (gross charges less contractual allowances) from such visits is
dependent on such factors as proper completion of medical charts following a
patient visit, the forwarding of such charts to one of the Company's six billing
centers for medical coding and entering into the Company's billing systems, and
the verification of each patient's submission or representation at the time
services are rendered as to the payor(s) responsible for payment of such
services. Net revenues are recorded based on the information known at the time
of entering of such information into our billing system as well as an estimate
of the net revenues associated with medical charts for a given service period
that have not been processed yet into the Company's billing systems. The above
factors and estimates are subject to change. For example, patient payor
information may change following an initial attempt to bill for services due to
a change in payor status. Such changes in payor status have an impact on
recorded net revenue due to differing payors being subject to different
contractual allowance amounts. Such changes in net revenue are recognized in the
period that such changes in payor become known. Similarly, the actual volume of
medical charts not processed into our billing systems may be different from the
amounts estimated. Such differences in net revenue are adjusted in the following
month based on actual chart volumes processed.

     Net Revenue Less Provision For Uncollectibles.  Net revenue less provision
for uncollectibles reflects management's estimate of billed amounts to
ultimately be collected. Management, in estimating the amounts to be collected
resulting from its over six million annual patient visits and procedures,
considers such factors as prior contract collection experience, current period
changes in payor mix and patient acuity indicators, reimbursement rate trends in
governmental and private sector insurance programs and trends in collections
from self-pay patients. Such estimates are performed at the individual contract
level, reviewed periodically and adjusted, if subsequent actual collection
experience indicates a change in estimate is necessary. Such provisions and any
subsequent changes in estimates may result in adjustments to our operating
results with a corresponding adjustment to our accounts receivable allowance for
uncollectibles on our balance sheet.

  Insurance Reserves

     The nature of the Company's business is such that it is subject to medical
malpractice lawsuits. To mitigate a portion of this risk, the Company maintains
insurance for individual malpractice claims with limits of $1 million per
incident with a total annual aggregate limit of $3 million per physician for all
incidents. Malpractice lawsuits are routinely reviewed by the Company's
insurance carrier and management for purposes of establishing ultimate loss
estimates. Provisions for estimated losses in excess of insurance limits are
provided at the time such determinations are made. The Company's insurance
limits have generally been adequate to cover losses experienced by the Company.

  Impairment of Intangible Assets

     In assessing the recoverability of the Company's intangibles the Company
must make assumptions regarding estimated future cash flows and other factors to
determine the fair value of the respective assets. If these estimates or their
related assumptions change in the future, the Company may be required to record

                                        28
<PAGE>

impairment charges for these assets. During 2001, the Company recorded an
impairment of intangibles provision of $4.1 million. Effective January 1, 2002,
the Company will adopt Statement of Financial Standards No. 142, "Goodwill and
Other Intangible Assets," and will be required to analyze its goodwill for
impairment issues during the first three months of 2002, and then on a periodic
basis thereafter.

     Net Revenues and Provision for Uncollectibles.  Net revenue consists of
three components: fee-for-service revenue, contract revenue, and other revenue.
Fee-for-service revenue represents revenue earned under contracts for which we
bill and collect the professional component of the charges for medical services
rendered by our contracted and employed physicians. Under the fee-for-service
arrangements, we bill patients for services provided and receive payments from
patients or their third party payors. Contract revenue represents revenue
generated under contracts in which we provide physician and administrative
services in return for a contractually negotiated fee. Contract revenue also
includes supplemental revenue from hospitals where we may have a fee-for-service
contract arrangement. Other revenue consists primarily of revenue from
management and billing services provided to outside parties.

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

     Management, in estimating the amounts to be collected resulting from its
over six million annual patient visits and procedures, considers such factors as
prior contract collection experience, current period changes in payor mix and
patient acuity indicators, reimbursement rate trends in governmental and private
sector insurance programs and trends in collections from self-pay patients.
Historically, management has taken this information regarding net collections
and allocated the reductions from gross billings and estimated net collections
between contractual allowances (a reduction from gross revenues to arrive at net
revenue) and provision for uncollectibles based on trended historical data,
particularly with respect to such factors as payor mix and its collection
experience with self-pay accounts. In the fourth quarter of 2001, management
determined that the use of a shorter trend period of the data used resulted in a
better estimate of the allocation of estimated net collections between net
revenue and provision for uncollectibles. As a result of this reallocation, the
Company recorded a reduction in the provision for uncollectibles of $35.2
million and a corresponding decrease in net revenues. This reallocation did not
change management's estimate of net collections.

     In 2001, the Company recorded a charge of $24.5 million to increase its
contractual allowances for patient accounts receivable for periods prior to
2001. This charge resulted from a change in estimated collections rates based on
a detailed analysis of the Company's outstanding accounts receivable using
additional data developed during the period. The result of the additional
research indicated that the Company's estimated collection rates for prior
periods were lower that originally anticipated.

     The aforementioned estimation process includes both quantitative estimates
as well as qualitative judgment dispersed among regional management of the
Company and is subject to corporate oversight and review. The complexity of the
estimation process associated with the Company's fee-for-service volumes and
diverse payor mix, along with the difficulty of assessing such factors as
changes in the economy impacting the number of health care insured versus
uninsured patients and other socio-economic trends that can have an impact on
collection rates, could result in subsequent adjustments to previously reported
revenues. Management believes that it has implemented an improved revenue
estimation process and more timely subsequent assessment and recognition of such
changes in estimates in 2001.

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

                                        29
<PAGE>

     Approximately 25% of our revenue less provision for uncollectibles in 2001
was derived from payments made by government sponsored healthcare programs,
principally Medicare and Medicaid. These programs are subject to substantial
regulation by federal and state governments. Funds received under Medicare and
Medicaid are subject to audit and, accordingly, retroactive adjustments of these
revenues may occur. We, however, have never had any substantial retroactive
adjustment due to a Medicare or Medicaid audit. Reimbursable fee payments for
Medicare and Medicaid patients for some services are defined and limited by CMS
and some state laws and regulations. The Medicare Program has announced its
physician reimbursement rates for 2002 and certain of those physician
reimbursement rates have decreased from their corresponding levels in 2001. The
Company has estimated that such decreased rates announced for 2002 will result
in lower revenues in 2002 based on 2001 Medicare patient volumes by
approximately $9.5 million.

     Professional Expenses.  Professional expenses primarily consist of fees
paid to physicians and other providers under contract with us, outside
collection fees relating to independent billing contracts, operating expenses of
our internal billing centers, professional liability insurance premiums for
physicians under contract and other direct contract service costs. Approximately
75% of our physicians are independently contracted physicians who are not
employed by us, and the remainder are our employees. We typically pay emergency
department and urgent care center physicians a flat hourly rate for each hour of
coverage provided. We typically pay radiologists and primary care physicians an
annual salary. The hourly rate varies depending on whether the physician is
independently contracted or an employee. Independently contracted physicians are
required to pay a self-employment tax, social security and expenses that we pay
for employed physicians.

     Medical malpractice liability expenses are recorded under professional
expenses. The cost of medical malpractice claims, which includes costs
associated with litigating or settling claims, is accrued when the incidents
that give rise to the claims occur. Estimated losses from asserted and
unasserted claims are accrued either individually or on a group basis, based on
the best estimates of the ultimate costs of the claims and the relationship of
past reported incidents to eventual claim payments. The accrual includes an
estimate of the losses that will result from incidents which occurred during the
reporting period, but were not reported that period. These claims are referred
to as incurred-but-not-reported claims. Our historical statements of operations
include a medical malpractice liability expense that is comprised of three
components including insurance premiums, incurred-but-not-reported claims
estimates, and self-insurance costs.

     MedPartners agreed as a condition of the recapitalization transactions to
purchase insurance policies covering all liabilities and obligations for any
claim for medical malpractice arising at any time in connection with our
operation, our subsidiaries and any of the affiliated physicians or other
healthcare providers prior to the closing date of the recapitalization
transactions for which we or any of our subsidiaries become liable. This has
resulted in our being insured for any malpractice liabilities originating prior
to the recapitalization transactions. See "Certain Relationships and Related
Transactions."

     We entered into an initial two-year agreement on March 12, 1999 with a
major national provider of medical malpractice insurance for a medical
malpractice liability insurance policy that we believe will cover us for all
claims made during the term of the agreement. The term of the agreement was
extended on March 12, 2001 through March 12, 2003. The policy does not cover
incidents that occur during such term, but for which no claim is made during the
term. In March 2003, we will have the option to purchase a policy from the
insurer that will cover the liability for all medical malpractice claims
relating to incidents that occur during the term of the policy but for which no
claim is made during that period. At this time, we have not determined whether
we will exercise our option to purchase this policy. The Company is accruing the
incremental cost of the tail liability on a straight line basis over the term of
the agreement.

     Results of Operations.  The following discussion provides an analysis of
our results of operations and should be read in conjunction with our
consolidated financial statements. The operating results of the periods
presented were not significantly affected by inflation.

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

                                        30
<PAGE>

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

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Fee for service revenue.....................................  125.5%   130.0%   129.2%
Contract revenue............................................   25.3     23.8     26.0
Other revenue...............................................    2.6      2.0      1.9
Net revenue.................................................  153.4    155.8    157.1
Provision for uncollectibles................................   53.4     55.8     57.1
Net revenue less provision for uncollectibles...............  100.0    100.0    100.0
                                                              =====    =====    =====
Professional expenses.......................................   83.2     79.5     81.4
Gross profit................................................   16.8     20.5     18.6
General and administrative expenses.........................   10.2      9.8      9.5
Terminated transaction expense..............................     --      0.3       --
Management fee and other expenses...........................    0.1      0.1      0.1
Impairment of intangibles...................................    0.6       --       --
Depreciation and amortization...............................    2.4      2.2      1.8
Recapitalization expenses...................................     --       --      3.0
Interest expense, net.......................................    3.6      4.3      3.8
Income tax expense..........................................    0.1      1.6      0.2
Net earnings (loss).........................................   (0.2)     2.2      0.2
Dividends on preferred stock................................    1.9      1.8      1.5
Net earnings (loss) available to common stockholders........   (2.1)     0.4     (1.3)
OTHER FINANCIAL DATA
EBITDA(1)...................................................   10.6     10.4     10.8
Net Cash provided by (used in):
Operating Activities........................................    7.9      8.8      7.0
Investing Activities........................................   (3.6)    (2.2)    (2.8)
Financing Activities........................................   (1.9)    (2.3)     0.6
</Table>

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

(1) See footnote 1 to the "Selected Historical Financial and Other Data" for a
    discussion of how EBITDA has been calculated and of the significance of
    EBITDA.

 YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

     Net Revenues.  Net revenues for 2001 increased $46.3 million, or 5.0%, to
$965.3 million from $919.0 million in 2000. The increase in net revenues of
$46.3 million included an increase of $23.0 million in fee-for-service revenue,
$18.8 million in contract revenue and $4.6 million in other revenue.
Fee-for-service revenue was 81.8% of net revenue in 2001 compared to 83.4% in
2000, contract revenue was 16.5% of net revenue in 2001 compared to 15.3% in
2000, and other revenue was 1.7 % of net revenue in 2001 compared to 1.3% in
2000.

     In 2001, the Company recorded a charge of $24.5 million to increase its
contractual allowances for patient accounts receivable for periods prior to
2001. The charge resulted from a change in estimated collection rates based on a
detailed analysis of the Company's outstanding accounts receivable using
additional data developed during the period. The result of the additional
research indicated that the Company's estimated collection rates for prior
periods were lower that originally anticipated.

                                        31
<PAGE>

     Management, in estimating the amounts to be collected resulting from its
over six million annual patient visits and procedures, considers such factors as
prior contract collection experience, current period changes in payor mix and
patient acuity indicators, reimbursement rate trends in governmental and private
sector insurance programs and trends in collections from self-pay patients.
Historically, management has taken this information regarding net collections
and allocated the reductions from gross billings and estimated net collections
between contractual allowances (a reduction from gross revenues to arrive at net
revenue) and provision for uncollectibles based on trended historical data,
particularly with respect to such factors as payor mix and its collection
experience with self-pay accounts. In the fourth quarter of 2001, management
determined that the use of a shorter trend period of the data used resulted in a
better estimate of the allocation of estimated net collections between net
revenue and provision for uncollectibles. As a result of this reallocation, the
Company recorded a reduction in the provision for uncollectibles of $35.2
million and a corresponding decrease in net revenues. This reallocation did not
change management's estimate of net collections.

     Provision for Uncollectibles.  Including the $35.2 million adjustment noted
above, the provision for uncollectibles was $336.2 million in 2001 compared to
$329.3 million in 2000, an increase of $6.9 million or 2.1%. As a percentage of
net revenue, the provision for uncollectibles was 34.8% in 2001 compared to
35.8% in 2000. The provision for uncollectibles is primarily related to revenue
generated under fee-for-service contracts, which is not expected to be fully
collected.

     Net Revenue Less Provision for Uncollectibles.  Net revenue less provision
for uncollectibles in 2001 increased $39.4 million, or 6.7%, to $629.1 million
from $589.7 million in 2000. Same contract revenue less provision for
uncollectibles, which consists of contracts under management from the beginning
of the prior period through the end of the subsequent period, increased $23.3
million, or 4.7%, to $522.5 million in 2001 from $499.2 million in 2000,
principally as the result of increases in patient volume between periods.
Excluding the effects of the $24.5 million charge discussed above, same contract
revenue less provision for uncollectibles increased $47.8 million, or 9.6%.
Acquisitions contributed $7.8 million and new contracts obtained through
internal sales efforts contributed an additional $52.9 million of increased
revenue. The increases noted above were partially offset by $44.6 million of
revenue derived from contracts that terminated during the periods.

     Professional Expenses.  Professional expenses for 2001 were $523.2 million
compared to $468.6 million in 2000, an increase of $54.6 million or 11.6%. As a
percentage of net revenue less provision for uncollectibles, professional
expenses increased to 83.2% in 2001 (80.0% excluding the effect of the $24.5
million charge noted above) from 79.5% in 2000. Physician costs, billing and
collection expenses and other professional expenses, excluding medical
malpractice expense, increased $49.1 million, or 11.1% between years. The
increase in these professional expenses was principally due to increased patient
volume and increases in physician rates. In addition, the Company experienced
increased usage of medical licensed practitioners in 2001 in an effort to
improve emergency room productivity to help offset the effects of hospital
nursing shortages and increased emergency room volumes. Malpractice expense was
$29.8 million in 2001 compared with $24.3 million in 2000 resulting in an
increase between years of $5.5 million or 22.6%. The Company renewed its
malpractice insurance coverage effective March 12, 2001 and the increased
premium level reflects a "hardening" of the insurance market for such coverage.

     Gross Profit.  Gross profit decreased to $105.9 million in 2001 from $121.1
million in 2000, principally due to the charge of $24.5 million noted above.
Gross profit as a percentage of revenues less provision for uncollectibles
decreased to 16.8% in 2001 compared to 20.5% in 2000.

     General and Administrative Expenses.  General and administrative expenses
in 2001 increased to $64.0 million from $57.8 million in 2000 for an increase of
$6.2 million, or 10.7%. General and administrative expenses as a percentage of
net revenue less provision for uncollectibles increased to 10.2% in 2001 from
9.8% in 2000. The increase in general and administrative expenses between years
included expenses associated with acquired operations of $2.0 million or 3.5% of
the increase in total expenses between years. The remaining increase was
principally due to increases in salaries and related benefit costs resulting
from annual wage

                                        32
<PAGE>

increases and the full year effect of additional staff added in prior periods to
further develop the Company's infrastructure.

     Management Fee and Other Operating Expenses.  Management fee and other
operating expenses were $0.6 million in both 2001 and 2000.

     Impairment of Intangibles.  Impairment of intangibles in 2001 was $4.1
million. The Company concluded that certain of its intangible assets relating to
a portion of its radiology related operations were impaired. The intangibles
related to such operations were reduced to estimated fair value by recording an
impairment charge of $4.1 million.

     Depreciation and Amortization.  Depreciation and amortization for 2001
increased to $15.0 million from $12.6 million in 2000 for an increase of $2.4
million, or 18.5%. Depreciation expense increased by $0.6 million during 2001
while amortization expense increased by $1.8 million. The increase in
depreciation expense was due to capital expenditures made in 2000 and 2001.
Amortization expense increased due to initial acquisition payments and deferred
contingent payments made during 2000 and 2001.

     Net Interest Expense.  Net interest expense in 2001 decreased to $22.7
million from $25.5 million in 2000 for a decrease of $2.8 million, or 10.7%. The
decrease in net interest expense is principally due to reductions in outstanding
debt due to principal repayments and lower interest rates on floating rate debt
obligations between years.

     Income Tax Expense.  Income tax expense in 2001 was $0.9 million compared
to $9.3 million in 2000. The decrease is due to the decreased level of earnings
before income taxes in 2001.

     Net Earnings.  Net loss for 2001 was $1.5 million as compared to net
earnings of $13.3 million in 2000 as a result of the factors discussed above.

     Dividends on Preferred Stock.  The Company accrued $11.9 million and $10.8
million in 2001 and 2000, respectively, of dividends on its outstanding Class A
mandatory redeemable preferred stock.

 YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

     Net Revenues.  Net revenues for 2000 increased $66.8 million, or 7.8% to
$919.0 million from $852.2 million in 1999. During 2000, fee-for-service revenue
was 83.4% of net revenue compared to 82.2% in 1999. Contract revenue represented
15.3% of net revenue in 2000 and 16.6% in 1999. Other revenue represented 1.3%
of 2000 revenue and 1.2% of 1999 revenue. The increase in fee-for-service
revenue as a percentage of total revenue was driven by rate increases within
fee-for-service contracts, new fee-for-service contracts, and the conversion of
several contracts from flat rate contracts to fee-for-service contracts.

     Provision for Uncollectibles.  The provision for uncollectibles was $329.3
million in 2000 as compared to $309.7 million 1999, an increase of $19.6 million
or 6.3%. As a percentage of net revenue, the provision for uncollectibles was
35.8% in 2000 compared to 36.3% in 1999. The increase in the provision for
uncollectibles is a result of increases in fee-for-service revenue during 2000.
The provision for uncollectibles is primarily related to revenue generated under
fee-for-service contracts which is not expected to be fully collected.

     Net Revenue Less Provision for Uncollectibles.  Net revenue less provision
for uncollectibles for 2000 increased $47.2 million, or 8.7%, to $589.7 million
from $542.4 million in 1999. Same contract revenue less provision for
uncollectibles, which consists of contracts under management from the beginning
of the prior period through the end of the subsequent period, increased $39.6
million, or 8.5%, to $505.9 million in 2000 from $466.3 million in 1999 through
a combination of increased patient volume and increased pricing during 2000.
While acquisitions contributed $5.3 million and new contracts obtained through
internal sales contributed $34.1 million of increased revenue, those increases
were offset by $40.7 million of revenue associated with contract terminations
during the periods.

     Professional Expenses.  Professional expenses for 2000 were $468.6 million
compared to $441.5 million in 1999 for an increase of $27.1 million or 6.1%. As
a percentage of net revenue less provision for uncollectibles, professional
expenses decreased to 79.5% in 2000 from 81.4% in 1999. Physician costs, billing

                                        33
<PAGE>

and collection expenses and other professional expenses, excluding medical
malpractice expense, increased $24.7 million, or 5.9%, between years. The
increase in these professional expenses was principally due to increased patient
volume. In 2000, medical malpractice expense was $24.3 million as compared to
$21.9 million in 1999, an increase of 11.0%.

     Gross Profit.  Gross profit increased to $121.1 million in 2000 from $100.9
million in 1999, primarily due to the reasons discussed above. Gross profit as a
percentage of revenues less provision for uncollectibles increased to 20.5%
during 2000 from 18.6% during 1999 due to the factors described above.

     General and Administrative Expenses.  General and administrative expenses
for 2000 increased to $57.8 million from $51.5 million in 1999. General and
administrative expenses as a percentage of net revenues less provision for
uncollectibles increased to 9.8% in 2000 from 9.5% in 1999. The increase in
general and administrative expenses was due primarily to the development of
infrastructure during 1999 and 2000 that was required to operate as a
stand-alone company.

     Terminated Transaction Expense.  During 2000, we terminated discussions
with respect to a potential acquisition target. Costs of $2.0 million incurred
in connection with the potential acquisition were expensed in 2000. These costs
consisted primarily of professional fees paid to legal and accounting firms who
assisted us with due diligence and evaluation of the potential transaction.

     Depreciation and Amortization.  Depreciation and amortization for 2000
increased to $12.6 million from $9.9 million in 1999. Depreciation expense
increased by $1.8 million during the period while amortization expense increased
by $0.9 million. The increase in depreciation expense was due to capital
expenditures made in 1999 and 2000, principally to develop the Company's
infrastructure as a stand-alone Company. Amortization expense increased due to
initial acquisition payments and deferred contingent payments made during 1999
and 2000.

     Recapitalization Expense and Management Fee and Other Operating Expenses.
Recapitalization expense and management fee and other operating expenses for
2000 were $0.6 million compared to $16.5 million in 1999. This decrease was
primarily due to expenses of $16.0 million incurred in 1999 related to the
recapitalization.

     Net Interest Expense.  Net interest expense in 2000 increased to $25.5
million from $20.9 million in 1999. The increase in net interest expense is due
to a full year of interest expense in 2000 related to the Senior Credit Facility
and Notes issued on March 12, 1999.

     Income Tax Expense.  Income tax expense in 2000 was $9.3 million compared
to $1.3 million in 1999. The increase was due primarily to the increased level
of earnings before income taxes in 2000.

     Net Earnings.  Net earnings for 2000 was $13.3 million as compared to $0.8
million in 1999. This change was primarily due to the factors described above.

     Dividends on Preferred Stock.  The Company accrued $10.8 million and $8.1
million in 2000 and 1999, respectively, of dividends on its outstanding Class A
mandatory redeemable preferred stock.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal uses of cash are to meet working capital
requirements, debt obligations and to finance its capital expenditures and
acquisitions. Funds generated from operations since the recapitalization in
March, 1999 have been sufficient to meet the Company's cash requirements. The
Company as of December 31, 2001 had cash and cash equivalents of approximately
$70.2 million and a revolving credit facility borrowing availability of $49.7
million. The Company believes that its cash needs, other than for significant
acquisitions, will be met through the use of its existing available cash and
cash generated from borrowings under its revolving credit facility.

     Cash provided by operating activities in 2001 was $49.7 million. Cash
provided by operating activities in 2000 and 1999 was $52.1 million and $38.0
million, respectively.

                                        34
<PAGE>

     The Company has made scheduled principal repayments of $8.8 million in
2001, $12.8 million in 2000 and $10.9 million in 1999 on its outstanding debt.

     The Company's Term Loan Facility includes a provision for the prepayment of
a portion of the outstanding term loan amounts at any year end if the Company
generates "excess cash flow," as defined in the Term Loan Facility agreement.
The excess cash flow amount, which is payable on April 30 of the succeeding
year, was $3.1 million for fiscal 2000 and was paid on April 30, 2001. The
Company has estimated that it will be required to make an excess cash flow
payment of approximately $6.0 million for fiscal 2001 by April 30, 2002. The
estimated excess cash flow payment has been included within current maturities
of long-term debt in the accompanying balance sheet at December 31, 2001.

     The Company spent $6.0 million in 2001, $7.4 million in 2000 and $10.6
million in 1999 on capital expenditures. The Company's capital expenditures in
2002 are expected to approximate $10.5 million. The expected capital
expenditures are primarily for information technology related maintenance
capital and development projects.

     The Company historically has acquired other physician staffing businesses
and interests. Acquisitions since June 1997 have been acquired for cash. The
acquisitions in many cases include contingent purchase price payment amounts
that are payable in years subsequent to the years of acquisition. Cash payments
made in association with acquisitions, including contingent payments, were $16.2
million in 2001, $5.1 million in 2000 and $4.0 million in 1999. Future
contingent payment obligations are approximately $5.3 million as of December 31,
2001.

     During 2001, the Company's cash needs were met from internally generated
operating sources and there were no borrowings by the Company under its
revolving credit facility. The Company expects to meet its cash needs for debt
repayment purposes and for its planned capital expenditures in 2002 from its
existing cash balances and with cash flows derived from future operating
results.

     The Company in March 2001 renewed its professional liability insurance,
which provides coverage for potential liabilities on a "claims-made" basis. The
coverage is in effect for a two-year period through March 12, 2003. The
Company's options for continued coverage beyond March 12, 2003 for claims
incurred but not reported before that date include the option of exercising a
"tail" policy, which would cover such potential claims. The cost of such tail
policy is approximately $30.0 million and, if exercised, would be payable in
March 2003. At this time, we have not yet determined if we will exercise our
option to purchase this "tail" policy.

     The following table reflects a summary of obligations and commitments
outstanding with payment dates as of December 31, 2001 (in thousands):

<Table>
<Caption>
                                                      PAYMENTS DUE BY PERIOD
                                ------------------------------------------------------------------
                                LESS THAN 1
                                   YEAR       1 - 3 YEARS   4 - 5 YEARS   AFTER 5 YEARS    TOTAL
                                -----------   -----------   -----------   -------------   --------
<S>                             <C>           <C>           <C>           <C>             <C>
Contractual cash obligations:
Long-term debt................    $24,211       $77,388       $15,701       $100,000      $217,300
Operating leases..............      5,152         7,207         6,062          6,115        24,536
                                  -------       -------       -------       --------      --------
                                   29,363        84,595        21,763        106,115       241,836
</Table>

                                        35
<PAGE>

<Table>
<Caption>
                                            AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                ------------------------------------------------------------------
                                LESS THAN 1
                                   YEAR       1 - 3 YEARS   4 - 5 YEARS   AFTER 5 YEARS    TOTAL
                                -----------   -----------   -----------   -------------   --------
<S>                             <C>           <C>           <C>           <C>             <C>
Other commitments:
Standby letter of credit......    $    --       $   315       $    --       $     --      $    315
Contingent acquisition
  payments....................      3,331         2,008            --             --         5,339
                                  -------       -------       -------       --------      --------
                                    3,331         2,323            --             --         5,654
                                  -------       -------       -------       --------      --------
          Total obligations
            and commitments...    $32,694       $86,918       $21,763       $106,115      $247,490
                                  =======       =======       =======       ========      ========
</Table>

  INFLATION

     We do not believe that inflation has had a material impact on our financial
position or results of operations during the past three years.

  MEDICARE PROGRAM PHYSICIAN REIMBURSEMENT RATES

     A portion of the Company's revenues are derived from services provided to
patients covered under the Medicare Program and commercial insurance plans whose
reimbursement rates are tied to Medicare rates. Physician reimbursement rates
for services provided to such Medicare Program beneficiaries are established
annually by the Centers for Medicare and Medicaid Services. The Medicare Program
has announced its physician reimbursement rates for 2002 and certain of those
physician reimbursement rates have decreased from their corresponding levels in
2001. The Company has estimated that such decreased rates announced for 2002
will result in lower revenues in 2002 of approximately $9.5 million based on
2001 patient volumes from Medicare and commercial insurance plans with fee
schedules based upon Medicare rates.

  SEASONALITY

     Historically, our revenues and operating results have reflected minimal
seasonal variations due to our geographic diversification.

  RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value are
required to be recognized immediately in net earnings to the extent the
derivatives are not effective as hedges. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000 and is effective for interim periods in the
initial year of adoption. The adoption of SFAS No. 133 did not have a
significant effect on our results of operations, financial position, or cash
flows.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their estimated useful lives.

     The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The Company has,
however, applied the nonamortization provisions of the Statement for
acquisitions consummated after June 30, 2001. Application of the nonamortization
provisions of the Statement is expected to result in an increase in net earnings
of approximately $1.2 million per year. During the first quarter of 2002, the
Company is anticipating that it will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002. The Company has not yet determined what the effect of these
tests will be on the earnings and financial position of the Company. Any

                                        36
<PAGE>

impairment recognized at transition will be recorded as a change in accounting
principle. The Company anticipates that its impairment assessment for goodwill
will include a determination of the related reporting unit's fair value using a
valuation technique based on multiples of EBITDA (earnings before interest,
taxes, depreciation and amortization) as compared to the reporting unit's
underlying net carrying value. The Company further anticipates that its
impairment assessment for other intangibles, including contracts, will be based
on a determination of the fair value of such intangibles using the income
approach that includes discounting future cash flows related to the intangible
asset. The resulting fair value using the income approach will be compared to
the intangible asset's underlying net carrying value.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Impairment or Disposal of Long-Lived Assets, effective for fiscal years
after December 15, 2001. SFAS No. 144 significantly changes the criteria that
would have to be met to classify an asset as held-for-sale, and will require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred
(rather than as of the measurement date as presently required). In addition,
more dispositions will qualify for discontinued operations treatment in the
income statement. The Company will apply the new rules on asset impairment
beginning in the first quarter of 2002. The Company does not expect the
implementation of SFAS No. 144 to have any impact on its results of operation or
financial position.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk related to changes in interest rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.

     The Company's earnings are affected by changes in short-term interest rates
as a result of its borrowings under its senior credit facilities. Interest rate
swap agreements are used to manage the Company's interest rate exposure. The
Company has entered into interest rate swap agreements to effectively convert
$50.0 million of floating-rate borrowings to fixed-rate borrowings. The
agreements are contracts to exchange, on a quarterly basis, floating interest
rate payments based on the eurodollar rate, for fixed interest rate payments
over the life of the agreements. The contracts have a final expiration of March
13, 2002. These agreements expose the Company to credit losses in the event of
non-performance by the counterparties to its financial instruments. The
counterparties are creditworthy financial institutions and the Company believes
the counterparties will be able to fully satisfy their obligations under the
contracts. In 2001, the Company received a weighted average rate of 4.41% and
paid a weighted average rate of 5.63% on the swaps. For the $50.0 million
notional amount swaps at the expected maturity date of March 13, 2002 (assuming
the options to extend or cancel are not exercised), the weighted average pay
rate is 5.63% and the weighted average receive rate is 1.91%, using the rate in
effect at December 31, 2001.

     At December 31, 2001, the fair value of the Company's total debt, which has
a carrying value of approximately $217.3 million, was approximately $226.8
million. The Company had $117.3 million of variable debt outstanding at December
31, 2001, with interest rate swaps in place to offset the variability of $50.0
million of this balance. If market interest rates for such borrowings averaged
1% more during the fiscal year ended December 31, 2002 than they did during
fiscal 2001, the Company's interest expense would increase, and earnings before
income taxes would decrease by approximately $0.9 million. This analysis does
not consider the effects of the reduced level of overall economic activity that
could exist in such an environment. Further, in the event of a change of such
magnitude, management could take actions to further mitigate its exposure to the
change. However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no changes in
the Company's financial structure.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and schedules are listed in Part IV Item 14 of
this Form 10-K.

                                        37
<PAGE>

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

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

 DIRECTORS AND EXECUTIVE OFFICERS

     Our directors and executive officers are as follows:

<Table>
<Caption>
NAME                                   AGE*                           POSITION
----                                   ----                           --------
<S>                                    <C>    <C>
Lynn Massingale, M.D. ...............   49    President, Chief Executive Officer and Director
Michael L. Hatcher...................   51    Chief Operating Officer
Robert J. Abramowski.................   51    Executive Vice President, Finance and Administration
Robert C. Joyner.....................   54    Executive Vice President, General Counsel
Stephen Sherlin......................   56    Executive Vice President, Billing and Reimbursement
David P. Jones.......................   34    Chief Financial Officer
Nicholas W. Alexos...................   38    Director
Glenn A. Davenport...................   48    Director
Earl P. Holland......................   56    Director
Dana J. O'Brien......................   46    Director
Kenneth W. O'Keefe...................   35    Director
Timothy P. Sullivan..................   43    Director
</Table>

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

* As of March 1, 2002

     LYNN MASSINGALE, M.D. has been President, Chief Executive Officer and
Director of Team Health since its founding in 1994. Prior to that, Dr.
Massingale served as President and Chief Executive Officer of Southeastern
Emergency Physicians, a major provider of emergency physician services to
hospitals in the Southeast and the predecessor of Team Health, which Dr.
Massingale co-founded in 1979. Dr. Massingale served as the director of
Emergency Services for the state of Tennessee from 1989 to 1993. Dr. Massingale
is a graduate of the University of Tennessee Medical Center for Health Services.

     MICHAEL L. HATCHER joined Team Health in 1990 and currently serves as Chief
Operating Officer. Mr. Hatcher has served as Chief Financial Officer and
President of Nutritional Support Services, Ltd. in Knoxville; and as Chief
Financial Officer for Cherokee Textile Mills, Inc. in Sevierville, Tennessee and
Spindale Mills, Inc. in Spindale, N.C. Mr. Hatcher is a member of the American
Institute of Certified Public Accountants. Mr. Hatcher is responsible for the
Company's operations, including development activities. Mr. Hatcher received a
B.S. from the University of Tennessee and an M.B.A. from Vanderbilt University.

     ROBERT J. ABRAMOWSKI, CPA, joined Team Health in October 2000 as its
Executive Vice President, Finance and Administration. Prior to joining Team
Health, Mr. Abramowski was Senior Vice President of Finance and Chief Financial
Officer of ProVantage Health Services, Inc., a publicly-traded pharmacy benefits
management company, from October 1999 until its sale to Merck & Co., Inc. in
June 2000. Mr. Abramowski served as Vice President and Controller with
Extendicare Health Services, Inc. from October 1983 to December 1989, and as
Vice President of Finance and Chief Financial Officer from January 1990 to March
1998. Following his tenure with Extendicare, Mr. Abramowski served as Chief
Financial Advisor to Americorp Management Services, L.L.C. Mr. Abramowski also
spent 11 years with Arthur Andersen & Co. Mr. Abramowski is a graduate of the
University of Wisconsin-Milwaukee.

                                        38
<PAGE>

     ROBERT C. JOYNER joined Team Health in August 1999 as Executive Vice
President and General Counsel. Prior to joining Team Health, Mr. Joyner had a
private practice of law from September 1998 to July 1999, and from May 1997 to
September 1998 he served as the Senior Vice President and General Counsel for
American Medical Providers, a regional physician practice management company.
From May 1986 to May 1997, Mr. Joyner served as the Senior Vice President and
General Counsel for Paracelsus Healthcare Corporation, a privately held hospital
ownership and management company which became public in 1996. Mr. Joyner
graduated with a BSBA degree in 1969 and a JD in 1972, both from the University
of Florida.

     STEPHEN SHERLIN has served as Executive Vice President, Billing and
Reimbursement since February 2000. Mr. Sherlin joined Team Health in January
1997 as Senior Vice President, Finance and Administration, and was promoted to
Executive Vice President, Finance and Administration in July 1998. From 1993
until February 1996, when he retired for several months prior to joining Team
Health, Mr. Sherlin served as Vice President and Chief Financial Officer of the
Tennessee Division of Columbia/HCA. Mr. Sherlin has also served as Chief
Financial Officer for the Athens Community Hospital in Athens, Tennessee; Park
West Medical Center in Knoxville, Tennessee; and Doctors Hospital in Little
Rock, Arkansas. Mr. Sherlin is a graduate of Indiana University.

     DAVID P. JONES has been our Chief Financial Officer since May 1996. From
1994 to 1996, Mr. Jones was our Controller. Prior to that, Mr. Jones worked at
Pershing, Yoakley and Associates, a regional healthcare audit and consulting
firm, as a Supervisor. Before joining Pershing, Yoakley and Associates, Mr.
Jones worked at KPMG Peat Marwick as an Audit Senior. Mr. Jones is a certified
public accountant and is a member of the American Institute of Certified Public
Accountants. Mr. Jones received a B.S. in Business Administration from The
University of Tennessee in Knoxville.

     NICHOLAS W. ALEXOS became a director in connection with the
recapitalization. Prior to co-founding Madison Dearborn Partners, Inc., Mr.
Alexos was with First Chicago Venture Capital for four years. Previously, he was
with The First National Bank of Chicago. Mr. Alexos concentrates on investments
in the healthcare and food manufacturing industries and currently serves on the
Boards of Directors of Milnot Holding Company, National Mentor, Inc. and
Spectrum Healthcare Services, Inc. Mr. Alexos received a B.B.A. from Loyola
University and an M.B.A. from the University of Chicago Graduate School of
Business.

     GLENN A. DAVENPORT became a director in 2001.  Mr. Davenport serves as
President and Chief Executive Officer of Morrison Management Specialists, which
was acquired by Compass Group in April 2001. Mr. Davenport has served in this
role since Morrison Management Specialists was spun off from Morrison
Restaurants, Inc. in 1996. Prior thereto, he served in various management
capacities with Morrison Restaurants, Inc. since 1973.

     EARL P. HOLLAND became a director of the Company in 2001. Prior to his
retirement in January, 2001, Mr. Holland held several positions with Health
Management Associates (HMA), including the positions of Vice President and Chief
Operating Officer at the time of his retirement. HMA is a publicly traded health
care company traded on the NYSE. Mr. Holland also serves on the board of
directors of several other companies engaged in the business of providing health
care services as well as other business services. Mr. Holland graduated from
Southeast Missouri State University with a B.S. degree in business
administration.

     DANA J. O'BRIEN became a director in connection with the recapitalization.
Mr. O'Brien co-founded Prudential Equity Investors, Inc. in 1984. He and the
other principals of Prudential Equity Investors, Inc. co-founded Cornerstone
Equity Investors, LLC in 1996. He currently serves on the Boards of Directors of
Guardian Care, Inc., International Language Engineering Corp., Interim
Healthcare, Inc., Regent Assisted Living, Inc., Specialty Hospital of America,
Inc., Spectrum Healthcare Services and VIPS Healthcare Information Solutions.
Mr. O'Brien received a B.A. from Hobart College and an M.B.A. from the Wharton
School of the University of Pennsylvania.

     KENNETH W. O'KEEFE became a director in connection with the
recapitalization. Prior to co-founding Beecken Petty & Company, LLC, Mr. O'Keefe
was with ABN AMRO Incorporated and an affiliated entity, The Chicago Dearborn
Company, for four years. Previously, he was with The First National Bank of
Chicago.

                                        39
<PAGE>

Mr. O'Keefe currently serves on the Boards of Directors of Spectrum Healthcare
Services, Inc., Same Day Surgery, LLC, and Digineer, Inc. Mr. O'Keefe received a
B.A. from Northwestern University and an M.B.A. from the University of Chicago
Graduate School of Business.

     TIMOTHY P. SULLIVAN became a director in connection with the
recapitalization. Prior to co-founding Madison Dearborn Partners, Inc. Mr.
Sullivan was with First Chicago Venture Capital for three years after having
served in the U.S. Navy. Mr. Sullivan concentrates on investments in the
healthcare industry and currently serves on the Boards of Directors of Milnot
Holding Corporation, National Mentor, Inc. and Spectrum Healthcare Services,
Inc. Mr. Sullivan received a B.S. from the United States Naval Academy, an M.S.
from the University of Southern California and an M.B.A. from Stanford
University Graduate School of Business.

ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to us for 2001 of those
persons who served as

          (1) the chief executive officer during 2001 and

          (2) our other four most highly compensated executive officers for 2001
     (collectively, the "Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                           LONG-TERM
                                                          COMPENSATION
                                                             AWARDS
                                                          ------------
                                ANNUAL COMPENSATION        SECURITIES
                             --------------------------    UNDERLYING     SPECIAL      ALL OTHER        TOTAL
NAME AND PRINCIPAL POSITION  YEAR    SALARY     BONUS      OPTIONS(1)     BONUS(2)    COMPENSATION   COMPENSATION
---------------------------  ----   --------   --------   ------------   ----------   ------------   ------------
<S>                          <C>    <C>        <C>        <C>            <C>          <C>            <C>
Lynn Massingale, M.D. .....  2001   $412,000   $206,929          --      $       --    $81,700(3)     $  700,629
  President and Chief        2000    408,538    180,200          --              --     43,666(3)        632,404
  Executive Officer          1999    400,000    200,000          --       1,445,205     43,055(3)      2,088,260
Michael L. Hatcher.........  2001    262,998    103,464          --              --     26,076(4)        392,538
  Chief Operating Officer    2000    255,337     90,100          --              --     22,804(4)        368,241
                             1999    250,000    100,000          --         403,253     21,091(4)        774,344
Stephen Sherlin............  2001    229,803     90,406          --              --     11,206(4)        331,415
  Executive Vice President,  2000    217,308     63,070      20,000              --      9,362(4)        289,740
  Billing and Reimbursement  1999    175,000     52,500          --         282,277      9,303(4)        519,080
Robert C. Joyner*..........  2001    203,189     55,871          --              --     16,048(5)        275,108
  Executive Vice President,  2000    183,842     20,261      20,000              --     81,203(5)        285,306
  General Counsel            1999     69,231         --       5,000              --     11,816(5)         81,047
Robert J. Abramowski**.....  2001    282,989     21,000          --              --    129,042(6)        433,031
  Executive Vice President,  2000     58,154         --      47,000              --      1,329(6)         59,483
  Finance and
  Administration
</Table>

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

 *  Mr. Joyner joined us as an employee in August 1999.

**  Mr. Abramowski joined us as an employee in October 2000.

(1) Represents options granted under the Team Health Option Plan (as defined
    below). During 2000, the options issued to Mr. Joyner in 1999 under the Team
    Health Option Plan were cancelled.

(2) This bonus was paid in connection with the sale of Team Health by
    MedPartners, Inc. Of the aggregate amount of the bonus, the following
    amounts were withheld from the bonus on a pre-tax basis under a

                                        40
<PAGE>

    deferred compensation plan and transferred to a rabbi trust. The rabbi trust
    used these funds to purchase preferred units in Team Health Holdings LLC,
    Team Health's parent holding company.

<Table>
<S>                                                 <C>
Lynn Massingale, M.D. ............................  $936,495
Michael L. Hatcher................................  $323,303
Stephen Sherlin...................................  $211,079
</Table>

     In addition, the following amounts were withheld from the bonus on an
     after-tax basis and invested in the common units of Team Health Holdings,
     LLC.

<Table>
<S>                                                 <C>
Lynn Massingale, M.D. ............................  $345,315
Michael L. Hatcher................................  $ 51,717
Stephen Sherlin...................................  $ 47,170
</Table>

(3) All other compensation for Dr. Massingale includes the following:

<Table>
<Caption>
                                   2001      2000      1999
                                  -------   -------   -------
<S>                               <C>       <C>       <C>
Life insurance..................  $57,110   $17,003   $17,969
Other...........................   24,590    26,663    25,086
</Table>

     Life insurance represents premiums paid by the Company on behalf of Dr.
     Massingale. Such premiums are secured by a collateral interest in the
     policy and are repayable to the Company at the time any benefits under the
     policy are realized.

(4) All other compensation for Mr. Hatcher and Mr. Sherlin is less than 10% of
    their annual compensation each year.

(5) All other compensation for Mr. Joyner includes the following:

<Table>
<Caption>
                                     2001     2000      1999
                                    ------   -------   ------
<S>                                 <C>      <C>       <C>
401(k) matching contribution......  $5,100   $    --   $   --
Auto allowance....................   6,000     6,000    2,308
Moving expenses...................      --    70,971    8,488
Other.............................   4,948     4,232    1,020
</Table>

(6) All other compensation for Mr. Abramowski includes the following:

<Table>
<Caption>
                                       2001      2000    1999
                                     --------   ------   ----
<S>                                  <C>        <C>      <C>
Moving expenses....................  $122,123   $   --    $--
Other..............................     6,919    1,329    --
</Table>

STOCK OPTION PLANS

     In March 1999, the Company adopted the Team Health Inc. Stock Option Plan
(the "Team Health Option Plan"). See "Team Health Inc. Stock Option Plan."
Information for the Team Health Option Plan is presented below.

OPTION GRANTS IN LAST FISCAL YEAR

     No options were granted to any of the Named Executive Officers under the
Team Health Option Plan during 2001.

                                        41
<PAGE>

     Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values.  The following table sets forth the number of shares underlying
unexercised options held by each of the Named Executive Officers and the value
of such options at the end of 2001. There were no options exercised during 2001.

<Table>
<Caption>
                                                                   NUMBERS OF
                                                                   SECURITIES          VALUE OF
                                                                   UNDERLYING         UNEXERCISED
                                                                   UNEXERCISED       IN-THE-MONEY
                                                                   OPTIONS AT      OPTIONS AT FISCAL
                                                                 FISCAL YEAR END       YEAR END
                              SHARES ACQUIRED                    (#)EXERCISABLE/    ($)EXERCISABLE/
NAME                            ON EXERCISE     VALUE REALIZED    UNEXERCISABLE    UNEXERCISABLE(1)
----                          ---------------   --------------   ---------------   -----------------
<S>                           <C>               <C>              <C>               <C>
Lynn Massingale, M.D. ......         --               --                    --           $ --
Michael L. Hatcher..........         --               --                    --           $ --
Stephen Sherlin.............         --               --            667/19,333           $0/0
Robert C. Joyner............         --               --            667/19,333           $0/0
Robert J. Abramowski........         --               --          2,350/44,650           $0/0
</Table>

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

(1) Value of unexercised options at fiscal year-end represents the difference
    between the exercise price of any outstanding-in-the-money options and the
    fair market value of such options on December 31, 2001. The fair market
    value of options under the Team Health, Inc. Stock Option Plan, as
    determined by the Company's Board of Directors, was $4.50 per share.

PENSION PLANS

     Substantially all of the salaried employees, including our executive
officers, participate in our 401(k) savings plan. Employees are permitted to
defer a portion of their income under our 401(k) plan and we will match such
contribution. The matching contribution is equal to 50% of the first 6% of the
employee's contribution.

EMPLOYMENT AGREEMENTS

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

     The employment agreements for the Named Executive Officers include
five-year terms beginning March 11, 1999 for Dr. Massingale, Mr. Hatcher, and
Mr. Sherlin, and beginning August 1, 1999 for Mr. Joyner and beginning October
2, 2001 for Mr. Abramowski. The employment agreements include provision for the
payment of an annual base salary, subject to annual review and adjustment, as
well as the payment of a bonus as a percentage of such base salary based upon
the achievement of certain financial performance criteria. The annual base
salaries as of December 31, 2001 and the potential bonus that can be earned by
each of the named Executive officers is as follows:

<Table>
<Caption>
                                                                ANNUAL
                                                              BASE SALARY   BONUS %
                                                              -----------   -------
<S>                                                           <C>           <C>
Lynn Massingale, M.D. ......................................   $412,000       50%
Michael L. Hatcher..........................................    265,225       40%
Stephen Sherlin.............................................    231,750       40%
Robert C. Joyner............................................    210,400       30%
Robert J. Abramowski........................................    284,200       30%
</Table>

     The terms of the employment agreements include that, if the executive is
terminated by us without cause, or under certain conditions, such as death or
disability, by the executive, the executive will receive a multiple of his base
salary and may receive a portion of his bonus for the year of termination. The
multiple of base salary in the case of Dr. Massingale and Mr. Hatcher is two
years and in the case of Mr. Joyner, Mr. Sherlin and Mr. Abramowski is one year.

                                        42
<PAGE>

     The executive, as a result of the non-compete agreements entered into by us
with each of the Named Executive Officers, has agreed not to disclose our
confidential information, solicit our employees or contractors, or compete with
us or interfere with our business for two years after his employment with us has
been terminated. Dr. Massingale's agreement, however, allows Dr. Massingale to
practice medicine at any hospital that we do not staff.

TEAM HEALTH, INC. STOCK OPTION PLAN

     Our board of directors has adopted a stock option plan, which provides for
the grant to some of our key employees and/or directors of stock options that
are non-qualified options for federal income tax purposes. The compensation
committee of our board of directors administers the stock option plan. The
compensation committee has broad powers under the stock option plan, including
exclusive authority (except as otherwise provided in the stock option plan) to
determine:

          (1) who will receive awards;

          (2) the type, size and terms of awards;

          (3) the time when awards will be granted; and

          (4) vesting criteria, if any, of the awards.

     Options awarded under the plan are exercisable into shares of our common
stock. The total number of shares of common stock as to which options may be
granted may not exceed 526,316 shares of common stock. Options may be granted to
any of our employees, directors or consultants.

     If we undergo a reorganization, recapitalization, stock dividend or stock
split or other change in shares of our common stock, the compensation committee
may make adjustments to the plan in order to prevent dilution of outstanding
options. The compensation committee may also cause options awarded under the
plan to become immediately exercisable if we undergo specific types of changes
in the control of our company.

COMPENSATION OF DIRECTORS

     We will reimburse directors for any out-of-pocket expenses incurred by them
in connection with services provided in such capacity. We do not compensate, or
have plans to compensate, our directors for services they provide in their
capacities as directors. We may, however, elect to do so in the future.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The compensation committee of our board of directors is comprised of Dana
J. O'Brien, Timothy P. Sullivan and Earl P. Holland, none of which are officers
of Team Health. Mr. O'Brien and Mr. Sullivan are directors of Team Health and
principals of Cornerstone Equity Investors, LLC and Madison Dearborn Partners,
Inc., respectively. Cornerstone and Madison Dearborn are two of our equity
sponsors.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Team Health Holdings owns 92.7% of our outstanding common stock and voting
interests and 94.3% of our outstanding preferred stock. Physician Services, Inc.
owns the remaining 7.3% of our outstanding common stock and voting interests and
the remaining 5.7% of our outstanding preferred stock. Physician Services, Inc.
can be reached in care of Caremark Rx, Inc. at 3000 Galleria Tower, Suite 1000,
Birmingham, Alabama 35244. The following table sets forth certain information
regarding the actual beneficial ownership of Team Health Holdings' ownership
units by:

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

          (2) certain executive officers and members of the board of directors
     of Team Health Holdings.

                                        43
<PAGE>

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

<Table>
<Caption>
                                                                          PERCENTAGE OF
                                                         PERCENTAGE OF     OUTSTANDING
                                                          OUTSTANDING        COMMON       PERCENTAGE OF
BENEFICIAL OWNER                                        PREFERRED UNITS       UNITS       VOTING UNITS
----------------                                        ---------------   -------------   -------------
<S>                                                     <C>               <C>             <C>
Cornerstone Equity Investors IV, L.P. ................       41.8%            38.0%           38.0%
  c/o Cornerstone Equity Investors, LLC
  717 Fifth Avenue, Suite 1100
  New York, New York 10022
  Attention: Dana J. O'Brien
Madison Dearborn Capital Partners II, L.P. ...........       41.8             38.0            38.0
  c/o Madison Dearborn Partners
  Three First National Plaza, Suite 3800
  Chicago, Illinois 60602
  Attention: Timothy P. Sullivan
Healthcare Equity Partners, L.P. and
  Healthcare Equity Q.P. Partners, L.P. ..............        9.3              8.4             8.4
  c/o Beecken Petty & Company, L.L.C
  901 Warranville Road, Suite 205
  Lisle, Illinois 60532
  Attention: Kenneth W. O'Keefe
Certain members of management.........................        7.1             15.6            15.6
</Table>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RECAPITALIZATION AGREEMENT

     Under a recapitalization agreement, on March 12, 1999 the Company was
acquired by the equity sponsors and members of its management team from
MedPartners, Inc. The recapitalization agreement contains customary provisions
for such agreements, including representations and warranties with respect to
the condition and operations of the business, covenants with respect to the
conduct of the business prior to the closing date of the recapitalization and
various closing conditions, including the execution of a registration rights
agreement and stockholders agreement, the obtaining of financing, and the
continued accuracy of the representations and warranties.

     Pursuant to the recapitalization agreement, each of MedPartners and
Physician Services have indemnified, jointly and severally, subject to certain
limitations, Team Health Holdings and Team Health against losses resulting from:

          (1) any misrepresentation or breach of any warranty or covenant of
     MedPartners or Physician Services contained in the recapitalization
     agreement, a claim for which is made in most cases within the 18 months
     following the closing of the recapitalization;

          (2) claims or audits by governmental authorities arising out of the
     operations of Team Health prior to March 12, 1999; and

          (3) litigation matters specified in a schedule to the recapitalization
     agreement, including medical malpractice claims specified in a schedule to
     the recapitalization agreement to the extent not covered by third-party
     insurance.

     With respect to some matters, we are only indemnified if our losses from
all indemnification claims exceed $3.7 million and do not exceed a total of $50
million. There is no basket or limit on the total payments with respect to other
specified misrepresentations or breaches of warranties and some litigation
matters.

                                        44
<PAGE>

     In addition, each of MedPartners and Physician Services have agreed for a
period of five years after March 12, 1999 not to compete with us in any business
that provides outsourced staffing and related billing services. Each of
MedPartners and Physician Services have also agreed for a period of five years
after March 12, 1999 not to solicit employment of our employees.

     Under the recapitalization agreement, MedPartners agreed to purchase, at
its sole cost and expense, for the benefit of Team Health Holdings, insurance
policies covering all liabilities and obligations for any claim for medical
malpractice arising at any time in connection with the operation of Team Health
and its subsidiaries prior to the closing date of the recapitalization for which
Team Health or any of its subsidiaries or physicians becomes liable. Such
insurance policies are for amounts and contain terms and conditions mutually
acceptable to MedPartners and Team Health Holdings.

SECURITYHOLDERS AGREEMENTS

     In connection with the recapitalization, both Team Health and our
stockholders, Team Health Holdings and Physician Services, and Team Health
Holdings and all of its unitholders, entered into two separate securityholders
agreements. The securityholders agreements:

          (1) restrict the transfer of the equity interests of Team Health and
     Team Health Holdings, respectively; and

          (2) grant tag-along rights on certain transfers of equity interests of
     Team Health and Team Health Holdings, respectively.

     Some of the foregoing provisions of the securityholders agreements will
terminate upon the consummation of an initial public offering.

REGISTRATION RIGHTS AGREEMENT

     In connection with the recapitalization, both Team Health and our
stockholders, Team Health Holdings and Physician Services, and Team Health
Holdings and all of its unitholders, entered into two separate registration
rights agreements. Under the registration rights agreements, some of the holders
of capital stock owned by Team Health Holdings (with respect to our shares) and
Cornerstone, Madison Dearborn and Beecken Petty (with respect to units of Team
Health Holdings), respectively, have the right, subject to various conditions,
to require us or Team Health Holdings, as the case may be, to register any or
all of their common equity interests under the Securities Act of 1933 at our or
Team Health Holdings' expense. In addition, all holders of registrable
securities are entitled to request the inclusion of any common equity interests
of Team Health or Team Health Holdings covered by the registration rights
agreements in any registration statement at our or Team Health Holdings'
expense, whenever we or the Team Health Holdings propose to register any of our
common equity interests under the Securities Act of 1933. In connection with all
such registrations, we or the Team Health Holdings have agreed to indemnify all
holders of registrable securities against some liabilities, including
liabilities under the Securities Act of 1933.

MANAGEMENT SERVICES AGREEMENT

     We have also entered into a management services agreement dated March 12,
1999 with Cornerstone, Madison Dearborn and Beecken Petty under which each of
Cornerstone, Madison Dearborn and Beecken Petty have agreed to provide us with:

          (1) general management services;

          (2) assistance with the identification, negotiation and analysis of
     acquisitions and dispositions;

          (3) assistance with the negotiation and analysis of financial
     alternatives; and

          (4) other services agreed upon by us and each of Cornerstone, Madison
     Dearborn and Beecken Petty.

                                        45
<PAGE>

     In exchange for such services, Cornerstone, Madison Dearborn and Beecken
Petty collectively receive an annual advisory fee of $500,000, plus reasonable
out-of-pocket expenses (payable quarterly). The management services agreement
has an initial term of three years, subject to automatic one-year extensions
unless we or Cornerstone, Madison Dearborn or Beecken Petty provides written
notice of termination. The management services agreement will automatically
terminate upon the consummation of an initial public offering.

TEAM HEALTH HOLDINGS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

     Cornerstone, Madison Dearborn, Beecken Petty and some of the members of our
management and board of directors (collectively, the "Members") entered into an
Amended and Restated Limited Liability Company Agreement. The Limited Liability
Company Agreement governs the relative rights and duties of the Members.

     Membership Interests.  The ownership interests of the members in Team
Health Holdings consist of preferred units and common units. The common units
represent the common equity of Team Health Holdings and the preferred units
represent the preferred equity of Team Health Holdings. Holders of the preferred
units are entitled to return of capital contributions prior to any distributions
made to holders of the common units.

     Distributions.  Subject to any restrictions contained in any financing
agreements to which Team Health Holdings or any of its affiliates is a party,
the board of managers of Team Health Holdings may make distributions, whether in
cash, property or securities of Team Health Holdings at any time or from time to
time in the following order of priority:

          First, to the holders of preferred units, the aggregate unpaid amount
     accrued on such preferred units on a daily basis, at a rate of 10% per
     annum.

          Second, to the holders of preferred units, an amount determined by the
     aggregate Unreturned Capital (as defined and described in the Limited
     Liability Company Agreement).

          Third, to the holders of common units, an amount equal to the amount
     of such distribution that has not been distributed pursuant to clauses
     First through Second above.

     Team Health Holdings may distribute to each holder of units within 75 days
after the close of each fiscal year such amounts as determined by the board of
managers of Team Health Holdings to be appropriate to enable each holder of
units to pay estimated income tax liabilities.

OTHER RELATED PARTY TRANSACTIONS

     We lease office space for our corporate headquarters from Winston Road
Properties, an entity that is owned 50% by Park Med Properties. Two of our
executive officers, Dr. Massingale and Mr. Hatcher, each own 20% of Park Med
Properties. We paid $609,255 in 2001 to Winston Road Properties in connection
with the lease agreement. In addition, Park Med Properties owns a building,
which houses a medical clinic that is operated by a consolidated affiliate of
the Company. In 2001, the consolidated affiliate paid $74,594 to Park Med
Properties in connection with the lease agreement.

                                    PART IV

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

  (a)(1) CONSOLIDATED FINANCIAL STATEMENTS OF TEAM HEALTH, INC.

     Report of Ernst & Young LLP, Independent Auditors

     Consolidated Balance Sheets

     Consolidated Statements of Operations

     Consolidated Statements of Changes in Net Invested Capital and
Stockholders' Equity (Deficit)

                                        46
<PAGE>

     Consolidated Statements of Cash Flows

     Notes to the Consolidated Financial Statements

  (2) FINANCIAL STATEMENTS SCHEDULES

     Schedule II -- Valuation and Qualifying Accounts of Team Health, Inc.

     The following schedules are omitted as not applicable or not required under
the rules of Regulation S-X: I, III, IV and V.

  (b) REPORTS ON FORM 8-K

     The Company filed no reports on Form 8-K during the quarter ended December
31, 2001.

  (c) EXHIBITS

     See Exhibit Index.

                                        47
<PAGE>

                               TEAM HEALTH, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                    CONTENTS

<Table>
<S>                                                           <C>
Report of Independent Auditors..............................   49
Consolidated Balance Sheets.................................   50
Consolidated Statements of Operations.......................   51
Consolidated Statements of Changes in Net Invested Capital
  and Stockholders' Equity (Deficit)........................   52
Consolidated Statements of Cash Flows.......................   53
Notes to the Consolidated Financial Statements..............   54
</Table>

                                        48
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors
Team Health, Inc.

     We have audited the accompanying consolidated balance sheets of Team
Health, Inc. as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in net invested capital and stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial statement schedule
listed in Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Team Health,
Inc. at December 31, 2001 and 2000, and the consolidated results of operations
and cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

                                          /s/ ERNST & YOUNG LLP
                                          --------------------------------------

Nashville, Tennessee
February 8, 2002

                                        49
<PAGE>

                               TEAM HEALTH, INC.

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 2001          2000
                                                              -----------   -----------
                                                              (IN THOUSANDS, EXCEPT PER
                                                                     SHARE DATA)
<S>                                                           <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $ 70,183      $ 55,404
  Accounts receivable, less allowance for uncollectibles of
     $101,175 and $106,819 in 2001 and 2000, respectively...    119,776       149,724
  Prepaid expenses and other current assets.................      7,732         5,590
  Income tax receivable.....................................      8,721         8,619
                                                               --------      --------
Total current assets........................................    206,412       219,337
Property and equipment, net.................................     18,806        19,555
Intangibles, net............................................     43,692        37,726
Deferred income taxes.......................................     76,374        78,578
Other.......................................................     16,159        17,531
                                                               --------      --------
                                                               $361,443      $372,727
                                                               ========      ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS'
  EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable..........................................   $ 12,758      $ 14,561
  Accrued compensation and physician payable................     49,521        44,849
  Other accrued liabilities.................................     11,068        14,353
  Current maturities of long-term debt......................     24,211        12,623
  Deferred income taxes.....................................      4,815         8,846
                                                               --------      --------
Total current liabilities...................................    102,373        95,232
Long-term debt, less current maturities.....................    193,089       216,578
Other non-current liabilities...............................     34,892        28,150
Mandatory redeemable preferred stock........................    130,779       118,890
Commitments and Contingencies
Common Stock, $0.01 par value 12,000 shares authorized,
  10,000 shares issued and outstanding......................        100           100
Retained earnings (deficit).................................    (99,571)      (86,223)
Accumulated other comprehensive loss........................       (219)           --
                                                               --------      --------
                                                               $361,443      $372,727
                                                               ========      ========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        50
<PAGE>

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2001       2000       1999
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Fee for service revenue.....................................  $789,545   $766,583   $700,830
Contract revenue............................................   159,194    140,424    141,129
Other revenue...............................................    16,546     11,967     10,194
                                                              --------   --------   --------
  Net revenue...............................................   965,285    918,974    852,153
Provision for uncollectibles................................   336,218    329,291    309,713
                                                              --------   --------   --------
  Net revenue less provision for uncollectibles.............   629,067    589,683    542,440
Professional expenses.......................................   523,154    468,596    441,506
                                                              --------   --------   --------
  Gross profit..............................................   105,913    121,087    100,934
General and administrative expenses.........................    63,998     57,794     51,491
Terminated transaction expense..............................        --      2,000         --
Management fee and other expenses...........................       649        591        506
Impairment of intangibles...................................     4,137         --         --
Depreciation and amortization...............................    14,978     12,638      9,943
Recapitalization expenses...................................        --         --     16,013
Interest expense, net.......................................    22,739     25,467     20,909
                                                              --------   --------   --------
Earnings (loss) before income taxes.........................      (588)    22,597      2,072
Income tax expense..........................................       871      9,317      1,250
                                                              --------   --------   --------
  Net earnings (loss).......................................    (1,459)    13,280        822
Dividends on preferred stock................................    11,889     10,783      8,107
                                                              --------   --------   --------
  Net earnings (loss) available to common stockholders......   (13,348)     2,497     (7,285)
                                                              ========   ========   ========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        51
<PAGE>

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF CHANGES IN
            NET INVESTED CAPITAL AND STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                                                   ACCUMULATED
                                            NET       COMMON STOCK                    OTHER
                                         INVESTED    ---------------   RETAINED   COMPREHENSIVE
                                          CAPITAL    SHARES   AMOUNT   DEFICIT        LOSS          TOTAL
                                         ---------   ------   ------   --------   -------------   ---------
                                                                   (IN THOUSANDS)
<S>                                      <C>         <C>      <C>      <C>        <C>             <C>
BALANCE AT DECEMBER 31, 1998...........  $  98,729       --    $ --    $     --       $  --       $  98,729
  Changes in tax accounts, included in
     net invested capital..............      3,131       --      --          --          --           3,131
  Net transfers to parents and parents'
     subsidiaries......................      2,507       --      --          --          --           2,507
  Net earnings from January 1, 1999 to
     date of recapitalization..........      7,092       --      --          --          --           7,092
  Recapitalization.....................   (111,459)  10,000     100     (74,343)         --        (185,702)
  Dividends on preferred stock.........         --       --      --      (8,107)         --          (8,107)
  Net loss from recapitalization date
     to December 31, 1999..............         --       --      --      (6,270)         --          (6,270)
                                         ---------   ------    ----    --------       -----       ---------
BALANCE AT DECEMBER 31, 1999...........         --   10,000     100     (88,720)         --         (88,620)
  Net earnings.........................         --       --      --      13,280          --          13,280
  Dividends on preferred stock.........         --       --      --     (10,783)         --         (10,783)
                                         ---------   ------    ----    --------       -----       ---------
BALANCE AT DECEMBER 31, 2000...........         --   10,000     100     (86,223)         --         (86,123)
Comprehensive loss:
  Net loss.............................         --       --      --      (1,459)         --          (1,459)
  Other comprehensive loss, net of tax:
     Cumulative effect of change in
       accounting principle -- fair
       value of interest rate swaps,
       net of tax of $36...............         --       --      --          --          54              54
     Net change in fair value of swaps,
       net of tax of $182..............         --       --      --          --        (273)           (273)
                                         ---------   ------    ----    --------       -----       ---------
  Total comprehensive loss.............                                                              (1,678)
  Dividends on preferred stock.........         --       --      --     (11,889)         --         (11,889)
                                         ---------   ------    ----    --------       -----       ---------
BALANCE AT DECEMBER 31, 2001...........  $      --   10,000    $100    $(99,571)      $(219)      $ (99,690)
                                         =========   ======    ====    ========       =====       =========
</Table>

        See accompanying notes to the consolidated financial statements.
                                        52
<PAGE>

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2001        2000        1999
                                                            ---------   ---------   ---------
                                                                     (IN THOUSANDS)
<S>                                                         <C>         <C>         <C>
OPERATING ACTIVITIES
  Net earnings (loss).....................................  $  (1,459)  $  13,280   $     822
  Adjustments to reconcile net earnings (loss):
     Depreciation and amortization........................     14,978      12,638       9,943
     Amortization of deferred financing costs.............      1,852       1,856       1,421
     Provision for uncollectibles.........................    336,218     329,291     309,713
     Impairment of intangibles............................      4,137          --          --
     Deferred income taxes................................     (1,767)     16,671     (10,406)
     Pre-recapitalization income tax expense..............         --          --       3,131
     Loss on sale of equipment............................        240          50          68
     Recapitalization expense.............................         --          --      16,013
     Equity in joint venture income.......................        (30)       (324)        (54)
     Changes in operating assets and liabilities, net of
       acquisitions:
       Accounts receivable................................   (308,289)   (326,171)   (314,597)
       Prepaids and other assets..........................        (15)        456      (1,964)
       Income tax receivable..............................        (75)    (10,699)      1,751
       Accounts payable...................................     (2,260)        213       7,077
       Accrued compensation and physician payable.........      4,101       5,580       1,308
       Other accrued liabilities..........................     (3,421)       (494)      4,578
       Professional liability reserves....................      5,527       9,783       9,159
                                                            ---------   ---------   ---------
Net cash provided by operating activities.................     49,737      52,130      37,963
INVESTING ACTIVITIES
  Purchases of property and equipment.....................     (5,955)     (7,359)    (10,615)
  Sale of property and equipment..........................        170         108          29
  Cash paid for merger costs..............................         --          --        (316)
  Cash paid for acquisitions, net.........................    (16,162)     (5,131)     (3,952)
  Other investing activities..............................       (879)       (518)       (130)
                                                            ---------   ---------   ---------
Net cash used in investing activities.....................    (22,826)    (12,900)    (14,984)
FINANCING ACTIVITIES
  Payments on notes payable...............................    (11,901)    (12,815)    (10,868)
  Proceeds from notes payable.............................         --          --     250,000
  Payments of deferred financing costs....................       (231)       (815)    (11,496)
  Redemption of common stock in connection with
     recapitalization.....................................         --          --    (210,761)
  Payments of recapitalization expense....................         --         (16)    (16,013)
  Net transfers from parents and parents' subsidiaries....         --          --       2,507
                                                            ---------   ---------   ---------
Net cash (used in) provided by financing activities.......    (12,132)    (13,646)      3,369
                                                            ---------   ---------   ---------
Increase (decrease) in cash and cash equivalents..........     14,779      25,584      26,348
Cash and cash equivalents, beginning of year..............     55,404      29,820       3,472
                                                            ---------   ---------   ---------
Cash and cash equivalents, end of year....................  $  70,183   $  55,404   $  29,820
                                                            =========   =========   =========
Supplemental cash flow information:
Interest paid.............................................  $  24,260   $  23,417   $  16,941
                                                            =========   =========   =========
Taxes paid................................................  $   9,129   $   9,713   $   6,421
                                                            =========   =========   =========
</Table>

        See accompanying notes to the consolidated financial statements.

                                        53
<PAGE>

                               TEAM HEALTH, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2001

1.  ORGANIZATION AND BASIS OF PRESENTATION

     Team Health, Inc. (the "Company") believes it is among the largest national
providers of outsourced physician staffing and administrative services to
hospitals and clinics in the United States. The Company's regional operating
model includes comprehensive programs for emergency medicine, radiology,
anesthesiology, inpatient care, pediatrics and other hospital departments. The
Company provides a full range of physician staffing and administrative services,
including the: (i) staffing and recruiting of and credentials coordination for
clinical and non-clinical medical professionals; (ii) provision of
administrative support services, such as payroll, insurance coverage and
continuing education services; and (iii) billing and collection of fees for
services provided by the medical professionals.

     Prior to March 12, 1999, the Company was a wholly-owned subsidiary of
Caremark, Rx, Inc., formerly known as MedPartners, Inc. ("MedPartners").
Effective March 12, 1999, the Company was recapitalized in a transaction between
the Company, MedPartners and Team Health Holdings, LLC, which is owned by
certain equity sponsors and certain members of the Company's senior management.
As a result of the recapitalization, Team Health Holdings, LLC owns 92.7% of the
Company's $0.01 par value common stock and 94.3% of the Company's class A
redeemable preferred stock with MedPartners owning the remaining outstanding
securities.

     Prior to the recapitalization, all equity accounts of the Company were
combined and reported as Net Invested Capital on the consolidated financial
statements due to the Company's status as a subsidiary of MedPartners.

2.  SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and have been prepared in accordance with
generally accepted accounting principles in the United States. All intercompany
and inter-affiliate accounts and transactions have been eliminated.

     The Company consolidates its subsidiaries in accordance with the nominee
shareholder model of EITF 97-2. The Company's arrangements with associated
professional corporations ("PC") are captive in nature as a majority of the
outstanding voting equity instruments of the different PCs are owned by a
nominee shareholder appointed at the sole discretion of the Company. The Company
has a contractual right to transfer the ownership of the PC at any time to any
person it designates as the nominee shareholder. This transfer can occur without
cause and any cost incurred as a result of the transfer is minimal. There would
be no significant impact on the PC or the Company as a result of the transfer of
ownership. The Company provides staffing services to its client hospitals
through a management services agreement between a subsidiary of Team Health,
Inc. and the PCs.

  CASH AND CASH EQUIVALENTS

     Cash consists primarily of funds on deposit in commercial banks. Cash
equivalents are highly liquid investments with maturities of three months or
less when acquired.

  ACCOUNTS RECEIVABLE

     Accounts receivable are primarily amounts due from hospitals and clinics,
third-party payors, such as insurance companies, government-sponsored health
care programs, including Medicare and Medicaid, and self-insured employers and
patients. Accounts receivable are stated net of reserves for amounts estimated
by management to not be collectible. Concentration of credit risk relating to
accounts receivable is limited by the

                                        54
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

diversity and number of contracting hospitals, patients, payors, and by the
geographic dispersion of the Company's operations.

  PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives, which generally range from
3 to 10 years for furniture and equipment, from 3 to 5 years for software and
from 10 to 40 years for buildings and leasehold improvements. Property under
capital lease is amortized using the straight-line method over the life of the
respective lease and such amortization is included in depreciation expense.

  INTANGIBLE ASSETS

     Intangible assets consist of the following as of December 31 (in
thousands):

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Contracts acquired..........................................  $ 32,035   $ 28,202
Goodwill....................................................    29,397     23,950
Other.......................................................       548        773
                                                              --------   --------
                                                                61,980     52,925
Less-accumulated amortization...............................   (18,288)   (15,199)
                                                              --------   --------
                                                              $ 43,692   $ 37,726
                                                              ========   ========
</Table>

     The cost of contracts acquired is amortized using the straight-line method
over the average life of the Company's contracts, which is approximately seven
years. Goodwill is amortized using the straight-line method over a life of 15
years.

     The carrying value of goodwill and other intangibles is evaluated by the
Company when indicators are present to determine whether such assets may be
impaired with respect to their recorded values. If this review indicates that
certain intangibles will not be recoverable, as determined based on the
undiscounted cash flows derived from the assets acquired over the remaining
amortization period, the carrying value of the intangibles is reduced by the
estimated shortfall of discounted cash flows. During 2001, the Company concluded
that certain of its intangibles relating to a portion of its radiology
operations were impaired. Accordingly, goodwill and contracts related to such
operations were reduced to fair value by recording an impairment loss of $4.1
million. The impairment loss was recognized as a result of a reduction in the
estimated fair market value of such intangibles due to lower than expected cash
flows expected to be derived from services required to be provided over the
remaining life of the intangibles. The reduction in cash flows is due to a
shortage of radiologists in the affected markets resulting in higher than
expected costs in the staffing of such contracts, as well as lower revenues than
expected.

  DEFERRED FINANCING COSTS

     Deferred financing costs, which are included in other noncurrent assets and
are amortized over the term of the related debt using the interest method,
consist of the following as of December 31 (in thousands):

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Deferred financing costs....................................  $12,514   $12,284
Less accumulated amortization...............................   (5,128)   (3,275)
                                                              -------   -------
                                                              $ 7,386   $ 9,009
                                                              =======   =======
</Table>

                                        55
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  RISK MANAGEMENT

     Although the Company does not principally engage in the practice of
medicine or provide medical services, it does require the physicians with whom
it contracts to obtain professional liability insurance coverage and makes this
insurance available to these physicians. The Company typically provides claims-
made coverage of $1 million per incident and $3 million annual aggregate per
physician to affiliated physicians and other healthcare practitioners. In
addition, the Company has claims-made coverage of $1 million per incident and
$25 million annual aggregate for all corporate entities. For the two year period
ending March 12, 2003, the policy has an aggregate limit of $85 million
inclusive of indemnity and expense. Prior to this period, the policy has no
aggregate limits. These limits are deemed appropriate by management based upon
historical claims, the nature and risks of the business and standard industry
practice.

     Professional liability insurance expense consists of premium cost, an
accrual to establish reserves for future payments under the self-insured
retention component, and an accrual to establish a reserve for future claims
incurred but not reported.

     In connection with the recapitalization in 1999, MedPartners retained the
risk for all medical malpractice claims originating prior to the
recapitalization. As a result, approximately $49.3 million of professional
liability was transferred to MedPartners. A significant negative change in the
financial condition of MedPartners could prevent MedPartners from fulfilling its
indemnification obligations. As such, with respect to the indemnification rights
granted to us in connection with the recapitalization, we are subject to
MedPartners' credit risk.

  OTHER NONCURRENT LIABILITIES

     Other noncurrent liabilities consist of the following as of December 31 (in
thousands):

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Professional liability insurance reserves...................  $25,182   $19,217
Deferred compensation.......................................    9,345     8,933
Other.......................................................      365        --
                                                              -------   -------
                                                              $34,892   $28,150
                                                              =======   =======
</Table>

  NET REVENUE

     Net revenues consist of fee-for-service revenue, contract revenue and other
revenue. Net revenues are recorded in the period services are rendered.

     Fee-for-service revenue represents revenue earned under contracts in which
the Company bills and collects the professional component of charges for medical
services rendered by the Company's contracted and employed physicians. Under the
fee-for-service arrangements, the Company bills patients for services provided
and receives payment from patients or their third-party payors. Fee-for-service
revenue is reported net of contractual allowances and policy discounts. All
services provided are expected to result in cash flows and are therefore
reflected as net revenues in the financial statements.

     Contract revenue represents revenue generated under contracts in which the
Company provides physician and administrative services in return for a
contractually negotiated fee. Contract revenue also includes supplemental
revenue from hospitals where the Company may have a fee-for-service contract
arrangement.

     Other revenue consists primarily of revenue from management and billing
services provided to outside parties.

     Net revenues are reduced for management's estimates of amounts that will
not be collected. The resulting net revenue less provision for uncollectibles
reflects net cash collections for services rendered in the period plus

                                        56
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

management's estimate of the remaining collections to be realized for services
rendered in the period. Such estimates of amounts to be collected are subject to
adjustment as actual experience is realized. If subsequent collections
experience indicates that an adjustment to previously recorded collection
estimates is necessary, such change of estimate adjustment is recorded in the
current period in which such assessment is made.

     Management in estimating the amounts to be collected resulting from its
over six million annual patient visits and procedures considers such factors as
prior contract collection experience, current period changes in payor mix and
patient acuity indicators, as well as reimbursement rate trends in governmental
and private sector insurance programs. The aforementioned estimation process
includes both quantitative estimates as well as qualitative judgment dispersed
among regional management of the Company and is subject to corporate oversight
and review. The complexity of the estimation process associated with the
Company's fee-for-service volumes and diverse payor mix, along with the
difficulty of assessing such factors as changes in the economy impacting the
number of health care insured versus uninsured patients and other socio-economic
trends that can have an impact on collection rates, could result in subsequent
adjustments to previously reported revenues.

     Net revenue less provision for uncollectibles derived from the Medicare and
Medicaid programs was approximately 25%, 22% and 22% of total net revenue less
provision for uncollectibles in years 2001, 2000 and 1999, respectively.

  IMPLEMENTATION OF NEW ACCOUNTING STANDARDS

     Effective January 1, 2001, the Company implemented the provisions of
Statements of Financial Accounting Standards (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This standard requires the
Company to recognize all derivatives on the balance sheet at fair value. The
Company's interest rate swaps are cash flow hedges which hedge the variability
in expected cash flows of a portion of its floating rate liabilities. The
Company believes that its hedges are highly effective with changes in
effectiveness expected to be reported in other comprehensive earnings. Changes
in any ineffectiveness will be reported through earnings. The adoption of this
new FASB standard resulted in a cumulative effect of an accounting change, net
of tax, of approximately $0.1 million being recognized as other comprehensive
earnings. During 2001, the decrease in fair value of interest rate swaps, net of
tax, of approximately $0.3 million was recognized through other comprehensive
earnings. At December 31, 2001, the fair value of the interest rate swaps was a
liability of $0.4 million.

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their estimated useful lives.

     The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. The Company has,
however, applied the nonamortization provisions of the Statement for
acquisitions consummated after June 30, 2001. Application of the nonamortization
provisions of the Statement is expected to result in an increase in net earnings
of approximately $1.2 million per year. During the first quarter of 2002, the
Company is anticipating that it will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002. The Company has not yet determined what the effect of these
tests will be on the earnings and financial position of the Company. Any
impairment recognized at transition will be recorded as a change in accounting
principle. The Company anticipates that its impairment assessment for goodwill
will include a determination of the related reporting unit's fair value using
valuation techniques based on multiples of EBITDA (earnings before interest,
taxes, depreciation and amortization) and other measures compared to the
reporting unit's underlying net carrying value. The Company further anticipates
that its impairment assessment for other intangibles, including

                                        57
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contracts, will be based on a determination of the fair value of such
intangibles using the income approach that includes discounting future cash
flows related to the intangible asset. The resulting fair value using the income
approach will be compared to the intangible asset's underlying net carrying
value.

     In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Impairment or Disposal of Long-Lived Assets, effective for fiscal years
after December 15, 2001. SFAS No. 144 significantly changes the criteria that
would have to be met to classify an asset as held-for-sale, and will require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred
(rather than as of the measurement date as presently required). In addition,
more dispositions will qualify for discontinued operations treatment in the
income statement. The Company will apply the new rules on asset impairment
beginning in the first quarter of 2002. The Company does not expect the
implementation of SFAS No. 144 to have any impact on its results of operation or
financial position.

  USE OF ESTIMATES

     The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

  RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to the current
year presentation.

3.  ACQUISITIONS

     Effective March 1, 2001, the Company acquired all of the outstanding stock
of an emergency staffing company for $1.5 million and may have to pay up to $0.7
million in future contingent payments. In addition, the Company acquired the
assets of a diagnostic imaging center in February 2001 for $1.4 million. The
acquisitions are being accounted for under the purchase method of accounting and
results of operations are included in the accompanying financial statements
since the date of acquisition.

     Effective August 1, 2001, the Company acquired all of the outstanding
shares of Integrated Specialists Management Services, Inc. ("ISMS") for cash at
an amount equal to a minimum price plus additional consideration equal to ISMS's
net working capital as of July 31, 2001. The purchase price was subject to
adjustment for post-closing net working capital adjustments and other agreed to
items through January 31, 2002. The Company on August 1, 2001 paid an initial
$7.4 million of the estimated purchase price to the selling shareholders of
ISMS. The remaining portion of the purchase price of $1.1 million was paid on
February 1, 2002. The acquisition is being accounted for using the purchase
method of accounting and its results of operations are included in the
accompanying financial statements since its date of acquisition.

     ISMS is a recognized leader in the management of large urban anesthesia
medical groups. The management services offered by ISMS are provided to
anesthesiology practices on a fee basis. Services include strategic management,
management information systems, third-party payor contracting, financial and
accounting support, benefits administration and risk management, scheduling
support, operations management and quality improvement services. ISMS currently
provides such services to four integrated anesthesia practices with
approximately 330 providers under management. In addition to acquiring stable,
long-term management agreements and proprietary anesthesia management practice
software, the acquisition of ISMS provided the Company with management
resources, experience and infrastructure support to allow the Company to
evaluate and compete for additional anesthesia practice opportunities as they
are presented.

                                        58
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During 2001, the Company also made payments of approximately $7.8 million
with respect to contingent payments established as a result of certain previous
acquisitions. These amounts represent payments of purchase price and have been
recorded as goodwill.

     In January 2000, the Company acquired certain operating assets of a medical
coding company for $0.8 million and may have to make up to $0.8 million in
future contingent payments. In July 2000, the Company acquired certain operating
assets of a billing company for $0.3 million. In 2000, the Company acquired an
additional 50% of the outstanding shares of an ambulatory clinic joint venture
in which the Company previously owned 50% of the shares for $0.1 million.

     In August 1999, the Company acquired certain operating assets of a primary
care clinic for $1.3 million and may have to make up to $0.8 million in future
contingent payments.

     Acquisitions and deferred contingent payments are summarized as follows (in
thousands):

<Table>
<Caption>
                                                             2001      2000     1999
                                                            -------   ------   ------
<S>                                                         <C>       <C>      <C>
Fair value of net operating assets acquired (liabilities
  assumed)................................................  $(1,522)  $ (834)  $   96
Fair value of contracts acquired..........................    4,380      358       --
Goodwill..................................................   13,304    5,607    3,856
                                                            -------   ------   ------
Cash paid for acquisitions, net...........................  $16,162   $5,131   $3,952
                                                            =======   ======   ======
</Table>

     The foregoing acquisitions were accounted for using the purchase method of
accounting. The operating results of acquired businesses are included in the
accompanying consolidated financial statements from their respective dates of
acquisition.

     The pro forma effect of the acquisitions on the Company's results of
operations for the periods prior to their acquisition was not significant.

4.  PROPERTY AND EQUIPMENT

     Property and equipment consists of the following at December 31 (in
thousands):

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Buildings and leasehold improvements........................  $  2,696   $  2,868
Furniture and equipment.....................................    24,537     23,422
Software....................................................    10,545      8,188
                                                              --------   --------
                                                                37,778     34,478
Less accumulated depreciation...............................   (18,972)   (14,923)
                                                              --------   --------
                                                              $ 18,806   $ 19,555
                                                              ========   ========
</Table>

     Depreciation expense in 2001, 2000 and 1999 was approximately $8.1 million,
$7.6 million and $5.7 million, respectively.

                                        59
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  LONG-TERM DEBT

     Long-term debt consists of the following at December 31 (in thousands):

<Table>
<Caption>
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
12% Senior Subordinated Notes...............................  $100,000   $100,000
Term Loan Facility..........................................   117,300    128,800
Other debt..................................................        --        401
                                                              --------   --------
                                                               217,300    229,201
Less current portion........................................   (24,211)   (12,623)
                                                              --------   --------
                                                              $193,089   $216,578
                                                              ========   ========
</Table>

     The 12% Senior Subordinated Notes ("Notes") are due March 15, 2009. The
Notes are subordinated in right of payment to all senior debt of the Company and
are senior in right of payment to all existing and future subordinated
indebtedness of the Company. Interest on the Notes accrues at the rate of 12%
per annum, payable semi-annually in arrears on March 15 and September 15 of each
year. Beginning on March 15, 2004, the Company may redeem some or all of the
Notes at any time at various redemption prices.

     The Notes are guaranteed jointly and severally on a full and unconditional
basis by all of the Company's majority-owned operating subsidiaries ("Subsidiary
Guarantors") as required by the Indenture Agreement. The Company is a holding
company with no assets or operations apart from the ownership of its operating
subsidiaries.

     The Company's Term Loan Facility is comprised of (i) a five-year revolving
credit facility of up to $50.0 million, including a swing-line sub-facility of
$5.0 million and a letter of credit sub-facility of $5.0 million, and (ii) a
term loan facility, consisting of a $60.0 million 5-year term loan A facility
and a $90.0 million 6-year term loan B facility. The Term Loan Facility is
guaranteed by Team Health Holdings, LLC and all subsidiaries of the Company.

     Borrowings under the Term Loan Facility bear interest at variable rates
based, at the Company's option, on the prime or the eurodollar rate. The
interest rates at December 31, 2001 were 5.0% and 6.0% for the term loans A and
B, respectively. The Company pays a commitment fee on the revolving credit
facility, which was equal to 0.5% at December 31, 2001. No funds have been
borrowed under the revolving credit facility as of December 31, 2001, but the
Company has a $0.3 million standby letter of credit against the revolving credit
facility outstanding as of December 31, 2001.

     Both the Notes and the Term Loan Facility contain both affirmative and
negative covenants, including limitations on the Company's ability to incur
additional indebtedness, sell material assets, retire, redeem or otherwise
reacquire its capital stock, acquire the capital stock or assets of another
business, pay dividends, and require the Company to meet or exceed certain
coverage, leverage and indebtedness ratios.

     In addition, the Company's Term Loan Facility includes a provision for the
prepayment of a portion of the outstanding term loan amounts at any year end if
the Company generates "excess cash flow," as defined in the Term Loan Facility
agreement. The excess cash flow amount, which is payable on April 30 of the
succeeding year, was $3.1 million for fiscal 2000 and was paid on April 30,
2001. The Company has estimated that it will be required to make an excess cash
flow payment of approximately $6.0 million for fiscal 2001 by April 30, 2002.
The estimated excess cash flow payment has been included within current
maturities of long-term debt in the accompanying balance sheet at December 31,
2001.

                                        60
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Aggregate maturities of long-term debt at December 31, 2001 (in thousands),
including the estimated excess cash flow payment of $6.0 million to be made in
2002, are as follows:

<Table>
<S>                                                           <C>
2002........................................................  $ 24,211
2003........................................................    15,373
2004........................................................    62,015
2005........................................................    15,701
Thereafter..................................................   100,000
                                                              --------
                                                              $217,300
                                                              ========
</Table>

     Interest rate swap agreements are used to manage the Company's interest
rate exposure on the term loans. On September 20, 1999, the Company entered into
interest rate swap agreements to effectively convert $50.0 million of
floating-rate borrowings to fixed-rate borrowings. The agreements are contracts
to exchange, on a quarterly basis, floating interest rate payments based on the
eurodollar rate, for fixed interest rate payments over the life of the
agreements. The contracts have a final expiration date of March 13, 2002. In
2001, the Company received a weighted average rate of 4.41% and paid a weighted
average of 5.63% on the swaps. These agreements expose the Company to credit
losses in the event of non-performance by the counterparties to its financial
instruments. The counterparties are creditworthy financial institutions and the
Company anticipates that the counterparties will be able to fully satisfy their
obligations under the contracts.

6.  MANDATORY REDEEMABLE PREFERRED STOCK

     The Company has outstanding 100,000 shares of class A redeemable preferred
stock held by holders of its common stock. The preferred stock is subject to
mandatory redemption on December 31, 2009 at a redemption price equal to $1,000
per share plus all accrued and unpaid dividends. The preferred stock accrues
cumulative preferential dividends from the date of issuance in the amount of 10%
per year. As of December 31, 2001, approximately $30.8 million in dividends have
been accrued.

7.  STOCK OPTIONS

     The Company's 1999 Stock Option Plan (the "Plan") allows the granting of
stock options to employees, consultants and directors of the Company. The
Company has reserved 526,316 shares of common stock for issuance. The options
vest at the end of an eight-year period, but allow for the possible acceleration
of vesting if certain performance related criteria are met.

     Stock option activity during 1999, 2000 and 2001 was as follows (options in
thousands):

<Table>
<Caption>
                                                 NUMBER OF     PRICE      WEIGHTED AVERAGE
                                                  OPTIONS      RANGE       EXERCISE PRICE
                                                 ---------   ----------   ----------------
<S>                                              <C>         <C>          <C>
Outstanding at December 31, 1998...............      --      $       --        $  --
Granted........................................      30            1.50         1.50
                                                    ---      ----------        -----
Outstanding at December 31, 1999...............      30            1.50         1.50
Granted........................................     467       1.50-4.50         2.11
Cancelled......................................      39            1.50         1.50
                                                    ---      ----------        -----
Outstanding at December 31, 2000...............     458       1.50-4.50         2.12
Granted........................................      53            4.50         4.50
Cancelled......................................      14            1.50         1.50
                                                    ---      ----------        -----
Outstanding at December 31, 2001...............     497      $1.50-4.50        $2.39
                                                    ===      ==========        =====
</Table>

                                        61
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes information about stock options outstanding
at December 31, 2001 (options in thousands):

<Table>
<Caption>
                      WEIGHTED                    WEIGHTED AVERAGE
       OPTIONS        AVERAGE         OPTIONS        REMAINING
     OUTSTANDING   EXERCISE PRICE   EXERCISABLE   CONTRACTUAL LIFE
     -----------   --------------   -----------   ----------------
<S>  <C>           <C>              <C>           <C>
         350           $1.50            71              8.1
         147            4.50            --              9.1
         ---           -----            --              ---
         497           $2.39            71              8.4
         ===           =====            ==              ===
</Table>

     As of December 31, 2001, 70,613 options were vested and exercisable. No
options were vested and exercisable at December 31, 2000 or December 31, 1999.

     The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock Based Compensation." If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as presented by SFAS No. 123, the effect on net earnings for 2001,
2000 and 1999 would not have been significant.

     Approximately 101,000 of the 497,150 options outstanding at December 31,
2001 were granted to affiliated independent contractor physicians during 2000.
The Company recorded $9,000 of compensation expense in 2001 and 2000, based on a
fair value of $0.68 per option, 6.0% risk-free interest rate and a 10 year
expected option life relating to these options.

     The following table represents the weighted average fair value of options
granted during 2001, 2000 and 1999:

<Table>
<Caption>
                                                               WEIGHTED
                                                               AVERAGE
                                                              FAIR VALUE
                                                              ----------
<S>                                                           <C>
2001........................................................    $1.74
2000........................................................    $0.95
1999........................................................    $0.52
</Table>

     The fair value of stock options was estimated at the date of grant using
the minimal value option pricing model with the following assumptions: expected
dividend yield of 0.0% in 2001, 2000 and 1999; risk-free interest rate of 4.9%,
6.0% and 5.38% in 2001, 2000 and 1999, respectively; expected volatility of 0%
in 2001, 2000 and 1999; and an expected life of ten years in 2001, 2000 and
1999.

8.  NET REVENUE ADJUSTMENT

     The Company recorded in 2001 a charge of $24.5 million to increase its
contractual allowances for patient accounts receivable for periods prior to
2001. The charge resulted from a change in estimated collection rates based on a
detailed analysis of the Company's outstanding accounts receivable using
additional data developed during the period. The result of the additional
research indicated that this Company's estimated collection rates for prior
periods were lower than originally anticipated.

     The collection of fees for physician services rendered in a hospital
setting and the estimation of net revenues to be derived from such services is a
complex process. As a result of millions of patient visits annually with an
average per visit collection of less than $100, the multitude of potential
payors associated with a patient encounter and the length of time elapsing
before a claim becomes fully adjudicated by such payors, the process for
estimating future collections has many variables. The Company has invested in
systems and personnel to upgrade its billing function since becoming a
stand-alone entity. By so doing, it has improved its

                                        62
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collections and has generated enhanced analytical data to better assess its
collection process and performance going forward.

9.  INCOME TAXES

     The provision for income tax expense (benefit) consists of the following
(in thousands):

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                          2001      2000       1999
                                                         -------   -------   --------
<S>                                                      <C>       <C>       <C>
Current:
  Federal..............................................  $ 2,395   $(6,435)  $ 10,199
  State................................................      304      (919)     1,457
                                                         -------   -------   --------
                                                           2,699    (7,354)    11,656
Deferred:
  Federal..............................................   (1,593)   14,588     (9,105)
  State................................................     (235)    2,083     (1,301)
                                                         -------   -------   --------
                                                          (1,828)   16,671    (10,406)
                                                         -------   -------   --------
                                                         $   871   $ 9,317   $  1,250
                                                         =======   =======   ========
</Table>

     The reconciliation of income tax expense computed at the federal statutory
tax rate to income tax expense is as follows (in thousands):

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                               2001     2000    1999
                                                              -------   -----   -----
<S>                                                           <C>       <C>     <C>
Tax at statutory rate.......................................    35.0%   35.0%   35.0%
State income tax (net of federal tax benefit)...............     3.8     5.1     4.9
Other.......................................................  (186.9)    1.1    20.4
                                                              ------    ----    ----
                                                              (148.1)%  41.2%   60.3%
                                                              ======    ====    ====
</Table>

                                        63
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of the
Company's deferred tax assets and liabilities are as follows at December 31 (in
thousands):

<Table>
<Caption>
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Deferred tax assets:
  Accounts receivable.......................................  $15,547   $30,130
  Accrued compensation and other accrued liabilities........    2,280     2,407
  Amortization and depreciation.............................   68,153    71,456
  Professional liability reserves...........................    8,238     5,972
  Net operating loss........................................      702       307
  Other.....................................................      139       604
                                                              -------   -------
     Total deferred tax assets..............................   95,059   110,876
Deferred tax liabilities:
  Affiliate deferred revenue................................   20,838    39,290
  Other.....................................................    2,662     1,854
                                                              -------   -------
     Total deferred tax liabilities.........................   23,500    41,144
                                                              -------   -------
     Net deferred tax assets................................  $71,559   $69,732
                                                              =======   =======
</Table>

     The Company as of December 31, 2001, had state net operating losses of
approximately $0.7 million which begin to expire in 2014.

10.  RETIREMENT PLANS

     The Company's employees participated in various employee benefit plans
sponsored by the Company. The plans are primarily defined contribution plans.
The various entities acquired or merged into the Company have various retirement
plans that have been terminated, frozen or amended with terms consistent with
the Company's plans. The Company's contributions to the plans were approximately
$3.6 million, $3.6 million, and $3.5 million for the years ended December 31,
2001, 2000 and 1999, respectively.

     Effective October 1, 1999, the Company approved a retirement savings plan
for its employees. The plan is a defined benefit contribution plan in accordance
with the provisions of Section 401(k) of the Internal Revenue Code. The Company
makes a matching contribution equal to 50% of the first 6% of compensation
contributed by employees.

     The Company also maintains nonqualified deferred compensation plans for
certain of its employees, including a Rabbi Trust for the benefit of certain
members of the Company's senior management. Total deferred compensation payable
as of December 31, 2001 and 2000 was approximately $10.1 million and $9.5
million, respectively. The Rabbi Trust holds preferred units in Team Health
Holdings, LLC. The deferred compensation liability and related investment held
by the Rabbi Trust are carried as a long-term liability and a long-term asset at
December 31, 2001 and 2000 of $6.7 million and $6.1 million, respectively.

                                        64
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  COMMITMENTS AND CONTINGENCIES

  LEASES

     The Company leases office space for terms of primarily one to seven years
with options to renew for additional periods. Future minimum payments due on
these non-cancelable operating leases at December 31, 2001 are as follows (in
thousands):

<Table>
<S>                                                            <C>
2002........................................................   $ 5,152
2003........................................................     3,710
2004........................................................     3,497
2005........................................................     3,338
2006........................................................     2,724
Thereafter..................................................     6,115
                                                               -------
                                                               $24,536
                                                               =======
</Table>

     Operating lease costs were approximately $5.4 million, $4.9 million and
$4.5 million for the years ended December 31, 2001, 2000 and 1999, respectively.

  LITIGATION

     We are party to various pending legal actions arising in the ordinary
operation of our business such as contractual disputes, employment disputes and
general business actions as well as malpractice actions. We believe that any
payment of damages resulting from these types of lawsuits would be covered by
insurance, exclusive of deductibles, would not be in excess of related reserves,
and such liabilities, if incurred, should not have a significant negative effect
on the results of operations and financial condition of our Company. Moreover,
in connection with the recapitalization, subject to certain limitations,
MedPartners and related entities have jointly and severally agreed to indemnify
us against certain losses relating to litigation arising out of incidents
occurring prior to the recapitalization in 1999 to the extent those losses are
not covered by third party insurance. With respect to certain litigation
matters, we are only indemnified if our losses from all indemnification claims
exceed a total of $3.7 million and do not exceed a total of $50 million. With
respect to other litigation matters, we are indemnified for all losses. Finally,
also in connection with the recapitalization, MedPartners agreed to purchase, at
its sole cost and expense, for the benefit of Team Health Holdings, insurance
policies covering all liabilities and obligations for any claim for medical
malpractice arising at any time in connection with the operations of the Company
and its subsidiaries prior to the closing date of the recapitalization
transactions for which the Company or any of its subsidiaries or physicians
becomes liable.

  HEALTHCARE REGULATORY MATTERS

     Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. Compliance with such laws and regulations
can be subject to future governmental review and interpretation as well as
significant regulatory action. From time to time, governmental regulatory
agencies will conduct inquiries and audits of the Company's practices. It is the
Company's current practice and future intent to cooperate fully with such
inquiries.

     In addition to laws and regulations governing the Medicare and Medicaid
programs, there are a number of federal and state laws and regulations governing
such matters as the corporate practice of medicine and fee splitting
arrangements, anti-kickback statutes, physician self-referral laws, false or
fraudulent claims filing and patient privacy requirements. The failure to comply
with any of such laws or regulations could have an adverse impact on our
operations and financial results. It is the Company's current practice and
future intent to comply with such laws and regulations.

                                        65
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  CONTINGENT ACQUISITION PAYMENTS

     As of December 31, 2001, the Company may have to pay up to $5.3 million in
future contingent payments as additional consideration for its acquisitions in
prior years. These payments will be made and recorded as additional purchase
price should the acquired operations achieve the financial targets contained in
the respective agreements related to their acquisition.

12.  RELATED PARTY TRANSACTIONS

     The Company leases office space from several partnerships that are
partially or entirely owned by certain employees of the Company. The leases were
assumed by the Company as part of merger or purchase transactions. Total related
party lease costs were approximately $1.4 million, $1.4 million and $1.3 million
in 2001, 2000 and 1999, respectively.

     The Company has contractual arrangements with billing and collection
service companies that are owned or partially owned by certain employees of the
Company. The majority of these arrangements were assumed as part of merger or
purchase transactions. Billing fees paid for these services were $1.8 million,
$3.3 million and $3.2 million in 2001, 2000 and 1999, respectively.

13.  FAIR VALUES OF FINANCIAL INSTRUMENTS

     The following methods and assumptions were used by the Company in
estimating the fair value of the Company's financial instruments:

<Table>
<S>                                         <C>
Cash and cash equivalents:                  The carrying amount reported in the balance
                                            sheets for cash and cash equivalents
                                            approximates its fair value.
Accounts receivable:                        The carrying amount reported in the balance
                                            sheets for accounts receivable approximates its
                                            fair value.
Long-term debt:                             The fair value of the Company's Term Loan
                                            Facility is estimated using discounted cash flow
                                            analyses, based on the Company's current
                                            incremental borrowing rates for similar types of
                                            borrowing arrangements. The carrying value of
                                            the Term Loans is approximately $117.3 million,
                                            which approximates fair value. The fair value of
                                            the 12% Senior Subordinated Notes at December
                                            31, 2001 is approximately $109.5 million based
                                            on quoted market prices.
Interest rate swap:                         The fair value of the Company's interest rate
                                            swap agreements is a liability of approximately
                                            $0.4 million at December 31, 2001 based on
                                            quoted market prices for similar interest rate
                                            contracts.
</Table>

14.  SUBSEQUENT EVENTS

     Effective January 1, 2002, the Company completed the acquisition of certain
of the assets and related business operations of two businesses. The operations
acquired include those of L&S Medical Management, Inc. ("L&S") and a pediatric
services business. L&S provides billing and other management services on a
management fee basis to anesthesiologist practices, principally in the
Southeastern portion of the United States. As of January 1, 2002, L&S provided
services under 18 anesthesia related contracts. The pediatric services operation
provides evenings and weekend pediatric urgent care and non-trauma emergency
practice

                                        66
<PAGE>
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

services at three locations in Florida. The pediatric services provided are
billed by the Company on a fee-for-service basis.

     The assets and operations of L&S were acquired for $6.4 million in cash and
the Company may have to make up to $3.9 million in future contingent payments
for the existing L&S contracts as of December 31, 2001. In addition, the Company
has agreed to pay the owners of L&S, as additional purchase price consideration,
a multiple of earnings before interest, taxes and depreciation and amortization
for certain potential new contract locations identified at the date of closing.
The additional amount(s) of purchase price will only be paid if the owners of
L&S are successful in the completion of their marketing efforts as evidenced by
such locations having entered into contracts for services within specified time
frames following December 31, 2001. The additional purchase price, if any, for
such subsequent contracts is not able to be estimated at this time.

     The assets and operations of the three pediatric services locations were
acquired for $4.7 million in cash. The Company may have to make up to $3.2
million in future contingent payments for the existing business operations if
targeted future earnings levels are achieved.

                                        67
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Knoxville, Tennessee, on March 1, 2002.

                                          TEAM HEALTH, INC.

                                             /s/ H. LYNN MASSINGALE, M.D.
                                          --------------------------------------
                                                    H. Lynn Massingale
                                                 Chief Executive Officer

                                               /s/ ROBERT J. ABRAMOWSKI
                                          --------------------------------------
                                                   Robert J. Abramowski
                                           Executive Vice President Finance and
                                                      Administration

                                                    /s/ DAVID JONES
                                          --------------------------------------
                                                       David Jones
                                               Vice President and Treasurer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed below on March 1, 2002, by the following
persons on behalf of the registrant and in the capacities indicated.

                                          TEAM HEALTH, INC.

                                             /s/ H. LYNN MASSINGALE, M.D.
                                          --------------------------------------
                                                 H. Lynn Massingale, M.D.
                                          President and Chief Executive Officer
                                                       and Director

                                                /s/ NICHOLAS W. ALEXOS
                                          --------------------------------------
                                                    Nicholas W. Alexos
                                                         Director

                                        68
<PAGE>

                                                /s/ GLENN A. DAVENPORT
                                          --------------------------------------
                                                    Glenn A. Davenport
                                                         Director

                                                  /s/ EARL P. HOLLAND
                                          --------------------------------------
                                                     Earl P. Holland
                                                         Director

                                                  /s/ DANA J. O'BRIEN
                                          --------------------------------------
                                                     Dana J. O'Brien
                                                         Director

                                                /s/ KENNETH W. O'KEEFE
                                          --------------------------------------
                                                    Kenneth W. O'Keefe
                                                         Director

                                                /s/ TIMOTHY P. SULLIVAN
                                          --------------------------------------
                                                   Timothy P. Sullivan
                                                         Director

                                        69
<PAGE>

                                 EXHIBIT INDEX

<Table>
<C>     <S>
 2.1    Recapitalization Agreement dated January 25, 1999 by and
        among Team Health, Inc., MedPartners, Inc., Pacific
        Physician Services, Inc. and Team Health Holdings, L.L.C.*
 3.1    Articles of Amendment to the Articles of Incorporation of
        Alliance Corporation dated January 15, 1997.*
 3.2    By-laws of Alliance Corporation.*
 3.3    Articles of Incorporation of Emergency Management
        Specialists, Inc. dated August 12, 1983.*
 3.4    By-laws of Emergency Management Specialists, Inc.*
 3.5    Articles of Incorporation of EMSA South Broward, Inc. dated
        December 3, 1996.*
 3.6    By-laws of EMSA South Broward, Inc.*
 3.7    Articles of Incorporation of Herschel Fischer, Inc. dated
        February 18, 1997.*
 3.8    By-laws of Herschel Fischer, Inc. dated February 21, 1997.*
 3.9    Articles of Incorporation of IMBS, Inc. dated November 30,
        1995.*
 3.10   By-laws of IMBS, Inc.*
 3.11   Articles of Incorporation of InPhyNet Hospital Services,
        Inc. dated November 30, 1995.*
 3.12   By-laws of InPhyNet Hospital Services, Inc.*
 3.13   Certificate of Amendment of Certificate of Incorporation of
        InPhyNet Medical Management Institute, Inc. dated February
        28, 1996.*
 3.14   By-laws of InPhyNet Medical Management Institute, Inc.*
 3.15   Articles of Incorporation of Karl G. Mangold, Inc. dated
        February 14, 1997.*
 3.16   By-laws of Karl G. Mangold, Inc. dated February 20, 1997.*
 3.17   Amended and Restated Articles of Incorporation of Charles L.
        Springfield, Inc. dated November 21, 1997.*
 3.18   Amendment to By-laws of Charles L. Springfield, Inc. dated
        November 20, 1997.*
 3.19   Articles of Amendment to the Charter of Clinic Management
        Services, Inc. dated March 25, 1994.*
 3.20   By-laws of Clinic Management Services, Inc.*
 3.21   Articles of Incorporation of Daniel & Yeager, Inc. dated
        October 25, 1989.*
 3.22   By-laws of Daniel & Yeager, Inc. dated October 6, 1989.*
 3.23   Articles of Incorporation of Drs. Sheer, Abeam & Associates,
        Inc. dated March 31, 1969.*
 3.24   Amended and Restated By-laws of Drs. Sheer, Abeam &
        Associates, Inc. dated February 15, 1989.*
 3.25   Articles of Amendment to the Charter of Emergency Coverage
        Corporation dated February 15, 1993.*
 3.26   Amendment to By-laws of Emergency Coverage Corporation dated
        June 12, 1995.*
 3.27   Restated Certificate of Incorporation of Emergency Physician
        Associates, Inc. dated June 25, 1996.*
 3.28   By-laws of Emergency Physician Associates, Inc.*
 3.29   Articles of Incorporation of Emergency Physicians of
        Manatee, Inc. dated June 1, 1988.*
 3.30   By-laws of Emergency Physicians of Manatee, Inc.*
 3.31   Certificate to Amend the Articles of Incorporation of
        Emergency Professional Services, Inc. dated September 30,
        1997.*
 3.32   Code Regulations of Emergency Professional Services, Inc.
        amended June 22, 1987.*
 3.33   Amended and Restated Charter of Emergicare Management,
        Incorporated dated February 28, 1995.*
 3.34   By-laws of Emergicare Management Incorporated dated December
        29, 1972.*
 3.35   Articles of Incorporation of EMSA Contracting Service, Inc.
        dated November 30, 1995.*
 3.36   By-laws of EMSA Contracting Service, Inc.*
 3.37   Articles of Amendment of EMSA Louisiana, Inc. dated May 28,
        1989.*
 3.38   By-laws of EMSA Louisiana, Inc.*
</Table>
<PAGE>
<Table>
<C>     <S>
 3.39   Articles of Amendment to the Charter of Hospital Based
        Physician Services, Inc. dated March 25, 1994.*
 3.40   By-laws of Hospital Based Physician Services, Inc. dated
        July 18, 1993.*
 3.41   Articles of Incorporation of InPhyNet Anesthesia of West
        Virginia, Inc. dated February 29, 1997.*
 3.42   By-laws of InPhyNet Anesthesia of West Virginia, Inc.*
 3.43   Articles of Amendment to the Charter of Med: Assure Systems,
        Inc. dated October 28, 1992.*
 3.44   By-laws of Med: Assure Systems, Inc. dated February 25,
        1987.*
 3.45   Articles of Incorporation of MetroAmerican Radiology, Inc.
        dated April 19, 1989.*
 3.46   By-laws of MetroAmerican Radiology, Inc. dated April 23,
        1989.*
 3.47   Articles of Incorporation of Neo-Med, Inc. dated November
        15, 1993.*
 3.48   By-laws of Neo-Med, Inc.*
 3.49   Articles of Incorporation of Northwest Emergency Physicians,
        Incorporated dated June 4, 1985.*
 3.50   By-laws of Northwest Emergency Physicians, Incorporated.*
 3.51   Certificate of Amendment of Certificate of Incorporation of
        Paragon Anesthesia, Inc. dated September 20, 1994.*
 3.52   By-laws of Paragon Anesthesia, Inc.*
 3.53   Articles of Incorporation of Paragon Contracting Services,
        Inc. dated November 30, 1995.*
 3.54   By-laws of Paragon Contracting Services, Inc.*
 3.55   Certificate of Amendment of Certificate of Incorporation of
        Paragon Imaging Consultants, Inc. dated May 7, 1993.*
 3.56   By-laws of Paragon Imaging Consultants, Inc.*
 3.57   Articles of Incorporation of Quantum Plus, Inc. dated
        January 27, 1997.*
 3.58   By-laws of Quantum Plus, Inc. dated February 1, 1997.*
 3.59   Amendment and Restated Articles of Incorporation of Reich,
        Sceidelmann & Janicki Co. dated November 7, 1997.*
 3.60   Code Regulations of Reich, Seidelmann & Janicki Co.*
 3.61   Articles of Incorporation of Rosendorf, Marguiles, Borushok
        & Shoenbaum Radiology Associates of Hollywood, Inc. dated
        October 25, 1968.*
 3.62   By-laws of Rosendorf, Marguiles, Borushok & Shoenbaum
        Radiology Associates of Hollywood, Inc.*
 3.63   Articles of Amendment to the Articles of Incorporation of
        Sarasota Emergency Medical Consultants, Inc. dated August 7,
        1997.*
 3.64   By-laws of Sarasota Emergency Medical Consultants, Inc.*
 3.65   Articles of Amendment to the Charter of Southeastern
        Emergency Physicians, Inc. dated November 5, 1992.*
 3.66   By-laws of Southeastern Emergency Physicians, Inc. dated
        July 1, 1986.*
 3.67   Articles of Amendment to the Charter of Southeastern
        Emergency Physicians of Memphis, Inc. dated June 15, 1992.*
 3.68   By-laws of Southeastern Emergency Physicians Of Memphis,
        Inc.*
 3.69   Charter of Team Health Financial Services, Inc. dated
        October 9, 1997.*
 3.70   By-laws of Team Health Financial Services, Inc.*
 3.71   Articles of Incorporation of Team Radiology, Inc. dated
        October 6, 1993.*
 3.72   By-laws of Team Radiology, Inc. dated November 5, 1993.*
 3.73   Certificate of Incorporation of THBS, Inc. dated October 20,
        1997.*
 3.74   By-laws of THBS, Inc.*
 3.75   Amended and Restated Articles of Incorporation of The
        Emergency Associates for Medicine, Inc. dated August 30,
        1996.*
 3.76   By-laws of The Emergency Associates for Medicine, Inc.*
</Table>
<PAGE>
<Table>
<C>     <S>
 3.77   Articles of Incorporation of Virginia Emergency Physicians,
        Inc. dated June 25, 1992.*
 3.78   Amended and Restated By-laws of Virginia Emergency
        Physicians, Inc.*
 3.79   Articles of Incorporation of EMSA Joilet, Inc. dated
        December 30, 1988.*
 3.80   By-laws of EMSA Joilet, Inc.*
 3.81   Certificate of limited Partnership of Paragon Healthcare
        Limited Partnership, dated August 3, 1993.*
 3.82   Certificate of Limited Partnership of Team Health Southwest,
        L.P., dated May 20, 1998.*
 3.83   Certificate of Limited Partnership of Team Health Billing
        Services, L.P., dated October 21, 1997.*
 3.84   Partnership Agreement of Fischer Mangold Group Partnership,
        dated February 21, 1996.*
 3.85   Partnership Agreement of Mt. Diablo Emergency Physicians, a
        California General Partnership, dated June 1, 1997.*
 3.86   Articles of Incorporation of Team Health, Inc.*
 3.87   By-laws of Team Health, Inc.*
 3.88   Articles of Incorporation of Integrated Specialists
        Management Services, Inc. dated January 20, 1994.**
 3.89   Certificate of Amendment to Articles of Incorporation of
        Integrated Specialists Management Services, Inc. dated
        January 29, 1997.**
 3.90   Bylaws of Integrated Specialists Management Services, Inc.
        dated July 18, 1994.**
 3.91   Third Amendment to Bylaws of Integrated Specialists
        Management Services, Inc. dated February 23, 2001.**
 3.92   Fifth Amendment to Bylaws of Integrated Specialists
        Management Services, Inc. dated June 12, 2001.**
 3.93   Sixth Amendment to Bylaws of Integrated Specialists
        Management Services, Inc. dated July 30, 2001.**
 3.94   Articles of Incorporation of Physician Integration
        Consulting Services, Inc. dated August 2, 1993.**
 3.95   Bylaws of Physician Integration Consulting Services, Inc.
        dated August 11, 1993.**
 3.96   Articles of Incorporation of Sentinel Medical Services, Inc.
        dated September 2, 1994.**
 3.97   Bylaws of Sentinel Medical Services, Inc. (undated)**
 4.1    Indenture dated as of March 12, 1999 by and among Team
        Health, Inc. the Guarantors listed on the signature pages
        thereto and the United States Trust Company of New York.*
 9.1    Stockholders Agreement dated as of March 12, 1999 by and
        among Team Health, Inc., Team Health Holdings, L.L.C.,
        Pacific Physicians Services, Inc., and certain other
        stockholders of the Team Health, Inc. who are from time to
        time party hereto.*
 9.2    Securityholders Agreement dated as of March 12, 1999 by and
        among Team Health Holdings, L.L.C., each of the persons
        listed on Schedule A thereto and certain other
        securityholders of Team Health Holdings, L.L.C. who are from
        time to time party thereto.*
10.1    Registration Rights Agreement dated as of March 12, 1999 by
        and among Team Health, Inc., the guarantors listed on the
        signature pages thereto and Donaldson, Lufkin & Jenrette
        Securities Corporation, NationsBanc Montgomery Securities
        LLC and Fleet Securities, Inc.*
10.2    Purchase Agreement dated as of March 5, 1999 by and among
        Team Health, Inc. and the guarantors listed on the signature
        pages thereto and Donaldson, Lufkin & Jenrette Securities
        Corporation, NationsBanc Montgomery Securities LLC and Fleet
        Securities, Inc.*
10.3    Equity Deferred Compensation Plan of Team Health, Inc.
        effective January 25, 1999.*
10.4    Management Services Agreement dated as of March 12, 1999 by
        and among Team Health, Inc., Madison Dearborn Partners II,
        L.P., Beecken, Petty & Company, L.L.C. and Cornerstone
        Equity Investors LLC.*
10.5    Registration Agreement dated as of March 12, 1999 by and
        among Team Health, Inc., Team Health Holdings, L.L.C.,
        Pacific Physician Services, Inc. and certain other
        stockholders of Team Health, Inc. who are from the to time
        party thereto.*
</Table>
<PAGE>
<Table>
<C>     <S>
10.6    Registration Agreement dated as of March 12, 1999 by and
        among Team Health Holdings, L.L.C., each of the persons
        listed on Schedule A thereto and certain other
        securityholders of Team Health, Inc. who are from time to
        time party thereto.*
10.7    Trust Agreement dated as of January 25, 1999 by and among
        Team Health, Inc. and The Trust Company of Knoxville.*
10.8    Credit Agreement dated as of March 12, 1999 by and among
        Team Health, Inc., the banks, financial institutions and
        other institutional lenders named herein, Fleet National
        Bank, NationsBank, N.A., NationsBanc Montgomery Securities
        LLC and Donaldson, Lufkin & Jenrette Securities
        Corporation.*
10.9    Sheer Ahearn & Associates Plan Provision Nonqualified Excess
        Deferral Plan effective September 1, 1998.*
10.10   Amendment and Restatement of Emergency Professional
        Services, Inc. Deferred Compensation Plan effective January
        31, 1996.*
10.11   Lease Agreement dated August 27, 1992 between Med: Assure
        Systems and Winston Road Properties for our corporate
        headquarters located at 1900 Winston Road, Knoxville, TN.*
10.12   Lease Agreement dated August 27, 1999 between Americare
        Medical Services, Inc. and Winston Road Properties for space
        located at 1900 Winston Road, Knoxville, TN.*
10.13   1999 Stock Option Plan of Team Health, Inc.*
10.14   Form of Employment Agreement for Dr. Massingale and Messrs.
        Hatcher, Sherlin, Joyner and Jones.*
10.15   Amendment No. 1 to Credit Agreement*
10.16   Amendment No. 1 to Security Agreement*
10.17   Amendment No. 2 to Credit Agreement*
21.     Subsidiaries of Registrant.**
</Table>

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

 * Previously filed by the Company in its prior S-4 Registration Statement and
   subsequent filings with the Securities and Exchange Commission.

** Filed herewith.
<PAGE>

ITEM 14(A)

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                           BALANCE AT
                                           BEGINNING    COSTS AND                         BALANCE AT
                                           OF PERIOD    EXPENSES    OTHER   DEDUCTIONS   END OF PERIOD
                                           ----------   ---------   -----   ----------   -------------
<S>                                        <C>          <C>         <C>     <C>          <C>
2001.....................................   $106,819    $336,218     $--     $341,862      $101,175
2000.....................................    125,067     329,291      --      347,539       106,819
1999.....................................    141,668     309,713      --      326,314       125,067
</Table>