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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, 2000.

[ ]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 7,
2001. 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, 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 acquired Team Health from Pacific Physician
Services, Inc. ("Physician Services"), a wholly owned subsidiary of Caremark,
Rx, Inc., formerly known as MedPartners, Inc. ("MedPartners") in a
recapitalization transaction. The acquisition of Team Health was structured as a
recapitalization in order to qualify for recapitalization accounting. Under this
method of accounting, the historical basis of Team Health's assets and
liabilities were not affected by the acquisition. 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.

     As a result of the recapitalization, Team Health Holdings owned securities
representing approximately 93% of the voting power of our outstanding capital
stock and Physician Services owns securities representing approximately 7% of
the voting power of our outstanding capital stock. In connection with the
recapitalization, MedPartners received aggregate consideration of $336.9
million, consisting of $327.6 million in cash, $6.8 million in equity retained
by Physician Services and the assumption of $2.5 million of existing
indebtedness of MedPartners. The $327.6 million in cash paid to MedPartners
included an $8.7 million cash payment to some members of our management by Team
Health on behalf of MedPartners with respect to accrued management bonuses owed
by MedPartners to those members of our management. In addition, we assumed some
contingent payment obligations. These contingent payments may be paid over a
three-year period following the recapitalization to the sellers of various
acquired groups in the event that those acquired groups achieve designated
financial targets. As of December 31, 2000, we believe these contingent payments
will not exceed a total of $12.5 million.

     The transactions that occurred under the recapitalization agreement were
funded by:

          (1) the net proceeds from the offering of our 12% senior subordinated
     notes due 2009;

          (2) borrowings under our senior bank facilities;

          (3) a cash equity investment in Team Health Holdings by affiliates of
     each of the Equity Sponsors;

          (4) a contribution by some of our members of management; and

          (5) equity of Team Health retained by Physician Services.

     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 361 hospital contracts in 29 states. Our
regional operating model includes comprehensive programs for emergency medicine,
radiology, 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.

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     Since our inception, we have focused primarily on providing outsourced
services to emergency department and urgent care centers, which accounted for
approximately 83.7% of our net revenue less provision for uncollectibles in
2000. 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;

     - 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 Health Care Financing
Administration, national healthcare spending is expected to increase from 13.6%
of gross domestic product, or $1.1 trillion, in 1997 to 16.2% of gross domestic
product, or $2.2 trillion, by the year 2008, representing a 6.8% compound annual
growth rate. Hospital services have historically represented the single largest
component of these costs, accounting for approximately 34% of total healthcare
spending in 1997. According to industry sources, in 1997 approximately 5,000
U.S. hospitals operated hospital emergency departments and 80% of these
hospitals outsourced their physician staffing and administrative services. In
the same year, 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 100 million patient visits annually and nearly 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, especially in
recent years, has been 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;

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     - the ability to recruit and retain qualified physicians; and

     - billing and reimbursement expertise.

     Our national competitors in the provision of staffing and administrative
services to hospitals and healthcare providers include EmCare, Inc., a
subsidiary of Laidlaw, Inc., Sheridan Healthcare, Inc., PhyAmerica Physician
Group, Inc. and National Emergency Services. Radiologix, Inc. is our principal
national competitor in the provision of radiology staffing and administrative
services. There are also many local and regional companies, which provide
physician staffing and administrative services. We also compete against the
hospital internal management for its physician staffing and administrative
needs.

     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.

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 believe we are also among the largest
providers of outsourced radiology staffing and administrative services and have
a growing presence in other hospital departments such as 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 less sophisticated local and
regional service providers. Furthermore, we have a geographically diverse base
of 361 hospital contracts, with average contract tenure of approximately seven
years. In 2000, the largest single contract accounted for no more than 1.16% 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, our TeamWorks(TM) physician database
and software package and the company-wide application of best practices. As a

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result of this investment, 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
1979. Our top 20 executives have an average of over 20 years experience in the
outsourced physician staffing and medical services industry. Twenty members of
our management team contributed an aggregate of $8.5 million in connection with
the recapitalization, which together with performance-based options, represents
an indirect fully diluted ownership interest of approximately 18.5%. As a result
of its substantial equity interest, we believe our management team has
significant incentive to continue to increase our revenue and profitability.

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 2000, net revenue less provision
for uncollectibles from continuing contracts grew by approximately 8.5%. We plan
to continue to increase revenue from existing customers by

     - continuing to improve documentation of care delivered, 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 market share of larger volume hospital
clinical departments is likely to increase 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;
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     - 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 1996, we have won 152 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. 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 1996,
we have completed 19 acquisitions. We expect to continue to fund acquisitions
using our cash resources.

INDUSTRY

     According to Health Care Financing Administration, national healthcare
spending is expected to increase from 13.6% of gross domestic product, or $1.1
trillion, in 1997 to 16.2% of gross domestic product, or $2.2 trillion, by the
year 2008, representing a 6.8% compound annual growth rate. Hospital services
have historically represented the single largest component of these costs,
accounting for more than 34% of total healthcare spending. 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 experiencing an increasing trend
towards outpatient therapy rather than the traditional inpatient treatment.
Healthcare reform, such as the Health Care Financing Administration
reimbursement code reforms and the growth of managed care, places 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 increase when these patients require emergency medical
attention.

     HOSPITAL EMERGENCY DEPARTMENTS AND URGENT CARE CENTERS.  According to
industry sources, in 1999 approximately 5,000 U.S. hospitals operated emergency
departments and 80% of these hospitals had outsourced their physician staffing
and administrative services. According to the American Hospital Association,
hospital emergency departments handle nearly 100 million patient visits
annually, and nearly 40% of all hospital inpatient admissions originate in the
emergency department. According to the American Hospital Association, the
average number of patient visits per hospital emergency department increased at
a compound annual growth rate of 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. As with outsourced hospital emergency
department medical 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

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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.

     INPATIENT SERVICES.  Hospitalists, physicians whose practice is solely
hospital based, care for admitted patients who lack a private physician or whose
private physician practices solely in the outpatient setting. According to
industry sources, less than 10% of inpatient care services are outsourced by
hospitals, and there are only 3,000 hospitalists practicing today. Hospitalists,
however, have demonstrated an ability to reduce inpatient costs while
maintaining high quality care and patient satisfaction.

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 uncollectibility.
In return for providing the physician staffing and administrative services, the
hospital pays a contractually negotiated fee.

     In 2000, approximately 79% of our net revenue less provision for
uncollectibles was generated from fee-for-service contracts. 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,
with the exception of those physicians employed by us, who are paid a base
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 workers'
compensation insurance premiums. In contrast, we pay these taxes and expenses
for employed physicians. As such, employed physicians typically receive a lower
flat hourly rate.

     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, 2000, we had working relationships
with approximately 2,200 physicians, of which approximately 1,500 were
independently contracted, and over 250 other healthcare professionals.

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SERVICE LINES

     We provide a full range of outsourced physician staffing and administrative
services in emergency medicine, radiology, 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 83.7% of our net revenue less
provision for uncollectibles in 2000 came from hospital emergency department
contracts. As of December 31, 2000, we independently contracted with or employed
approximately 2,050 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 1996, 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 1996, we have
also successfully negotiated 104 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 1996, 148 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 2000, we had a net loss of three
emergency department contracts.

     RADIOLOGY.  We believe we are one of the largest providers of 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,
2000, we employed over 100 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, 2000, we independently contracted with or employed approximately 70
inpatient physicians. Since 1996, we
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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.

     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, 2000, we independently contracted with or employed
over 75 pediatrics physicians. Since 1996, 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. The primary care clinics are typically a joint venture with
a local hospital and serve as an extension of the hospitals' primary care
services. We generally contract with the hospital to provide cost-effective,
high quality primary care physician staffing and administrative services. We
generally contract with an industrial employer to provide physician staffing and
administrative services for the occupational medicine clinic.

SERVICES

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

     Our outsourced physician staffing and administrative services include:

     - Contract Management

     - Staffing

     - Recruiting

     - Credentials Coordination

     - Scheduling

     - Payroll Administration and Benefits

     - Information Systems

     - Consulting Services

     - Billing and Collection

     - Risk Management

     - 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

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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 over 30
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 raw
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. 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

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<PAGE>   11

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 five core-billing facilities and operate on a uniform billing
system -- the IDX software system. The IDX system has proven to be a powerful
billing and accounts receivable software package, with strong reporting
capabilities and a proven record of improving collections while reducing billing
expenses. 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 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 6,000,000 billed annual patient
encounters are being processed by the five billing facilities. The remaining
annual patient encounters are being processed by third-party billing companies
and will be transitioned to one of the five billing facilities in the future.

     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.

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<PAGE>   12

     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 six 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 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 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>
The Emergency Associates for
  Medicine............................        Tampa, FL                ED
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
Northwest Emergency Physicians........       Seattle, WA               ED
Radiology Associates of Hollywood.....      Hollywood, FL           Radiology
Reich, Seidelmann, and Janicki........        Solon, OH             Radiology
Sheer, Ahearn & Associates............        Tampa, FL             Radiology
Southeastern Emergency Physicians.....      Knoxville, TN              ED
Team Health Southwest.................       Houston, TX               ED
Team Radiology........................      Knoxville, TN           Radiology
Team Health West......................      Pleasanton, CA             ED
Daniel and Yeager.....................      Huntsville, AL        Locum Tenens
</TABLE>

                                        11
<PAGE>   13

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 $50,000,000 for all incidents during the term of the
policy. 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, 2000, we had approximately 2,700 employees, of which
approximately 900 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;

     - 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 29 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 2000, we
derived approximately 7% 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 2000, we derived approximately 20%
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

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<PAGE>   14

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. 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.

     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
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<PAGE>   15

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 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 proscription against physician self-referrals, certain
exceptions for ownership and compensation arrangements, and definitions of key
terms. However, the Phase I regulations are subject to a 90-day comment period
and 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. Most provisions of the Phase I regulations applicable to
our arrangements do not become effective until January 4, 2002. Regulations for
a predecessor law, Stark I, which is applicable only to clinical laboratory
services, were published in August 1995 and remain in effect while Phases I and
II of the Stark II regulations are being finalized. 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 False Claims Act imposes civil and
criminal liability on individuals and entities that submit false or fraudulent
claims for payment to the government. Violations of the False Claims Act may
result in civil monetary penalties and exclusion from the Medicare and Medicaid
programs. In addition, 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. Civil monetary penalties under the False Claims Act
and some other similar statutes may include treble damages and penalties of up
to $10,000 per false or fraudulent claim. 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 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

                                        14
<PAGE>   16

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, 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. We, along with a number of other industry
participants, are named as defendants in a "whistleblower" suit, which alleges
that we had inappropriate financial relationships with physicians and engaged in
inappropriate billing practices in violation of the False Claims Act and
provisions of the Medicare Statute. We believe that the assertions made in the
complaint are unwarranted. However, we cannot provide you any assurance as to
the outcome of this litigation. See "Business -- Legal Proceedings."

     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.

     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.

     Prior to the recapitalization transactions, we operated under MedPartners'
compliance program. Following the recapitalization, we implemented our own
compliance program as of January 1, 2000, which is structured so as to reduce
the likelihood of any noncompliant activities.

BUSINESS RISKS

     OUR SUBSTANTIAL INDEBTEDNESS COULD MAKE IT MORE DIFFICULT TO PAY OUR DEBTS,
INCLUDING THE EXCHANGE NOTES, 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, 2000 we had total indebtedness of $229.2
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;

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<PAGE>   17

     - 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 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 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 with
limits of $1,000,000 per incident and $50,000,000 for all incidents during the
term of the policy. 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
                                        16
<PAGE>   18

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 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; and (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 states 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 to substantially
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 ou r operations and arrangements with third
parties. 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

                                        17
<PAGE>   19

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 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
                                        18
<PAGE>   20

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.

     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 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, 2000, we contracted with approximately 1,500 affiliated physicians
as full time equivalent 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,

                                        19
<PAGE>   21

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.

     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

                                        20
<PAGE>   22

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

     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

                                        21
<PAGE>   23

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 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 $1,300 to
$43,000. Our aggregate monthly lease payments total approximately $430,000. 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.

     In July 1998, a lawsuit was filed against InPhyNet Medical Management, Inc.
("InPhyNet"), a subsidiary of Team Health, Inc., and several other unrelated
defendants in the United States District Court for the District of Kansas. The
case is captioned United States ex rel. George R. Schwartz v. InPhyNet
Management, Inc. currently. The plaintiff in that case, George R. Schwartz,
alleges that, based on Management Services contracts, InPhyNet and others had
inappropriate financial relationships with hospital emergency department and
urgent care center physicians and engaged in inappropriate billing practices in
violation of the False Claims Act and the Medicare Anti-kickback Law as well as
various other statutes. In his Fourth Amended Complaint, the plaintiff is
seeking, among other relief,

          (1) an order that InPhyNet cease and desist from violating civil and
     criminal provisions of the federal False Claims Act, the assignment
     provisions of the Social Security Act, the Medicare federal anti-kickback
     statute, the mail fraud statute, and the Racketeer Influence and Corrupt
     Organization Act;

                                        22
<PAGE>   24

          (2) three times the amount of damages sustained by the United States
     government, an amount which is indeterminable at this time;

          (3) a civil penalty of $5,000 to $10,000 for each civil False Claims
     Act violation, a number of violations which is indeterminable at this time;
     and

          (4) costs and attorneys' fees.

     If the plaintiff's challenge to the contractual arrangements is successful,
we may be forced to modify the current structure of our relationships with
physicians and clients. This modification could have a significant negative
impact on our operations and financial condition. In connection with the
recapitalization, subject to some limitations, MedPartners and Physician
Services have jointly and severally agreed to indemnify us against any and all
losses relating to this lawsuit. However, if we were forced to restructure our
business as presently conducted as a result of the outcome of this litigation,
our operations would be substantially disrupted. The case is currently set for
jury trial on January 22, 2002 in Wichita, Kansas.

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, 2000.

                                    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,
2000. The Company has not declared any dividends on its shares of its common
stock during fiscal years 2000 and 1999.

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, 2000 and the
balance sheet data at December 31, 2000 and 1999 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, 1997 and the balance sheet data at December 31, 1998,
1997 and 1996 are derived from audited consolidated financial statements that
are not included in this report.

     Additionally, the following items should be noted:

          (1) In February 1996 and June 1997, MedPartners combined with
     Physician Services and InPhyNet Medical Management, Inc. ("InPhyNet"),
     respectively. In addition, MedPartners merged with several physician groups
     during 1996 and 1997. These business combinations were accounted for as
     poolings of interests by MedPartners. During 1997, MedPartners combined the
     operations of the Hospital Services Division ("Hospital Services") of
     InPhyNet with Team Health. The selected financial data below reflects the
     operations of these combinations for all periods presented.

          (2) 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. The accompanying notes to our
     audited consolidated financial statements reflect our pro forma results for
     2000, 1999 and 1998 as though the acquisitions in those years had occurred
     at the beginning of the years presented.

     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.

                                        23
<PAGE>   25

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        2000        1999        1998        1997        1996
                                      --------    --------    --------    --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.........................  $918,974    $852,153    $805,403    $737,018    $664,029
Less provision for uncollectibles...   329,291     309,713     257,618     227,362     204,069
                                      --------    --------    --------    --------    --------
Net revenue less provision for
  uncollectibles....................   589,683     542,440     547,785     509,656     459,960
Professional expenses...............   468,596     441,506     441,625     409,623     362,234
                                      --------    --------    --------    --------    --------
Gross profit........................   121,087     100,934     106,160     100,033      97,726
General and administrative
  expenses..........................    57,794      51,491      47,099      54,142      59,743
Terminated transaction expense......     2,000          --          --          --          --
Management fee and other expenses...       591         506       3,812       2,428         851
Depreciation and amortization.......    12,638       9,943       9,464       6,455       5,628
Recapitalization expense............        --      16,013          --          --          --
Write down of assets................        --          --       2,992       2,117          --
Interest expense, net...............    25,467      20,909       5,301         886         535
Novation program expense
  allocation........................        --          --          --      11,000          --
Merger expense......................        --          --          --      13,563       5,944
                                      --------    --------    --------    --------    --------
Earnings before income taxes........    22,597       2,072      37,492       9,442      25,025
Income tax expense..................     9,317       1,250      15,883       5,761       8,415
                                      --------    --------    --------    --------    --------
Earnings before cumulative effect of
  change in accounting principle....    13,280         822      21,609       3,681      16,610
Cumulative effect of change in
  accounting principle..............        --          --         912          --          --
Dividends on preferred stock........    10,783       8,107          --          --          --
                                      --------    --------    --------    --------    --------
Net earnings (loss) available to
  common stockholders...............  $  2,497    $ (7,285)   $ 20,697    $  3,681    $ 16,610
                                      ========    ========    ========    ========    ========
OTHER DATA:
EBITDA(1)...........................  $ 61,293    $ 58,443    $ 59,061    $ 32,328    $ 32,039
Adjusted EBITDA(2)..................    63,293          --      57,000          --          --
NET CASH PROVIDED BY (USED FOR):
Operating Activities................  $ 52,130    $ 37,963    $ 42,817    $ 42,475    $ 11,643
Investing Activities................   (12,900)    (14,984)    (22,838)    (34,339)     (9,224)
Financing Activities................   (13,646)      3,369     (21,975)     (8,255)     (4,869)
Capital Expenditures................    (7,359)    (10,615)     (5,015)     (7,474)     (6,854)
BALANCE SHEET DATA (AT END OF
  PERIOD):
Cash and cash equivalents...........  $ 55,404    $ 29,820    $  3,472    $  5,468    $  5,550
Working capital.....................   124,105     107,550      98,780      90,487      82,921
Total assets........................   364,108     350,450     210,457     197,684     158,444
Total debt..........................   229,201     241,676       2,544       7,820       2,303
Mandatory redeemable preferred
  stock.............................   118,890     108,107          --          --          --
Total shareholders' equity
  (deficit).........................   (86,123)    (88,620)     98,729      96,393      97,596
</TABLE>

---------------
(1) EBITDA represents earnings before income taxes plus depreciation and
    amortization, net interest expense 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 generally
    accepted as providing useful information

                                        24
<PAGE>   26

    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 income 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 income 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.

(2) Adjusted EBITDA in 2000 represents EBITDA excluding terminated transaction
    expense of $2.0 million. Adjusted EBITDA for 1998 represents EBITDA less
    $2.1 million of incremental stand-alone costs that were incurred in fiscal
    year 1999 in order to replace certain services formerly provided by
    MedPartners.

ITEM 7. MANAGEMENT'S DISCUSSIONS 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 361 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 83.7% of our net revenue less provision for uncollectibles in
2000. Our regional operating model includes comprehensive programs for emergency
medicine, radiology, inpatient care, pediatrics and other hospital departments.
We provide a full range of physician staffing and administrative services.

     ACQUISITIONS.  Since 1996, we have successfully acquired and integrated the
contracts of 19 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.

     Prior to June 1997, acquisitions were financed primarily with MedPartners'
stock. Subsequent acquisitions were financed through a combination of cash and
future contingent payments. Ten of our acquisitions were accounted for using the
purchase method of accounting. As such, operating results of those ten acquired
businesses are included in our consolidated financial statements since their
respective dates of acquisition. The remaining acquisitions, however, have been
accounted for using the pooling of interests method of accounting whereby the
historical results of the acquired companies 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

                                        25
<PAGE>   27

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 361 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 79% of our net revenue less provision for uncollectibles is
generated from fee-for-service contracts under which we bill and collect the
professional fees for the services provided at a particular hospital department.
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 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.

     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. All services provided are
expected to result in cash flows and are therefore reflected as revenues in the
financial statements.

     In addition, we record a provision for uncollectibles, which represents our
estimate of losses based on the experience of each individual contract. We
update and record reserves for uncollectibles on an ongoing basis based on the
age of receivables and our experience with payors depending on the location and
service provided.

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

     Approximately 34% of our revenue less provision for uncollectibles from
fee-for-service contracts is 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 the Health Care Financing Administration and some
state laws and regulations.

     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
70% of our physicians are independently contracted physicians who are not
employed by us, and the remainder are our employees. We typically pay emergency
                                        26
<PAGE>   28

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. As such, employed physicians typically receive a lower
flat hourly rate.

     Medical malpractice liability expenses are recorded under professional
expenses. Under GAAP, 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 have entered into an agreement 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 is for the period March 12, 1999 through March 12,
2001. The policy does not cover incidents that occur during such term, but for
which no claim is made during the term. In March 2001, 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 yet determined if we will exercise our option to purchase this policy.

     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.

     MEDPARTNERS MANAGEMENT FEE.  Prior to the recapitalization, MedPartners
provided us with certain corporate services, including legal services, risk
management, administration of some employment benefits, tax advice and
preparation of tax returns, software support services and some financial and
other services. These fees were allocated to us based on MedPartners' estimate
of the approximate cost of such services. $2.9 million was recorded by us for
this allocation in the consolidated statement of operations for the year ended
December 31, 1998. The amount allocated is not necessarily indicative of the
actual costs that may have been incurred. These expenses are significantly
higher on a stand-alone basis. Management and independent consultants estimate
that the costs that would have been incurred as a stand-alone entity would have
been approximately $5.9 million in 1998.

     INCOME TAXES.  Prior to the recapitalization, we were included as a part of
some state and local returns and the consolidated federal tax return of
MedPartners. As a result, the provision for income taxes was calculated and
allocated to us from MedPartners. The amounts allocated are not necessarily
indicative of the actual costs, which may have been incurred by us on a
stand-alone basis.

     338(h)(10) ELECTION.  In conjunction with the recapitalization, we made an
election under section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. As a result, we realized in 1999 an increase in our deferred tax assets
as the recapitalization is expected to be treated as a taxable business
combination for federal and state income tax purposes, which results in a
step-up in our tax basis. This higher basis will result

                                        27
<PAGE>   29

in an anticipated cash tax benefit of approximately $5.7 million per year over
each of the next 13 years, if fully utilized.

     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 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,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Fee for service revenue.....................................  130.0%   129.2%   117.9%
Contract revenue............................................   23.8     26.0     27.8
Other revenue...............................................    2.0      1.9      1.3
Net revenue.................................................  155.8    157.1    147.0
Provision for uncollectibles................................   55.8     57.1     47.0
Net revenue less provision for uncollectibles...............  100.0    100.0    100.0
                                                              =====    =====    =====
Professional expenses.......................................   79.5     81.4     80.6
Gross profit................................................   20.5     18.6     19.4
General and administrative..................................    9.8      9.5      8.6
Terminated transaction expense..............................    0.3       --       --
Management fee and other expenses...........................    0.1      0.1      0.7
Depreciation and amortization...............................    2.2      1.8      1.8
Recapitalization expense....................................     --      3.0       --
Write down of assets........................................     --       --      0.6
Interest expense, net.......................................    4.3      3.8      1.0
Income tax expense..........................................    1.6      0.2      2.9
Net earnings................................................    2.2      0.2      3.8
Dividends on preferred stock................................    1.8      1.5       --
Net earnings (loss) available to common stockholders........    0.4     (1.3)     3.8
OTHER FINANCIAL DATA
EBITDA(1)...................................................   10.4     10.8     10.8
Adjusted EBITDA(2)..........................................   10.7       --     10.4
Net Cash provided by (used in):
Operating Activities........................................    8.8      7.0      7.8
Investing Activities........................................   (2.2)    (2.8)    (4.2)
Financing Activities........................................   (2.3)     0.6     (4.0)
</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.

(2) See footnote 2 to the "Selected Historical Financial and Other Data" for a
    discussion of how Adjusted EBITDA has been calculated.

  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

                                        28
<PAGE>   30

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 less provision for uncollectibles, the
provision for uncollectibles was 55.8% in 2000 compared to 57.1% 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
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.

     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.
                                        29
<PAGE>   31

     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.

  Year ended December 31, 1999 Compared to the Year ended December 31, 1998

     NET REVENUE.  Net revenue for 1999 increased $46.8 million, or 5.8% to
$852.2 million from $805.4 million in 1998. During 1999, fee-for-service revenue
was 82.2% of net revenue compared to 80.2% in 1998. Contract revenue represented
16.6% of net revenue in 1999 and 18.9% in 1998. Other revenue represented 1.2%
of 1999 revenue and 0.8% of 1998 revenue. The increase in fee-for-service
revenue as a percentage of total revenue was driven by the conversion of several
contracts from flat rate contracts to fee-for-service contracts and rate
increases on fee-for-service contracts. The increase in fee-for-service revenue
was offset by an affiliate operation that is no longer consolidated in 1999.

     PROVISION FOR UNCOLLECTIBLES.  The provision for uncollectibles was $309.7
million in 1999 compared to $257.6 million 1998, an increase of $52.1 million or
20.2%. As a percentage of net revenue less provision for uncollectibles, the
provision for uncollectibles was 57.1% in 1999 compared to 47.0% in 1998. The
increase in the provision for uncollectibles is the result of increases in gross
charges during 1999 not fully collected as a result of our focus on fee schedule
increases and documentation improvements and conversion of several contracts
from flat rate contracts to fee-for-service contracts.

     NET REVENUE LESS PROVISION FOR UNCOLLECTIBLES.  Net revenue less provision
for uncollectibles for 1999 decreased $5.4 million, or 1.0%, to $542.4 million
from $547.8 million in 1998. Same contract revenue less provision for
uncollectibles, which consists of contracts under management from the beginning
of the prior period throughout the end of the subsequent period, increased $26.2
million, or 6.2% to $450.6 million in 1999 from $424.4 million in 1998.
Acquisitions contributed $15.6 million and new contracts obtained through
internal sales contributed $27.6 million of additional revenue between years.
Partially offsetting the aforementioned increases was $51.8 million associated
with contract terminations during the periods and $14.0 million associated with
an affiliate operation that was no longer consolidated in 1999.

     PROFESSIONAL EXPENSES.  Professional expenses for 1999 were $441.5 million
compared to $441.6 million in 1998. Professional expenses remained essentially
level as increases resulting from normal expected cost increases in professional
and medical support costs were offset by the Company no longer recognizing
professional expenses of an affiliate operation no longer consolidated in 1999
which incurred $12.0 million of professional expense in 1998. As a percentage of
net revenue less provision for uncollectibles, professional expenses increased
to 81.4% in 1999 from 80.6% in 1998.

     GROSS PROFIT.  Gross profit decreased to $100.9 million in 1999 from $106.1
million in 1998, primarily due to the reasons discussed above. Gross profit as a
percentage of revenues less provision for uncollectibles declined to 18.6%
during 1999 from 19.4% during 1998 due to the factors described above.

     GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
for 1999 increased to $51.5 million from $47.1 million in 1998. This increase
was primarily due to the addition of approximately $2.1 million of stand-alone
costs incurred subsequent to the recapitalization in order to replace certain
services formerly provided by MedPartners. General and administrative as a
percent of revenues less provision for uncollectibles increased to 9.5% in 1999
from 8.6% in 1998.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for 1999
increased to $9.9 million from $9.5 million in 1998.

     RECAPITALIZATION EXPENSE AND MANAGEMENT FEE AND OTHER OPERATING
EXPENSES.  Recapitalization expense and management fee and other operating
expenses for 1999 were $16.5 million compared to $3.8 million in 1998. This
increase was primarily due to expenses of $16.0 million incurred in 1999 related
to the recapitalization.

     NET INTEREST EXPENSE.  Net interest expense in 1999 increased to $20.9
million from $5.3 million in 1998. The increase in net interest expense is due
to the Senior Credit Facility and Notes issued on March 12, 1999.

                                        30
<PAGE>   32

     INCOME TAX EXPENSE.  Income tax expense in 1999 was $1.3 million compared
to $15.9 million in 1998. The decrease was due primarily to the expenses
incurred in the recapitalization as well as the increase in net interest
expense.

     NET EARNINGS.  Net earnings for 1999 was $0.8 million as compared to $20.7
million in 1998. This change was primarily due to the factors described above.

     DIVIDENDS ON PREFERRED STOCK.  In 1999, the Company accrued $8.1 million of
dividends on its outstanding Class A mandatory redeemable preferred stock. No
Class A mandatory redeemable preferred stock was outstanding in 1998.

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. Prior to the recapitalization in March 1999, funds generated from
operations, together with funds available from MedPartners, were sufficient to
meet the Company's requirements. The recapitalization of the Company in March
1999 significantly changed the capital structure of the Company and its capital
sources and uses of cash. As a result of the recapitalization, the Company
incurred $250.0 million of long-term debt consisting of $100.0 million in the
form of 12% senior subordinated notes and $150.0 million of borrowings under a
new term loan facility. The term loan facility includes a five-year revolving
credit facility that allows for borrowings up to $50 million. The Company, also
in connection with its recapitalization, issued $100 million of redeemable
preferred stock that accrues cumulative preferential dividends at the rate of
10% per year.

     Cash provided by operating activities in 2000 was $52.1 million. Cash
provided by operating activities in 1999 and 1998 was $38.0 million and $42.8
million, respectively.

     Since the Company's recapitalization in 1999, the Company has made
scheduled principal repayments of $12.8 million in 2000 and $10.9 million in
1999 on amounts borrowed and debt assumed in connection with the
recapitalization.

     The Company spent $7.4 million in 2000, $10.6 million in 1999 and $5.0
million in 1998 on capital expenditures. The Company's capital expenditures in
2001 are expected to approximate $11.3 million. The expected capital
expenditures are primarily for information technology related maintenance
capital and development projects.

     The Company has historically been an acquirer of other physician staffing
businesses and interests. The acquisitions have been acquired either for stock
or cash, or a combination thereof. 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 $5.1 million in 2000, $4.0
million in 1999, and $16.7 million in 1998. The potential exists for future
contingent payment obligations of approximately $14.0 million as of December 31,
2000.

     During 2000, 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 acquired in March 1999 professional liability insurance, which
provides coverage for potential liabilities on a "claims-made" basis. The
initial coverage is in effect for a two-year period through March 12, 2001. The
Company's options for continued coverage beyond March 12, 2001 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 $20.6 million and, if exercised, would be payable in
March 2001. At this time, we have not yet determined if we will exercise our
option to purchase this policy.

     The Company as of December 31, 2000 had cash and cash equivalents available
of approximately $55.4 million and a revolving credit facility borrowing
availability of $48.8 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.

                                        31
<PAGE>   33

  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.

  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.

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. 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 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 2000, the Company received a weighted
average rate of 6.48% 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
6.44%, using the rate in effect at December 31, 2000.

     At December 31, 2000, the fair value of the Company's total debt, which has
a carrying value of approximately $229.2 million, was approximately $221.2
million. The Company had $129.2 million of variable debt outstanding at December
31, 2000, 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, 2001 than they did during
fiscal 2000, the Company's interest expense would increase, and earnings before
income taxes would decrease by approximately $0.7 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.

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

     None.
                                        32
<PAGE>   34

                                    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. ...............   48     President, Chief Executive Officer and Director
Michael L. Hatcher...................   50     Chief Operating Officer
Robert J. Abramowski.................   50     Executive Vice President, Finance and Administration
Stephen Sherlin......................   55     Executive Vice President, Billing and Reimbursement
Robert C. Joyner.....................   53     Executive Vice President, General Counsel
David P. Jones.......................   33     Chief Financial Officer
Nicholas W. Alexos...................   37     Director
Dana J. O'Brien......................   45     Director
Kenneth W. O'Keefe...................   34     Director
Timothy P. Sullivan..................   42     Director
</TABLE>

---------------
* As of March 1, 2001

     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.

     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,

                                        33
<PAGE>   35

Tennessee; Park West Medical Center in Knoxville, Tennessee; and Doctors
Hospital in Little Rock, Arkansas. Mr. Sherlin is a graduate of Indiana
University.

     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.

     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 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.

     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. 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, Path Lab Holdings, 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.

                                        34
<PAGE>   36

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 2000 of those
persons who served as

          (1) the chief executive officer during 2000 and

          (2) our other five most highly compensated executive officers for 2000
     (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.......  2000   $408,538   $180,200          --      $       --     $ 26,663(3)   $  615,401
  President and Chief        1999    400,000    200,000          --       1,445,205       43,055(3)    2,088,260
  Executive Officer          1998    400,000    150,000      60,000              --      107,237(3)      657,237
Michael L. Hatcher.........  2000    255,337     90,100          --              --       22,804(4)      368,241
  Chief Operating Officer    1999    250,000    100,000          --         403,253       21,091(4)      774,344
                             1998    239,154     80,000      32,400              --       20,865(4)      340,020
Stephen Sherlin............  2000    217,308     63,070      20,000              --        9,362(4)      289,739
  Executive Vice President,  1999    175,000     52,500          --         282,277        9,303(4)      519,080
  Billing and Reimbursement  1998    143,608     30,000       3,000              --        5,595(4)      179,203
Robert C. Joyner*..........  2000    183,842     20,261      20,000              --       81,203(5)      285,307
  Executive Vice President,  1999     69,231         --       5,000              --       11,816(5)       81,047
  General Counsel
David P. Jones.............  2000    172,590     43,248      20,000              --       16,710(4)      232,548
  Chief Financial Officer    1999    154,385     42,000      10,000         225,822       16,360(4)      438,567
                             1998    137,231     55,919      13,500              --       16,032(4)      209,182
Jeffrey Bettinger,
  M.D.**...................  2000    250,000     90,100          --              --        8,685(4)      348,785
                             1999    269,615     66,000          --         354,863       27,019(4)      717,497
                             1998    219,985     25,000       7,500              --        3,331(4)      248,316
</TABLE>

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

 ** Dr. Bettinger's employment with us ended effective February 2000. Dr.
    Bettinger had served with us in the position of Executive Vice President,
    Billing and Reimbursement.

(1) Represents options to acquire shares of MedPartners' common stock granted
    during 1998 under the MedPartners Option Plan or options granted during 1999
    and 2000 under the Team Health Option Plan (both as defined below). During
    2000, the options issued to Mr. Joyner and Mr. Jones 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 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
David P. Jones............................................  $168,863
Jeffrey Bettinger, M.D. ..................................  $284,507
</TABLE>

                                        35
<PAGE>   37

     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
David P. Jones............................................  $ 37,552
Jeffrey Bettinger, M.D. ..................................  $ 45,512
</TABLE>

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

<TABLE>
<CAPTION>
                                                 2000       1999       1998
                                                -------    -------    -------
<S>                                             <C>        <C>        <C>
Life insurance premiums.......................  $   560    $12,129    $52,428
Auto allowance................................    9,000      9,000      9,000
Deferred compensation.........................       --      5,840     37,500
Other.........................................   17,103     16,086      8,309
</TABLE>

(4) All other compensation for Mr. Hatcher, Mr. Sherlin, Mr. Jones, and Dr.
    Bettinger is less than 10% of the total of their annual compensation in each
    year.

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

<TABLE>
<CAPTION>
                                                             2000       1999
                                                            -------    ------
<S>                                                         <C>        <C>
Medical insurance.........................................  $ 2,903    $  717
Auto allowance............................................    6,000     2,308
Moving expenses...........................................   70,971     8,488
Other.....................................................    1,329       303
</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

     The chart below sets forth all options granted to the Named Executive
Officers under the Team Health Option Plan during 2000.

<TABLE>
<CAPTION>
                                       INDIVIDUAL GRANTS                                   POTENTIAL REALIZABLE
                                  ---------------------------                                VALUE AT ASSUMED
                                   NUMBER OF      PERCENT OF                                  ANNUAL RATES OF
                                   SECURITIES       TOTAL                                       STOCK PRICE
                                   UNDERLYING    OPTIONS/SARS                                APPRECIATION FOR
                                  OPTIONS/SARS    GRANTED TO    EXERCISE OF                   OPTION TERM(2)
                                    GRANTED      EMPLOYEES IN   BASE PRICE    EXPIRATION   ---------------------
NAME                                  (#)        FISCAL YEAR      ($/SH)         DATE        5%($)      10%($)
----                              ------------   ------------   -----------   ----------   ---------   ---------
<S>                               <C>            <C>            <C>           <C>          <C>         <C>
Stephen Sherlin.................     20,000          4.3%          4.50           (1)        42,971     102,923
Robert C. Joyner................     20,000          4.3%          4.50           (1)        42,971     102,923
David P. Jones..................     20,000          4.3%          1.50           (1)        14,324      34,308
</TABLE>

---------------
(1) The options do not have a fixed expiration date.

(2) Calculated assuming an expiration date eight years from the date of grant.

                                        36
<PAGE>   38

     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 2000. There were no options exercised during 2000.

<TABLE>
<CAPTION>
                                                                               NUMBERS OF
                                                                               SECURITIES           VALUE OF
                                                                               UNDERLYING         UNEXERCISED
                                                                               UNEXERCISED        IN-THE-MONEY
                                                                               OPTIONS AT          OPTIONS AT
                                                                             FISCAL YEAR END    FISCAL 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.......................        --                --              0/20,000           $     0/0
Robert C. Joyner......................        --                --              0/20,000           $     0/0
David P. Jones........................        --                --              0/20,000           $0/60,000
</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, 2000. 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, Mr.
Sherlin, and Mr. Jones, and beginning August 1, 1999 for Mr. Joyner. 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, 2000
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......................................    257,000        40%
Stephen Sherlin.........................................    225,000        40%
Robert C. Joyner........................................    185,400        30%
David P. Jones..........................................    175,000        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. Jones is one year.

                                        37
<PAGE>   39

     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

     Following the recapitalization transactions our board of directors formed a
compensation committee comprised of Dana J. O'Brien and Timothy P. Sullivan,
neither of whom 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 the equity sponsors who participated in the recapitalization.

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 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 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 Team Health
Holdings.
                                        38
<PAGE>   40

     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.

     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.

                                        39
<PAGE>   41

     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

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

          (1) general management services;

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

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

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

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

                                        40
<PAGE>   42

TEAM HEALTH HOLDINGS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

     Cornerstone, Madison Dearborn, Beecken Petty and some of the members of our
management (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 $560,000 to Winston Properties in connection with the lease
agreement. In addition, Park Med Properties owns a building, which houses a
medical clinic that is operated by Park Med Ambulatory Care, PC. In 2000, Park
Med Ambulatory Care, PC paid $80,000 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 and Comprehensive Earnings

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

       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.

                                        41
<PAGE>   43

     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, 2000.

(c) Exhibits

     See Exhibit Index.

                                        42
<PAGE>   44

                               TEAM HEALTH, INC.

                       CONSOLIDATED FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

                                    CONTENTS

<TABLE>
<S>                                                           <C>
Report of Independent Auditors..............................   44
Consolidated Balance Sheets.................................   45
Consolidated Statements of Operations and Comprehensive
  Earnings..................................................   46
Consolidated Statements of Changes in Net Invested Capital
  and Stockholders' Equity (Deficit)........................   47
Consolidated Statements of Cash Flows.......................   48
Notes to the Consolidated Financial Statements..............   49
</TABLE>

                                        43
<PAGE>   45

               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, 2000 and 1999, and the related consolidated
statements of operations and comprehensive earnings, changes in net invested
capital and stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in Item 21(b). 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, 2000 and 1999, and the consolidated results of operations
and cash flows for each of the three years in the period ended December 31,
2000, 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 5, 2001

                                        44
<PAGE>   46

                               TEAM HEALTH, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 55,404    $ 29,820
  Accounts receivable, less allowance for uncollectibles of
     $106,819 and $125,067 at December 31, 2000 and 1999,
     respectively...........................................   149,724     152,376
  Prepaid expenses and other current assets.................     5,590       5,252
  Deferred income taxes.....................................        --       3,742
                                                              --------    --------
Total current assets........................................   210,718     191,190
Property and equipment, net.................................    19,555      19,570
Intangibles, net............................................    37,726      36,574
Deferred income taxes.......................................    78,578      82,661
Other.......................................................    17,531      20,455
                                                              --------    --------
                                                              $364,108    $350,450
                                                              ========    ========
LIABILITIES, REDEEMABLE PREFERRED STOCK
  AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $ 14,561    $ 14,185
  Accrued compensation and physician payable................    44,849      39,939
  Other accrued liabilities.................................     5,734      16,740
  Current maturities of long-term debt......................    12,623      12,776
  Deferred income taxes.....................................     8,846          --
                                                              --------    --------
Total current liabilities...................................    86,613      83,640
Long-term debt, less current maturities.....................   216,578     228,900
Other non-current liabilities...............................    28,150      18,423
                                                              --------    --------
                                                               331,341     330,963
Commitments and Contingencies
Mandatory redeemable preferred stock........................   118,890     108,107
Common Stock, $0.01 par value 12,000 shares authorized,
  10,000 shares issued and outstanding......................       100         100
Retained earnings (deficit).................................   (86,223)    (88,720)
                                                              --------    --------
                                                              $364,108    $350,450
                                                              ========    ========
</TABLE>

                See accompanying notes to financial statements.
                                        45
<PAGE>   47

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE EARNINGS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               2000        1999        1998
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
Fee for service revenue....................................  $766,583    $700,830    $646,042
Contract revenue...........................................   140,424     141,129     152,545
Other revenue..............................................    11,967      10,194       6,816
                                                             --------    --------    --------
  Net revenue..............................................   918,974     852,153     805,403
Provision for uncollectibles...............................   329,291     309,713     257,618
                                                             --------    --------    --------
  Net revenue less provision for uncollectibles............   589,683     542,440     547,785
Professional expenses......................................   468,596     441,506     441,625
                                                             --------    --------    --------
  Gross profit.............................................   121,087     100,934     106,160
General and administrative expenses........................    57,794      51,491      47,099
Terminated transaction expense.............................     2,000          --          --
Management fee and other expenses..........................       591         506       3,812
Depreciation and amortization..............................    12,638       9,943       9,464
Recapitalization expenses..................................        --      16,013          --
Write down of assets.......................................        --          --       2,992
Interest expense, net......................................    25,467      20,909       5,301
                                                             --------    --------    --------
  Earnings before income taxes and cumulative effect of
     change in accounting principle........................    22,597       2,072      37,492
Income tax expense.........................................     9,317       1,250      15,883
                                                             --------    --------    --------
  Earnings before cumulative effect of change in accounting
     principle.............................................    13,280         822      21,609
Cumulative effect of change in accounting principle, net of
  taxes of $559............................................        --          --         912
                                                             --------    --------    --------
  Net earnings.............................................    13,280         822      20,697
Dividends on preferred stock...............................    10,783       8,107          --
                                                             --------    --------    --------
  Net earnings (loss) available to common stockholders.....     2,497      (7,285)     20,697
                                                             --------    --------    --------
Other comprehensive earnings:
  Unrealized gains on securities...........................        --          --         645
  Reclassification for gains included in net earnings......        --          --        (493)
  Income tax expense.......................................        --          --        (245)
                                                             --------    --------    --------
  Other comprehensive earnings (loss)......................        --          --         (93)
                                                             --------    --------    --------
Comprehensive earnings (loss)..............................  $  2,497    $ (7,285)   $ 20,604
                                                             ========    ========    ========
</TABLE>

                See accompanying notes to financial statements.
                                        46
<PAGE>   48

                               TEAM HEALTH, INC.

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

<TABLE>
<CAPTION>
                                                        NET         COMMON STOCK
                                                     INVESTED     ----------------    RETAINED
                                                      CAPITAL     SHARES    AMOUNT    DEFICIT
                                                     ---------    ------    ------    --------
                                                                  (IN THOUSANDS)
<S>                                                  <C>          <C>       <C>       <C>
BALANCE AT DECEMBER 31, 1997.......................  $  96,393        --     $ --     $     --
  Management fees..................................      2,941        --       --           --
  Changes in tax accounts, included in net invested
     capital.......................................     19,092        --       --           --
  Net transfers to parents and parents'
     subsidiaries..................................    (40,301)       --       --           --
  Net earnings.....................................     20,697        --       --           --
  Other comprehensive loss.........................        (93)       --       --           --
                                                     ---------    ------     ----     --------
BALANCE AT DECEMBER 31, 1998.......................     98,729        --       --           --
  Changes in tax accounts, included in net invested
     capital.......................................      3,131        --       --           --
  Net transfers to parents and parents'
     subsidiaries..................................      2,507        --       --           --
  Net earnings from January 1, 1999 to date of
     recapitalization..............................      7,092        --       --           --
  Recapitalization.................................   (111,459)   10,000      100      (74,343)
  Dividends on preferred stock.....................         --        --       --       (8,107)
  Net loss from recapitalization date to December
     31, 1999......................................         --        --       --       (6,270)
                                                     ---------    ------     ----     --------
BALANCE AT DECEMBER 31, 1999.......................         --    10,000      100      (88,720)
  Net earnings.....................................         --        --       --       13,280
  Dividends on preferred stock.....................         --        --       --      (10,783)
                                                     ---------    ------     ----     --------
BALANCE AT DECEMBER 31, 2000.......................  $      --    10,000     $100     $(86,223)
                                                     =========    ======     ====     ========
</TABLE>

                See accompanying notes to financial statements.
                                        47
<PAGE>   49

                               TEAM HEALTH, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                          -----------------------------------
                                                            2000         1999         1998
                                                          ---------    ---------    ---------
                                                                    (IN THOUSANDS)
<S>                                                       <C>          <C>          <C>
OPERATING ACTIVITIES
  Net earnings..........................................  $  13,280    $     822    $  20,697
  Adjustments to reconcile net earnings:
     Depreciation and amortization......................     12,638        9,943        9,464
     Amortization of deferred financing costs...........      1,856        1,421           --
     Provision for uncollectibles.......................    329,291      309,713      257,618
     Deferred income taxes..............................     16,671      (10,406)          --
     Pre-recapitalization income tax expense............         --        3,131           --
     Write down of assets...............................         --           --        2,992
     Loss (gain) on sale of equipment...................         50           68         (463)
     Management fees....................................         --           --        2,941
     Recapitalization expense...........................         --       16,013           --
     Equity in joint venture income.....................       (324)         (54)         (26)
     Cumulative effect of change in accounting
       principle........................................         --           --        1,471
     Changes in operating assets and liabilities, net of
       acquisitions:
       Accounts receivable..............................   (326,171)    (314,597)    (272,581)
       Prepaids and other assets........................        456       (1,964)       7,191
       Accounts payable.................................        213        7,077       (1,394)
       Accrued compensation and physician payable.......      5,580        1,308        5,245
       Other accrued liabilities........................    (11,193)       6,329         (555)
       Professional liability reserves..................      9,783        9,159       10,217
                                                          ---------    ---------    ---------
Net cash provided by operating activities...............     52,130       37,963       42,817
INVESTING ACTIVITIES
  Purchases of property and equipment...................     (7,359)     (10,615)      (5,015)
  Sale of property and equipment........................        108           29        1,084
  Cash paid for merger costs............................         --         (316)      (1,071)
  Cash paid for acquisitions, net.......................     (5,131)      (3,952)     (16,658)
  Additions to intangibles..............................         --           --         (605)
  Other investing activities............................       (518)        (130)        (573)
                                                          ---------    ---------    ---------
Net cash used in investing activities...................    (12,900)     (14,984)     (22,838)
FINANCING ACTIVITIES
  Payments on notes payable.............................    (12,815)     (10,868)        (766)
  Proceeds from notes payable...........................         --      250,000           --
  Payments of deferred financing costs..................       (815)     (11,496)          --
  Redemption of common stock in connection with
     recapitalization...................................         --     (210,761)          --
  Payments of recapitalization expense..................        (16)     (16,013)          --
  Net transfers (to) from parents and parents'
     subsidiaries.......................................         --        2,507      (40,301)
  Change in tax accounts, included in net invested
     capital............................................         --           --       19,092
                                                          ---------    ---------    ---------
Net cash (used in) provided by financing activities.....    (13,646)       3,369      (21,975)
                                                          ---------    ---------    ---------
Increase (decrease) in cash and cash equivalents........     25,584       26,348       (1,996)
Cash and cash equivalents, beginning of year............     29,820        3,472        5,468
                                                          ---------    ---------    ---------
Cash and cash equivalents, end of year..................  $  55,404    $  29,820    $   3,472
                                                          =========    =========    =========
Supplemental cash flow information:
Interest paid...........................................  $  23,417    $  16,941    $     400
                                                          =========    =========    =========
Taxes paid..............................................  $   9,713    $   6,421    $  11,146
                                                          =========    =========    =========
</TABLE>

                See accompanying notes to financial statements.
                                        48
<PAGE>   50

                               TEAM HEALTH, INC.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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,
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.
In the recapitalization, the following simultaneous transactions were effected:

          1. The Company issued 150,492,443 shares of new $0.01 par value common
     stock and 100,000 new shares of class A redeemable preferred stock, which
     are subject to mandatory redemption on December 31, 2009 at $1,000 per
     share;

          2. Team Health Holdings, LLC purchased from MedPartners 9,267,273
     shares of the Company's $0.01 par value common stock and 94,229.1 shares of
     the Company's class A redeemable preferred stock for $108.2 million;

          3. Using funds from the Company's Senior Subordinated Notes and Term
     Loan Facility, the Company redeemed and retired 140,492,443 shares of the
     Company's $0.01 par value common stock from MedPartners for $210.7 million;

          4. MedPartners assumed approximately $49.3 million for all medical
     malpractice liabilities originating prior to the recapitalization;

          5. The Company made an election that caused the transaction to be
     treated as a sale of assets for tax purposes, and recognized an increase in
     its deferred tax assets of approximately $51.1 million; and

          6. The Company paid $8.7 million to certain members of the Company's
     management on behalf of MedPartners for accrued management bonuses owed by
     MedPartners to those members of the Company's 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.

     Total financial, legal, accounting and other costs of the recapitalization
amounted to approximately $28.1 million. $16.0 million of these costs were
expensed at the date of the recapitalization. Financing costs of $12.1 million
associated with the Senior Subordinated Notes and Term Loan Facility were
capitalized and are being amortized over the term of the debt.

     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.

                                        49
<PAGE>   51
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries as well as its majority-owned subsidiary. All
significant 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 include an allowance for uncollectibles, which is
charged to operations based on an evaluation of potential losses. Concentration
of credit risk relating to accounts receivable is limited by the 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>
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Contracts acquired.......................................  $28,202    $26,167
Goodwill.................................................   23,950     19,537
Other....................................................      773        325
                                                           -------    -------
                                                            52,925     46,029
Less-accumulated amortization............................  (15,199)    (9,455)
                                                           -------    -------
                                                           $37,726    $36,574
                                                           =======    =======
</TABLE>

                                        50
<PAGE>   52
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The carrying value of goodwill and other intangibles is reviewed if the
facts and circumstances suggest that they may be impaired. 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 1998, the Company
concluded that a portion of goodwill was impaired as the result of a loss of
contracts that led to recurring losses from operations. Accordingly, goodwill
was reduced to fair value by recording an impairment charge of $2,992,000 during
1998.

  Other Assets

     Deferred financing costs are included in other noncurrent assets and are
amortized over the term of the related debt by the interest method. Deferred
financing costs totaled $12,283,609 and accumulated amortization totaled
$3,275,318 at December 31, 2000.

  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 $1,000,000 per incident and $3,000,000 annual aggregate per
physician to affiliated physicians and other healthcare practitioners. In
addition, the Company has claims-made coverage of $1,000,000 per incident and
$50,000,000 for all incidents during the policy period. 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, 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.

  Other Noncurrent Liabilities

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

<TABLE>
<CAPTION>
                                                            2000       1999
                                                           -------    -------
<S>                                                        <C>        <C>
Professional liability insurance reserves................  $19,217    $ 9,434
Deferred compensation....................................    8,933      8,989
                                                           -------    -------
                                                           $28,150    $18,423
                                                           =======    =======
</TABLE>

  Net Revenue

     Revenues are recorded in the period services are rendered as determined by
the respective contract with various healthcare providers. Revenues are reported
at net realizable amounts from patients, third-party payors and other payors.
Net revenues under the Medicare and Medicaid programs were approximately 34%,
31%, and 30% of fee-for-service revenue less provision for uncollectibles in
years 2000, 1999 and 1998, respectively.

     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

                                        51
<PAGE>   53
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employed physicians. Under the fee-for-service arrangements, the Company bills
patients for services provided and receives payments from patients or their
third-party payors. Fee-for-service revenue is reported net of contractual
adjustments and policy discounts. All services provided are expected to result
in cash flows and are therefore reflected as 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.

  Interest Rate Swap Agreements

     The Company has entered into interest rate swap agreements to manage its
interest rate exposure on its Senior Term Loan Facility. The differential to be
paid or received is recognized over the life of the agreement as an adjustment
to net interest expense. The fair value of the swap agreements and the changes
in the fair value are not recognized in the financial statements.

  Recently Issued Accounting Pronouncements

     In June 1999, FASB 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 the Company's fiscal year 2001. The
adoption of SFAS No. 133 did not have a significant effect on our results of
operations, financial position, or cash flows.

  Use of Estimates

     The preparation of financial statements in conformity with 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

     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 July 2000, the Company acquired
an additional 40% of the outstanding shares of an ambulatory clinic joint
venture in which the Company previously owned 50% of the shares for $0.1
million.

     During 2000, the Company also made payments of approximately $3.9 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 to goodwill. The amounts are being amortized over their remaining
useful lives.

     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.

                                        52
<PAGE>   54
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In January 1998, the Company acquired the stock of an emergency department
staffing company for $3.0 million, and may have to pay up to $1.9 million in
future contingent payments. In March 1998, the Company acquired certain
operating assets of an emergency department staffing company for $5.0 million,
have subsequently paid $6.0 million in contingent payments, and may have to pay
up to $2.5 million in future contingent payments. In June 1998, the Company
acquired the stock of an emergency department staffing company for $3.5 million,
and may have to pay up to $2.0 million in future contingent payments. In August
1998, the Company acquired certain operating assets of an emergency department
staffing company for $3.6 million, have paid $1.4 million in contingent
payments, and may have to pay up to $1.7 million in future contingent payments.

     Acquisitions are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                           2000      1999      1998
                                                          ------    ------    -------
<S>                                                       <C>       <C>       <C>
Fair value of net operating assets acquired (liabilities
  assumed)..............................................  $ (834)   $   96    $(1,137)
Fair value of contracts acquired........................     358        --     13,831
Goodwill................................................   5,607     3,856      2,284
                                                          ------    ------    -------
Cost of acquisitions....................................  $5,131    $3,952    $14,978
                                                          ======    ======    =======
</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 following unaudited pro forma information reflects the results of
operations of the Company as if the acquisitions that occurred during each of
those three years had occurred as of the first day of the fiscal year
immediately preceding the year each acquisition was made (in thousands):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       2000        1999        1998
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Net revenue........................................  $921,287    $855,142    $831,124
Earnings before income taxes.......................    22,600       2,443      39,302
Net earnings.......................................    13,367       1,045      21,840
</TABLE>

     These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at the beginning of the respective fiscal years,
or of results which may occur in the future.

4. MERGERS

     MedPartners merged with several physician groups that were combined with
Team Health operations during 1997. Merger related costs totaling $13.6 million
were incurred as a direct result of the mergers in 1997 and included an accrual
of $2.3 million as of December 31, 1997 for certain costs to be paid in future
periods. The disposition of the accrued merger costs in subsequent years was as
follows (in thousands):

<TABLE>
<CAPTION>
                                                            2000    1999      1998
                                                            ----    -----    -------
<S>                                                         <C>     <C>      <C>
Accrued merger costs at January 1.........................  $ 11    $ 327    $ 2,328
Investment banking and professional fees paid.............   (11)     (95)      (837)
Severance costs and related benefits paid.................    --     (221)    (1,164)
                                                            ----    -----    -------
Accrued merger costs at December 31.......................  $ --    $  11    $   327
                                                            ====    =====    =======
</TABLE>

                                        53
<PAGE>   55
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A portion of the payments was made by MedPartners on behalf of the Company.
These amounts are included in net transfers (to) from parents and parents'
subsidiaries in the Company's consolidated statements of cash flows for 1998.

5. PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Buildings and leasehold improvements...................  $  3,989    $  3,329
Furniture and equipment................................    45,614      43,267
Software...............................................     8,203       5,694
                                                         --------    --------
                                                           57,806      52,290
Less accumulated depreciation..........................   (38,251)    (32,720)
                                                         --------    --------
                                                         $ 19,555    $ 19,570
                                                         ========    ========
</TABLE>

     Depreciation expense in 2000, 1999 and 1998 was approximately $7.6 million,
$5.7 million and $4.1 million, respectively.

6. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
12% Senior Subordinated Notes..........................  $100,000    $100,000
Term Loan Facility.....................................   128,800     139,300
Other debt.............................................       401       2,376
                                                         --------    --------
                                                          229,201     241,676
Less current portion...................................   (12,623)    (12,776)
                                                         --------    --------
                                                         $216,578    $228,900
                                                         ========    ========
</TABLE>

     The Company issued on March 12, 1999, $100.0 million of 12% senior
subordinated notes ("Notes") due March 15, 2009. The Company subsequently issued
publicly registered debt effective February 23, 2000, and exchanged the Notes
for the newly registered debt. 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 Company also entered into the Term Loan Facility agreement with a
syndicate of financial institutions effective March 12, 1999. The 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, 2000 were 9.8% and 10.5% for the term loans A and
B, respectively. The Company pays a commitment fee on the revolving credit
facility, which was equal to 0.50% at December 31, 2000. No funds have been
borrowed under the revolving credit facility as of

                                        54
<PAGE>   56
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2000, but the Company has a $0.2 million standby letter of credit
against the revolving credit facility outstanding as of December 31, 2000.

     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.

     Other long-term debt is related to acquisitions, payable in varying amounts
through 2004, with an effective interest rate of 8.5%.

     Aggregate maturities of long-term debt at December 31, 2000 (in thousands)
are as follows:

<TABLE>
<S>                                                         <C>
2001......................................................  $ 12,623
2002......................................................    15,624
2003......................................................    16,526
2004......................................................    66,053
2005......................................................    18,375
Thereafter................................................   100,000
                                                            --------
                                                            $229,201
                                                            ========
</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
2000, the Company received a weighted average rate of 6.48% and paid a weighted
average of 5.63% on the swaps. These agreements expose 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.

7. MANDATORY REDEEMABLE PREFERRED STOCK

     During 1999, the Company issued to its former parent 100,000 shares of
class A redeemable preferred stock and 150,492,442.67 shares of new common stock
in return for 100 shares of its existing 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, 2000, approximately $18.9 million in
dividends have been accrued.

8. NET INVESTED CAPITAL AND STOCKHOLDERS' EQUITY (DEFICIT)

     Prior to the recapitalization, MedPartners' net investment in the Company
was shown as net invested capital in lieu of stockholder's equity. Net transfers
to/from MedPartners included liabilities paid on behalf of the Company, advances
to the Company to fund operating and investing activities, and operating cash
flows generated by the Company advanced to MedPartners. The Company was charged
management fees by MedPartners for providing certain corporate services to the
Company, including legal services, risk management, certain employment benefit
administration, tax advice and preparation of tax returns, software support
services and certain financial and other services. These management fees were
estimated based on the value of services provided by MedPartners and approximate
costs incurred. The Company was charged interest in 1998 on a portion of its net
balance payable to its parent companies in the amount of $5.3 million.

                                        55
<PAGE>   57
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. STOCK OPTIONS

     In March 1999, the Company adopted the 1999 Stock Option Plan (the "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 and 2000 was as follows (shares 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
                                                 ===       ===========         =====
</TABLE>

     The following table summarizes information about stock options outstanding
at December 31, 2000 (options in thousands):

<TABLE>
<CAPTION>
                                                              WEIGHTED
                        OPTIONS                               AVERAGE
                      OUTSTANDING                          EXERCISE PRICE
                      -----------                          --------------
<S>                                                        <C>
   364..................................................       $1.50
    94..................................................        4.50
                                                               -----
   458..................................................       $2.12
                                                               =====
</TABLE>

     As of December 31, 2000, no options are vested or exercisable.

     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 2000 and
1999 would not have been significant.

     Approximately 101,000 of the 458,050 options outstanding at December 31,
2000 were granted to affiliated independent contractor physicians. The Company
recorded $9,000 of compensation expense in 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 2000 and 1999:

<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                                 AVERAGE
                                              EXERCISE PRICE    FAIR VALUE
                                              --------------    ----------
<S>                                           <C>               <C>
2000........................................      $1.50           $0.68
                                                  $4.50           $2.03
1999........................................      $1.50           $0.52
</TABLE>

                                        56
<PAGE>   58
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     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 2000 and 1999; risk-free interest rate of 6.0% and
5.38% in 2000 and 1999, respectively; expected volatility of 0% in 2000 and
1999; and an expected life of ten years and eight years in 2000 and 1999,
respectively.

10. INCOME TAXES

     Prior to the recapitalization, the Company's financial results were
included in the consolidated federal tax return of MedPartners. As a result, the
provision for income taxes was calculated and allocated to the Company from
MedPartners.

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

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       2000        1999        1998
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
Current:
  Federal...........................................  $(6,435)   $ 10,199    $ 27,590
  State.............................................     (919)      1,457       4,500
                                                      -------    --------    --------
                                                       (7,354)     11,656      32,090
Deferred:
  Federal...........................................   14,588      (9,105)    (13,935)
  State.............................................    2,083      (1,301)     (2,272)
                                                      -------    --------    --------
                                                       16,671     (10,406)    (16,207)
                                                      -------    --------    --------
                                                      $ 9,317    $  1,250    $ 15,883
                                                      =======    ========    ========
</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,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Tax at statutory rate.......................................  35.0%    35.0%    35.0%
State income tax (net of federal tax benefit)...............   5.1      4.9      3.9
Amortization and goodwill write-off.........................    --       --      3.9
Other.......................................................   1.1     20.4     (0.4)
                                                              ----     ----     ----
                                                              41.2%    60.3%    42.4%
                                                              ====     ====     ====
</TABLE>

                                        57
<PAGE>   59
                               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. In connection with the
recapitalization, the Company made an election that caused the transaction to be
treated as a sale of assets for tax purposes and recognized an increase in its
deferred tax assets of approximately $51.1 million. The components of the
Company's deferred tax assets and liabilities are as follows at December 31 (in
thousands):

<TABLE>
<CAPTION>
                                                           2000        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Deferred tax assets:
  Accounts receivable..................................  $ 30,130    $ 33,419
  Accrued compensation and other accrued liabilities...     2,407       2,415
  Amortization and depreciation........................    71,456      76,983
  Professional liability reserves......................     5,972       3,585
  Net operating loss...................................       307          --
  Other................................................       604          --
                                                         --------    --------
          Total deferred tax assets....................   110,876     116,402
Deferred tax liabilities:
  Affiliate deferred revenue...........................    39,290      29,999
  Other................................................     1,854          --
                                                         --------    --------
          Total deferred tax liabilities...............    41,144      29,999
                                                         --------    --------
          Net deferred tax assets......................  $ 69,732    $ 86,403
                                                         ========    ========
</TABLE>

     As of December 31, 2000, the Company had federal and state net operating
losses of approximately $808,000 expiring in 2020.

11. RETIREMENT PLANS

     The Company's employees participated in various employee benefit plans
sponsored by the Company and the Company's parent affiliates. 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 and the Company's former
parent affiliate's plans. The Company's contributions to the plans were
approximately $2.8 million, $3.5 million, and $1.2 million for the years ended
December 31, 2000, 1999 and 1998, respectively.

     Effective January 1, 1998, the Board of Directors of MedPartners approved a
retirement savings plan for its employees and affiliates. Effective October 1,
1999, the Company approved its own retirement savings plan for employees and
affiliates. 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 of 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. As of December 31, 2000 and 1999, the total deferred
compensation payable was approximately $3.4 million and $3.8 million,
respectively.

     In connection with the recapitalization, the Company established a deferred
compensation plan and related Rabbi Trust for the benefit of certain members of
the Company's senior management. The Company funded the Rabbi Trust with $5.5
million at the date of the recapitalization. The Rabbi Trust used these funds to
purchase preferred units in Team Health Holdings, LLC. The deferred compensation
liability and the investment of the Rabbi Trust are carried as a long-term
liability and a long-term asset at December 31, 2000 and 1999 of $6.1 million
and $5.9 million, respectively.

                                        58
<PAGE>   60
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. 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, 2000 are as follows (in
thousands):

<TABLE>
<S>                                                          <C>
2001.......................................................  $ 5,177
2002.......................................................    4,155
2003.......................................................    2,707
2004.......................................................    2,271
2005.......................................................    2,142
Thereafter.................................................    4,475
                                                             -------
                                                             $20,927
                                                             =======
</TABLE>

     Operating lease costs were approximately $4.9 million, $4.5 million and
$5.7 million for the years ended December 31, 2000, 1999 and 1998, 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 Physician Services, Inc. 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 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.

     In July 1998, a lawsuit was filed against InPhyNet Medical Management, Inc.
("InPhyNet"), a subsidiary of the Company, and several other unrelated
defendants in the United States District Court for the District of Kansas. The
case is captioned United States ex rel. George R. Schwartz v. InPhyNet
Management, Inc. currently. The plaintiff in that case, George R. Schwartz,
alleges that, based on management services contracts, InPhyNet and others had
inappropriate financial relationships with hospital emergency department and
urgent care center physicians and engaged in inappropriate billing practices in
violation of the False Claims Act and the Medicare Anti-kickback Law as well as
various other statutes. In his Fourth Amended Complaint, the plaintiff is
seeking, among other relief,

          (1) an order that InPhyNet cease and desist from violating civil and
     criminal provisions of the federal False Claims Act, the assignment
     provisions of the Social Security Act, the Medicare federal anti-kickback
     statute, the mail fraud statute, and the Racketeer Influence and Corrupt
     Organization Act;

          (2) three times the amount of damages sustained by the United States
     government, an amount that is indeterminable at this time;

                                        59
<PAGE>   61
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

          (3) a civil penalty of $5,000 to $10,000 for each civil False Claims
     Act violation, a number of violations which is indeterminable at this time;
     and

          (4) costs and attorneys' fees.

     If the plaintiff's challenge to our contractual arrangements is successful,
we may be forced to modify the current structure of our relationships with
physicians and clients. This modification could have a significant negative
impact on our operations and financial condition. In connection with the
recapitalization, subject to some limitations, MedPartners and Physician
Services, Inc. have jointly and severally agreed to indemnify us against any and
all losses relating to this lawsuit. However, if we were forced to restructure
our business as presently conducted as a result of the outcome of this
litigation, our operations would be substantially disrupted. The case is
currently set for jury trial on January 22, 2002 in Wichita, Kansas.

  Contingent Acquisition Payments

     As of December 31, 2000, the Company may have to pay up to $14.0 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.

13. 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, $1.3 million and $1.3 million
in 2000, 1999 and 1998, 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 $3.3 million,
$3.2 million and $3.5 million in 2000, 1999 and 1998, respectively.

14. 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 $128.8 million, which
                                approximates fair value. The fair value of the 12% Senior
                                Subordinated Notes at December 31, 2000 is approximately
                                $92.0 million based on quoted market prices.
    Interest rate swap:         The fair value of the Company's interest rate swap
                                agreements is an asset of approximately $0.1 million at
                                December 31, 2000 based on quoted market prices for similar
                                interest rate contracts.
</TABLE>

                                        60
<PAGE>   62
                               TEAM HEALTH, INC.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

     In 1998, the Company wrote-off approximately $1.5 million in organizational
and development costs in accordance with SOP 98-5, "Reporting on the Costs of
Start-Up Activities." The write-off is reflected as a cumulative effect of
change in accounting principle in the accompanying statement of operations for
1998.

                                        61
<PAGE>   63

                                   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 7, 2001.

                                          TEAM HEALTH, INC.

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

                                          /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 7, 2001, 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/ DANA J. O'BRIEN
                                          --------------------------------------
                                                     Dana J. O'Brien
                                                         Director

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

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

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

                                        62
<PAGE>   64

                                 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.*
</TABLE>

                                        63
<PAGE>   65
<TABLE>
<C>     <S>
 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.*
 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
        & Shoenbaurn 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.*
</TABLE>

                                        64
<PAGE>   66
<TABLE>
<C>     <S>
 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.*
 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.*
 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>

                                        65
<PAGE>   67

<TABLE>
<S>        <C>
    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.**
    21.    Subsidiaries of Registrant.**
</TABLE>

---------------
 * Incorporated by reference to the Company's Registration Statement on Form
   S-4, as filed with the Securities & Exchange Commission on January 5, 2000
   and declared effective on January 18, 2000.

** Filed herewith.

                                        66
<PAGE>   68

ITEM 21(B)

                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>
2000...................................   125,067      329,291      --       347,539         106,819
1999...................................   141,668      309,713      --       326,314         125,067
1998...................................   122,390      257,618      --       238,340         141,668
</TABLE>

                                        67